Ofwat urges sector to go for growth

Water companies have until the end of this week (18 April) to submit their ideas on how to better support the national growth mission, and to respond to Ofwat’s March letter calling on them to speed up and optimise major project delivery to this end.

In a March letter to industry chief executives, Ofwat’s chief executive David Black sought responses to its ideas, including collaborating to:

• Optimise project pipelines, within and between companies.

• Maximise societal value through exploring project synergies.

• Market major projects to investors and the global supply chain.

• Anticipate and manage emerging risk. 

The aim is to deliver projects faster and more effectively, and to maximise the benefits.

Ofwat said it would ensure its regulatory and commercial framework enabled efficient risk sharing and incentivised timely and efficient delivery.  To that end, Black also called for insights on: 

• Regulatory barriers and obstacles to progressing infrastructure projects more quickly.

• Opportunities within the regulatory framework to accelerate major project investment.

• What tangible steps can be taken, by whom and when, to support growth in the UK economy through the major projects, over and above changes to the regulatory framework – for example by wider government.

Black said Ofwat was considering creating a ‘greenhouse’ to nurture growth ideas.

The letter was part of the regulator’s response to a December call from Government for regulators to support the growth mission. In its direct response to the Government, Ofwat identified five measurable commitments that it will pursue to foster growth: 

• Approving a £104bn upgrade to the water system to be delivered by 2030. 

• Overseeing major project investments worth £50bn over 20 years, with construction of half that value beginning before 2030, bringing significant new investment opportunities.  

• Working with the Government, fellow regulators and the sector to develop a long-term framework for better decision making and infrastructure planning for the water sector. Ofwat said: “There are big questions as to whether the current water company lead process can meet the complex national and regional challenges facing the sector”. It committed to review the design of future price reviews in 2025-6 to ensure that they are fit for future.

• Playing a convening role to develop the skills needed for the future in the water sector and the supply chain. 

• Driving innovation in the water sector and productivity across the construction sector, especially through the greater use of data, analytics, collaboration and AI. This includes through doubling its own Innovation Fund. 

As part of its letter, Ofwat asked the Government for: legislative changes to amend the Specified Infrastructure Projects Regulations; continued engagement by the National Wealth Fund on credit finance opportunities for major projects; and the acceleration and streamlining of the Development Consent Order consenting processes for Nationally Significant Infrastructure Projects. It also asked that the Planning Inspectorate and other agencies are well resourced to oversee and approve an accelerated process.

Finally, Ofwat also published a discussion paper produced by Baringa on the work Ofwat already does to promote economic growth, and what more Ofwat could do. Ofwat received a growth duty in May 2024.