Rosa Rotko, project director energy transformation, Mott MacDonald
As water and wastewater companies in England and Wales embark on the next regulatory Asset Management Period, which runs until 2030, reducing carbon emissions from both assets and operations will come under spotlight.
Not only are rising energy costs and increasing needs for energy resilience front of mind – water industry regulator Ofwat has now introduced new performance commitments on operational carbon emissions as part of the 2024 price review. The rewards and penalties arising from these performance commitments will support the UK’s wider 2050 net zero target
In my role at Mott MacDonald, I engage with energy and carbon managers in the water sector who have shared some of their challenges as they seek to curb emissions significantly over the next five years. There are technical, commercial, regulatory and management issues to consider.
Putting the right technology in the right place
Foremost among the technical challenges is the problem of introducing new technologies and monitoring systems into existing sites and operating environments. Suitability of on-site renewables and storage is limited by a site’s characteristics – as well as potential objections in the planning system. Integration of water and wastewater systems with digital tools to combine energy demand and flexibility measures is also not straightforward.
The availability of key technology (e.g. solar panels, electric vehicle chargers) and expertise in the supply chain will be a barrier, and needs to be factored into the timetable. Should new grid capacity be required, timeframes are likely to be extended further, meaning that the carbon savings might not be realised until the next regulatory cycle.
Setting up adequate digital energy and carbon monitoring tools is crucial. Ofwat expects any data submitted to be subject to rigorous assurance, and companies need their own performance data to be accurate and reliable, particularly if they are engaging in demand side response and energy arbitrage activities.
Seizing commercial opportunities
The use of on-site generation and energy storage creates an opportunity to reduce operational energy costs and exposure to wholesale markets – as well as bringing down scope 2 emissions as there is less need to purchase electricity from the grid. Looking at behind the meter and private wire solutions therefore ought to be a priority.
However, water companies operate in a regulated and cost-conscious environment that can make accessing finance more complex and limit the ability to take risks. Energy managers need to carefully build business cases, showing the full range of benefits for the regulated and non-regulated parts of the business.
In addition to the obvious cost savings, calculations of the regulatory payments or penalties under the performance commitments will form part of this. Other benefits could include revenues from offering ancillary services; avoided costs (e.g. from reduced maintenance); greater price certainty; reduced vulnerability to rising wholesale costs; and qualitative benefits such as improved reputation.
Navigating regulatory complexity
Energy and sustainability managers in water companies are having to get to grips with regulations not only in their own sector but also in the energy markets. This is bound to make execution of their roles challenging, since they work in relatively small teams and cover multiple topics.
As water companies enter this new regulatory period, it is important for Ofwat to support them with clear direction and guidance as energy transformation and decarbonisation efforts progress.
Energy markets and carbon understanding will become an increasingly important part for the regulator’s remit.
Stakeholder management is key
Increasingly, leaders and senior managers in water companies need to consider energy and carbon as part of their wider corporate vision. Decision makers need the capability to understand and debate these issues.
Energy availability and costs can contribute to a multitude of organisational goals for modernisation, efficiency and capital programmes. Senior champions with knowledge of the energy and sustainability agenda will become increasingly important in the water sector.
Stakeholder management will be key to building successful energy and carbon reduction programmes. Water companies will need to partner more with energy solutions providers, the wider supply chain and possibly community energy groups – so building networks and horizons beyond the sector will be useful.
In summary, it is in the interests of both customers and the environment that water companies take action to reduce energy costs and carbon emissions. The sector has already made significant progress and performance commitments over the next five years should be further motivation to redouble these efforts. Technical, commercial, regulatory and management challenges exist, but none are insurmountable.
Energy and sustainability managers, most of whom are doing commendable jobs, need the support from their management and the regulator to tackle these complex issues.
This article appeared in the April 2025 issue of Energy Manager magazine. Subscribe here.