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Minimising Operating Costs

MINIMISING the operating costs of our energy-intensive industry is a daily challenge for UK water companies.   For sure, every Asset Manager is totally focused on optimising the performance of their equipment.   Yet, sometimes the very culture and infrastructure we work in can conflict absolutely with those aims.

While the end-user is totally committed to reducing whole-life costs, standard contracts often fall well short of passing on cast-iron demands for operating performance and power consumption to third-party suppliers.

As an equipment supplier, most of Hydro's contracts are with main contractors and uniquely from our perspective we see the conflict that arises between the end-users' desire for better whole-life costs, and real pressure on contractors to achieve the lowest capital price.  Often the one has to be sacrificed at the expense of the other. 

The Water Industry contributes 1% of the UK's greenhouse gas emissions and there's little prospect of a significant reduction any time soon.   Yet it seems the very procurement infrastructure in which we operate is holding back the quest for better sustainability.  

I have seen crazy situations where an innovative power-saving technology – like Hydro's Hi-Ox® fine bubble aeration system - is shelved because on the day it was a few percentage points higher in capital price, even though it may save 25% of electricity compared to traditional solutions over the life of the plant.  

Framework Agreements offer one means for water companies to pre-select equipment based on energy efficiency, and Hydro has been successful in delivering more sustainable solutions this way.   But they are far from a universal panacea.

Build Own Operate arrangements give contractors the ultimate responsibility for operating the plant efficiently, but the contractor takes on increased risk without ever owning the assets.  They have yet to catch on in the UK.

Imposing penalty clauses on main contractors for exceeding energy consumption targets over the life of the equipment might well save carbon emissions, but in real terms it could also lead to higher contract values as the main contractor would need to protect against increased risks. 

According to the latest results of our Web4Water poll on the OFWAT review agenda, sustainability is way out in front as the most important priority for a reformed regulator.    Infrastructure changes are long overdue and finding more sustainable procurement and supply chain solutions must be part of that process.

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