In the frame for delivery: UKWIR CEO on Ofwat's innovation competition
With Ofwat confirming plans for a £200 million innovation competition which will run between 2020 and 2025, UKWIR chief executive Steve Kaye speaks to WWT about what he'd like to see from the fund and how his organisation could play a part in delivering the strategy.
Ofwat explains its decision to make up to £200m available for innovation during the period 2020-2025 in a document entitled ‘Time to act, now: driving transformational innovation in the sector’.
In it, the regulator states: “We will run a collectively-funded innovation competition at least once a year. The competition will be open to the 17 water and wastewater companies, and new entrant water and wastewater companies. We expect companies to work closely with each other, their supply chain (including small and medium-sized enterprises), other innovators, and stakeholders in preparing their bids for the competition. The innovation competition is designed to complement our existing approach to innovation in PR19.”
Ofwat wants to see the sector express its commitment to innovation by developing a joint innovation strategy in 2020. As part of this they want companies to consider ways in which they could better streamline and coordinate innovation activities, and their engagement with stakeholders and small-scale innovators. This could take the shape of a water innovation centre of excellence, which could potentially be part-funded through the innovation competition.
Ofwat says it will now work closely with stakeholders to finalise the framework and launch the innovation competition as soon as possible.
Through the consultation process in summer 2019, Ofwat received expressions of interest from a number of organisations wishing to get involved in the design and administration of the innovation competition.
The regulator has also outlined its current view of next steps:
Consult on and reach final decision on timings and key outstanding policy issues. This will include developing further customer safeguards, setting out amount of match funding extended, managing Intellectual Property Rights (IPRs), and process for reviewing the innovation competition.
Kick off the process for appointing an organisation that can help design, and ultimately run, a successful innovation competition. This will include developing a more detailed set of criteria for assessment.
Trial “one-stop-shop” within Ofwat to provide regulatory advice to anyone looking to get innovations off the ground.
Potential pilot run of competition.
“This is the biggest opportunity in innovation since I started in 1990.” That’s the view of Kaye, who has led UK Water Industry Research (UKWIR) since 2018.
The innovation competition was confirmed on 16 December in a document, which sets out the regulator’s PR19 final price determinations (see page 4).
The report states the regulator will make £200m available through an innovation competition to encourage “companies to collaborate with each other and with other companies in their supply chains”.
“I’m delighted that Ofwat have supported such a significant fund for the sector,” commented Kaye. “Ofwat seem to be becoming a more strategic organisation which I think is really encouraging. Rachel Fletcher (chief executive) and John Russell (senior director, strategy and planning) have brought some forward thinking and I find that refreshing. The fact that the board have supported it is a great sign.”
In July, Ofwat launched a consultation that could allow companies to raise up to £200m for innovation activities through customer bills.
At the time, the regulator said it was looking at two potential options. One would involve a collectively funded annual innovation competition, in which companies would put forward proposals for innovative projects to be funded through the mechanism. This option could be introduced in the first year of AMP7.
“In order to be eligible for funding, companies entering the competition would need to contribute to project
costs, and projects and allocation of funding from the ring-fenced pot would need to be assessed by an independent expert entity against our final key principles for financial support,” Ofwat said. “Only companies which are successful in their bids would then be awarded funding.”
The second option was an end-of-period innovation roll-out reward, designed to help increase the adoption of innovations across the sector.
This would involve pay-outs to those companies that have demonstrated the most successful roll-out of successful innovation to the benefit of customers during AMP7 and have shared their findings with other organisations.
UKWIR responded to Ofwat’s consultation (see box out) and the organisation has put itself in the frame to help deliver the innovation competition strategy.
The organisation, which commissions research on behalf of all the UK’s water and sewerage companies on ‘one voice’ issues, recently set out a dozen ‘Big Questions’ which it wants to help the water industry solve, and has launched a programme of events where individuals and companies from all parts of the water sector, and outside, can contribute to shaping its research programme.
Kaye added: “We’ve developed a national strategy that all the companies have bought into which is based on aspirational goals – our 12 Big Questions. This seems to be a good platform and I think it has been well received.
“I’d like to think we could play a part in helping to deliver the strategy. But I’d also like to think that we could connect with some other organisations and form a collaboration. I don’t see this as one company swooping in and saying, ‘I can do this’. There is a lot of fragmentation in the sector currently and that needs to change. This might be a way of helping to do that. If you look at the innovation delivery process – we can map all the different organisations along that. Some companies are operating more at the implementation end while others are operating more at the blue-sky end and then there are lots of companies in-between.”
Kaye admits that there will be challenges around running such a fund affectively and believes that a sharing of the best ideas will benefit the sector.
“If you do things in isolation then it’s hard to know if it’s the best solution because you’re not actually market testing it.”
Learning from other sectors
In the energy networks space (electricity and gas), regulator Ofgem runs an annual competition which is designed to support a range of large-scale energy innovation projects in communities across the country. Network companies and their partners compete for funding for the development and demonstration of new energy technologies that will help run energy network infrastructure in a smarter, cleaner and more flexible way.
Kaye continues: “Implementation is always the most difficult part of the innovation cycle. I think there are lessons to be learnt from the Ofgem fund. Picking the winners is the big challenge. How do you pick the winners and make sure that somebody else is not trialling something better in isolation? The expert panel or group of people that come together and do that and how they do it will be key.”
For the innovation fund to be fully successful Kaye says there must be a balance of short, medium and long-term projects.
He noted: “If we’re getting innovation that satisfies the near-future then that’s a good thing. At the same time there might be something that takes five plus years to develop. I think if there’s balance there then whether you’ve got a short term or long-term interest it should keep everyone happy. I wouldn’t like to see it become something that was just delivering quick wins. Some innovation takes more time and you need more collaboration. Collaboratively you can go further, but it sometimes takes a bit more time. If you want to do something quickly then typically you go it alone. There’s a lot to be learnt about collaborating, working together and keeping a balance of short, medium and long-term projects.”
As the man who led the innovation function at Anglian Water for over 15 years, Kaye is well placed when it comes to spotting the benefits of innovation.
“You need to be able to see the benefits of an innovation and from day one try and create a pathway to impact. Often companies don’t really do that. I think if you’re always aware of trying to revisit the benefits, if you get to a point where it hasn’t given you the answer you want then you either pull the plug on it or keep going. You need a process to continually assess the benefits.”
Created in 1993, UKWIR is backed and funded by all 19 water and sewerage companies in the UK, who each contribute in proportion to the size of the population they serve.
Kaye wants to lean on his experience to give something back to the sector and sees UKWIR as the ideal facilitator for delivering the innovation fund.
“The fact that I’ve had a lot of experience in the sector and done a lot of good work at Anglian Water, I’d like to give that knowledge back. R&D and innovation managers are often not in their roles for long whilst others are. If you’ve had the benefit of experience, then this is a great opportunity to help the sector along.”
Whatever happens, Kaye is keen to see funding awarded proportionately and ultimately wants to see it benefit the sector.
“I hope that we don’t rush into it. It needs to be designed well. It needs to be affective. The strategy needs to be set and done efficiently. The money could be profiled. It doesn’t have to be £40m a year. It makes more sense to ramp it up.
“With any new organisation the turnover doesn’t normally come until later. It’s hard to hit the ground running when you haven’t got one. I don’t think you can underestimate the challenge of setting up such an organisation. If it’s going to deliver innovation affectively it may well involve connecting some existing organisations together and building on the good work being done in the industry already.”
For now, it’s a case of watch this space.
Steve Kaye is a member of the Utility of the Future advisory board. In partnership with sister brands Utility Week and Network, the focus is on tackling difficult questions around engineering the digital future for utilities. This campaign will be brought to life at Utility Week Live in Birmingham from 19-20 May 2020. For further information visit www.utilityweeklive.co.uk
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