Ofwat considers introducing abstraction incentives
Water companies could be given reputational and financial incentives to encourage them to reduce their levels of abstraction from certain sources, as Ofwat considers recommendations made by the Abstraction Incentive Mechanism (AIM) taskforce.
The taskforce has submitted proposals to the regulator to try and limit the impact abstraction has at environmentally sensitive sites by reducing the volume of water removed when river flows are low.
The taskforce states that the mechanism is “one potential tool” to reduce levels of abstraction and is cheaper than the alternative, which would be to change licence conditions.
“In essence AIM offers an opex contribution to helping address abstraction issues rather than a capex one, whilst at the same time offering opportunities for reputational advantage,” the recommendation says.
Changing the licence condition is seen as the more expensive route because the companies would then need to develop new water sources and construct new assets.
One of the main recommendations made is that AIM should apply to individual water sources and that the key conditions under which AIM would apply would need to defined for each source.
The reputational and ultimately financial benefits for a company would relate to the average daily abstraction at that source. If a company abstracts less than this baseline it would receive a reputational boost in AMP6, or a detraction if it uses more.
For the next AMP period, this could translate into a financial reward or penalty, with the difference from the baseline being multiplied by a unit rate.
The recommendations state the costs of the AIM are likely to be “a lot lower” than changing the licence, but the trade-off is that there it “no guarantee of a reduction in abstraction at all times”.
The incentives will encourage water companies to do what they can when they can within their licensed entitlements.
The proposal is a guide for Ofwat on how it could introduce a reputational incentive during AMP6 and then develop a financial incentive for AMP7.
The taskforce states that reputational incentives of AIM could be introduced by April next year.
This article first appeared on Utility Week.
- Severn Trent cuts dividends to 'strike right balance' with water bills Severn Trent Water has announced a 5% cut in dividends this financial year - from 84.9p to 80.6p - "to strike the... Read More >
- Ofwat sets out draft vision Ofwat chief executive Carthryn Ross has outlined a draft vision for regulating the English and Welsh water sectors. It... Read More >
- Regulators praise first apprentices to graduate under new standards Ofwat and the Drinking Water Inspectorate have welcomed the four Severn Trent Water apprentices to the sector as the first... Read More >
- Meeting AMP7 leakage targets Damian Crawford, head of smart networks & leakage at Stantec, discusses how becoming data-rich and knowledge-smart can... Read More >
- Rewarding excellence WWT content director Alec Peachey looks ahead to next year's Water Industry Awards. Read More >
- Delivering a smart network Tom Mills, senior director UK&I at Sensus, examines what a smart water network really means - and how to get there. Read More >
- A watershed moment for the water industry? Tessa Harding, director of water at Thomson Environmental Consultants, discusses the government's Environment Bill. Read More >
- AMP7: putting the customer centre stage 2020 marks the beginnings of a new chapter for clients and contractors in the water industry with the start of AMP7, the... Read More >