New study shows retail water market requires urgent improvements

Posted: Monday 7th June 2021

The UK Water Retailer Council (UKWRC) has published an independent Report prepared by leading economics consultancy, Economic Insight (EI), following its study of the effectiveness of the non-household (NHH) water and wastewater retail market in England. The UKWRC commissioned EI to understand more about how customers are impacted currently and explore why, four years after the market opened, there are still relatively low levels of awareness, engagement and switching, especially among smaller customers.

The study, which focused in particular on the experiences of the smallest and least engaged customers, who make up around 70% of the total NHH market, made the following three key findings:

1. The market is not working for smaller customers, with prices not aligned to costs. Regulated tariffs[1] for customers in the smallest 0-0.5Ml usage band are considerably below the actual cost of supplying them. The cost to service this customer group, who are large in number, is more than 50% higher than the price control allowance. As a result, smaller customers are not accessing the benefits from competition within the market and there is a limit to the quality of customer service and innovation that retailers are able to offer.

2. Retailers are currently unable to make further investments in service enhancements and innovation, which would benefit customers and help to deliver the Government’s and organisations’ sustainability goals. The retail sector overall has been loss-making since the market opened in 2017, which has implications not only for retailers but customers too. There is insufficient value in the market for retailers to compete on the basis of quality, limiting the scope for customers to benefit from enhanced services, innovation and even added-value products such as water efficiency support, which was one of the primary objectives of opening the market.

3. There is an increasing risk that some customers may be left without a retailer for a period of time. The increased level of bad debt arising over the last year, as a result of COVID-19, is increasing the risk of a retailer failure in the short-term. If this occurs then customers could face retail service interruption, or be left without a supplier for a period of time, undermining the integrity of the market. EI’s modelling indicates that Ofwat’s initial proposal for COVID-19 bad debt support would be insufficient to protect customers from this risk.

This report clearly highlights that the market is not currently delivering adequately for business customers. It provides the industry and authorities with clear recommendations to explore in order to help secure a strong future for the NHH market and for improving the way it works for ALL customers, not just the largest few.

Commenting on the findings of the Report Phill Mills, Chair of the UKWRC stated:

“The retail water market was established to deliver real benefits to all customers, but these are currently restricted, so it’s not living up to its full potential. We welcome the report, which highlights serious issues and risks to the smooth-running of the market which need to be addressed as a matter of urgency. The report’s recommendations set out a way of tackling the issues identified, creating a fairer and more effective market for all and open the doors much wider for innovation and investment in service across the board to help customers access the benefits of competition, whatever their size.”

UKWRC is looking forward to sharing and discussing these findings and recommendations with Defra, Ofwat and other industry players.




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May 2021

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