With many water companies investing tens of £millions in new systems, staff and training in order to take advantage of the commercial opportunities in both the Scottish water and English water retail markets and to protect their retail customer base many water companies new and existing must be left wondering what effect schemes such as water self-supply and new firms such as The Alternative Water Company entering the water market and offering 25 – 30% discounts which cannot be matched by any regulated water supplier will have on their businesses.
What is water self-supply?
In simple terms it’s a scheme open to none residential customers in both the Scottish and English water markets whereby they are able to cut out the retailer and buy their water supplies from the wholesale water markets.
Thus effectively cutting out the retail margin enabling the customers to reduce their water supply costs substantially more than buying through retail markets.
A big BUT, it only works for those customers at the top end of the water market, the water and waste water spend and the overall makeup of the water and waste water bills.
In the Scottish water market the water self-supply scheme would work for the Scottish Prison Service – The Scottish Health Services – Universities – Pool and Leisure firms – Hotels and the general rule of thumb is a water and waste water bill above £500,000 a year may well benefit from taking the water self-supply route.
If you are considering this and other options my advice is consult an expert and commission a water self-supply financial feasibility study, the scheme works well in Scotland as the gross wholesale margins are very attractive as the water market has matured and appears to be working well after 8 years. England is a far different matter, low single digit discounts are the order of the day but will no doubt increase overtime.
So water self-supply in England is really a non-starter for the moment but as the market matures and margins increase water self-supply will come into its own, this being the case water self-supply will become the norm stripping out the top and middle tier water customers.
This scenario coupled with the activities of The Alternative Water Company taking large and medium water users such as Hospitals, Universities, Leisure Parks and Leisure Clubs “off grid”.
In just a few months of trading The Alternative Water Company is already into negotiations with new customers in the manufacturing and production market to supply water at discounted prices that the regulated water suppliers cannot hope to match. The point here is that only after a very short period of time £15 million worth of water supply contracts at today’s retail value will be taken out of the traditional water industry and again this new innovation is now gathering pace.
Combining this with water self-supply anything between £0.3 billion to £0.4 billion could disappear from the water retail market.
Further impacts on the industry will of course be on water volumes and more and more pressure is applied to water costs and environmental considerations revenue will be on a downward spiral from here on in as the quest for driving down water costs gathers pace.