English water market half-year status report: What’s happened since the deregulation?

  • English Water Market Report

English water market half-year status report: What’s happened since the deregulation?

By | 2018-05-15T15:09:42+00:00 October 18th, 2017|Infrastructure, Water|

Six months after the opening of the commercial water market in England to competition, how are the 1.2 million business water customers embracing their newfound freedom?

English Business water market deregulation

Number of retail licenses

Industry regulator Ofwat has so far awarded 23 retail licenses. Not all former regional monopoly suppliers have obtained a license but instead for example sold their business customer base to a retail license holder.

M&As and Joint Ventures

Leading up to and following the deregulation of the non-domestic English water market in April 2017, we have seen numerous mergers, acquisitions and joint ventures, and combinations of the three:

  • Portsmouth Water and Thames Water: business customer base acquired by Castle Water
  • Southern Water: acquired by Scottish Water Business Stream
  • Bournemouth Water and South West Water: acquired and merged by Pennon Group
  • South Staffs Water Business (SSWB) and Pennon Group: joint venture to form Pennon Water Services
  • Bristol Water and Wessex Water: joint venture to form Water2Business
  • Severn Trent and United Utilities: joint venture to form Water Plus
  • Anglian Water Business and Northumbrian Water Group (NWG) Business: joint venture to form Wave

Multi-utility suppliers

The first business energy suppliers have diversified into the non-domestic water market, and vice versa, creating a wave of new multi-utility suppliers:

  • Anglian Water offers gas and electricity thanks to white label service provided by Corona Energy
  • Regent Gas received a water retail license through its newly founded subsidiary Regent Water
  • Yu Energy subsidiary Yu Water has applied for a water retail license

Prices for water and sewerage

For the first 6 months, the following values set by Ofwat were applied:

  • Wholesale prices (lowest possible market price): £1.658/m3 for water, and £1.108/mfor sewarage
  • Default prices (highest possible market price, charged on all deemed contracts): £1.752/m3 for water, and £1.178/m3 for sewarage
  • Gross retail margins (maximum possible discounts): £0.094/m3 for water, and £0.070/m3 for sewarage

This has allowed for an average 2.5% net margin (6% gross).

This meant that a large user with 105 sites between 2.6 and 5%, a medium user with 11 sites could achieve savings of 1.4 to 3.3%, and a small user with 6 sites up to 2.1%.

Retailers have been using two different pricing models:

  • “Default minus” is calculated using the default price minus an agreed percentage discount.
  • “Wholesale plus” is calculated using the wholesale price plus an agreed percentage uplift or management fee.

We have found that companies struggle to compare offers calculated using the “Default minus” with “Wholesale plus” offers. If you struggle to visualise offers that are based on different pricing models, get in touch and we can help you establish what is the better offer.

Service levels

The following scope represents the standard service level provided by retailers in the past 6 months:

  • Billing
  • Meter reading
  • Cash collection
  • Query management

Differentiating elements were:

  • Named contactcorona
  • Consolidated billing
  • Customers portals
  • Extended payment terms
  • AMRs
  • Water efficiency advice

Switching

First 6 months

A total of 61,311 supply points have been switched, with switches peaking in early June. This figure includes circa 11,000 switches that had happened as part of a test phase before the market opened, and represents only around 2% of the market.

Switching Water Companies Source: MOSL

 

Switching rates vary between 0.89% and 6.8%, depending on the water consumption. Businesses with very low water usage (<100l/day), such as churches or banks, have shown the lowest switching rates for both water and sewerage, whereas businesses with medium and high consumption and trade affluent, such as residential building sites, farms, chemical factories, breweries, refineries and ports, have had the highest proportions of switches to date.

 

English Business Water RatesSource: MOSL

 

Most switches happened for both water and sewerage, from one single retailer, to another single retailer.

 

Water Business SwitchSource: MOSL

 

Forecast

For the first year of the deregulated water market, a switching rate of 2-10% has been forecasted.

Generally, industry experts are expecting the market to follow a trend similar to the Scottish market, where significant savings were only seen around 3 years after deregulation thanks to a widening of retail margins. In Scotland, around savings of up to 20% have encouraged around 50% of businesses to switch their water supplier.

Industry regulator Ofwat is expected to push a reduction in wholesale prices following their 2019 Price Review (PR19), which would affect water bills from 2020.

If you would like to talk to us about your water bills, get in touch and benefit from our more than 6 years experience with the Scottish business water market.

About the Author:

Caitlin Harvey