Will the UK’s competitive water market follow the same path as electricity?

The UK’s competitive water market is up and running. The market opened, on time, in April 2017 which means that 1.2 million non-household customers can now choose their retailer of water and wastewater services.

Getting to this point has required a massive effort from many different parties. CGI played its part by acting as the Data Partner for MOSL and building the Central Market Operating System (CMOS), which processes an average of 82,000 transactions a day from 62 different organisations. It has already enabled 53,000 switches.

Aside from non-household customers being able to choose their water supplier for the very first time, other benefits of the competitive water market will (in time) include cost savings, innovation and customer experience. But it’s clear that while the market opened on time and is now operating, there is still a lot of opportunity for the market to develop and deliver fully on its promise. It’s helpful to look at the British electricity market, and how this has developed over time for clues as to how the water market might develop.

CGI has been at the heart of this market, supporting the electricity sector through many stages of this journey. On behalf of ELEXON we built and continue to operate the central market systems supporting the Balancing and Settlement Code.

The timeline for the electricity markets started in 1990 when the industry was privatised. The phased introduction of competition, to increasingly larger groups of customers, is common to electricity and water. But the missing piece for water is the domestic customers. For the electricity market, activity at the domestic level has been very high – both in terms of customers switching (in the first ten years of the competitive market 75% of electricity customers had changed retailer at least once) and from the retailers trying to acquire their share of this market.

Will we see domestic competition introduced in water? There is a business case for it: Ofwat has provided that. Defra thinks that there is more evidence needed and that we should wait and see how the current non-household market plays out. One thing that the development of the non-household market does tell us is about the scale of the set up involved. Our experience from developing the non-household market gives us a clear view of what it takes to set such a market up and hence what it would take to extend this to the domestic customers.

In the meantime though (and that ‘meantime’ might be five years or more) we should hope that domestic customers gain some of the same benefits that are now there for non-household customers. The Government’s original Impact Assessment for the non-household market anticipated a significant flow through of benefit from the non-household market to domestic customers.

The electricity industry pushes ever forward into the smart world. The industry is now committed to offer smart meters to every home in Britain by 2020. The new data that flows from these meters will power the next stage of development of the electricity market. CGI is working with the Data Communications Company (DCC), delivering systems that support the Smart Metering Implementation Programme and the flow of smart metering data between the market participants.

Smart metering enables a lot of possibilities for the electricity industry. Not least of which is the ability to support energy flexibility and demand side management as mitigation against security of supply. Is this a potential future path for the water industry? We have already seen a number of water companies invest in smart metering programmes. These offer the water industry some mitigation against its own security of supply concerns, by helping to understand water consumption patterns better and identify leakage. If the industry implements smart metering more widely, is there an opportunity to piggy-back on the electricity industry’s infrastructure?

Ultimately this path is leading the electricity industry towards the smart home. Is this where the water market is heading too?