Memorandum submitted by Water UK
1. Water UK is the industry association
that represents regulated UK statutory water supply and wastewater
companies at national and European level. We are a policy-based
organisation and represent the industry's interests with Government,
regulators and stakeholders in the UK and in Europe. Our core
objective is sustainable water policy—actions and solutions
that create lasting benefit by integrating economic, environmental
and social objectives.
2. The water industry is energy-intensive
and contributes around five million tones CO2e per
year, around 1% of national greenhouse gas (GHG) emissions. The
industry recognises the effects of its activities and the need
to quantify, manage and reduce this impact.
3. Carbon mitigation activities across the
industry include:
(a) Reducing energy use (electricity and other
fuels) through efficiency measures.
(b) Water efficiency and leakage control.
(c) Research and development:
(i) Research into alternative low-carbon technologies.
(ii) Studies into "soft" engineering solutions
to achieving water quality standards.
(d) Embedded renewable power generation.
(e) Purchase of green power and good quality
Combined Heat and Power (CHP).
(f) Investment plans that include whole-life
carbon impacts and costs.
(g) Work with the supply chain to encourage low-carbon
behaviour.
4. Opportunities to reduce water efficiency
emissions in the water industry are partly related to technological
changes, eg more energy efficient pumps, low-carbon water and
wastewater treatment solutions.
5. However, they are also related to the
way the industry is regulated and to policies which impact the
industry.
ENERGY EFFICIENCY
6. The water industry requires significant
amounts of energy to pump and treat water and wastewater. Significant
effort continues to be made across the sector to reduce this contribution
through improvements in energy efficiency and investment in renewable
energy generation. This is illustrated by the number of companies
achieving accreditation under the Carbon Trust's Energy Efficiency
Accreditation Scheme and Carbon Trust Standard.
7. Achieving continued efficiencies becomes
increasingly difficult over time. In the water sector, energy
is essential to the provision of our core service, and investment
in schemes funded by our customers must typically provide a payback
within five years (four years in Scotland) to be cost effective,
as efficiencies cannot be retained by companies past this point.
As such, although the industry will retain a focus on efficiency,
there is limited remaining potential to make emission reductions
through energy efficiency alone. We are therefore committed to
continued investment in renewable generation and in R&D into
innovative new technologies that may provide future opportunities
for carbon reduction.
8. Rising fuel prices provide further impetus
to reduce energy consumption in order to minimize financial impacts
on companies and customers. Increasing resilience to fluctuations
in global energy prices is essential for the UK, and we are committed
to the government's approach to energy efficiency and diversification
of supply, with a focus on renewable energy generation. This will
help to increase security of energy supply, mitigate future price
increases and meet our national and international GHG reduction
commitments.
WATER QUALITY
LEGISLATION
9. Since 1990 the water industry's
carbon footprint has increased significantly due to growth (water
companies have a statutory duty to provide services to new development)
and through meeting EU legislative standards, which have required
increasingly energy-intensive water and wastewater treatment.
10. Depending on how the Water Framework
Directive (WFD) and Urban Waste Water Treatment Directive (UWWTD)
are implemented, this trend is set to continue. This highlights
the importance of innovation and investigations over the next
investment period, from 2010-15—Asset Management Planning
5 (AMP5), and beyond, such as the identification of new,
cost-beneficial solutions and technology to reduce energy consumption.
11. We are pleased that the European Commission
has recently revised its guidelines on understanding Regulatory
Impact Assessments (RIAs) to take explicit account of the impacts
of new legislation on GHG emissions. We expect this guidance to
be followed in implementing the WFD and other legislation.
12. We are also planning investigatory work
to establish the viability of "softer" engineering solutions
to water quality standards during AMP5. This relies on support
for the view that abstraction and discharge should be regulated
on the basis of local environmental need rather than generalised
standards.
WATER CONSERVATION
13. The water industry recognises the role
of water efficiency in reducing the carbon footprint of both water
companies and consumers. We are committed to the promotion of
water conservation and raising awareness of the link between domestic
water heating and carbon emissions, and are pursuing schemes to
promote this as well as wider collaborative work in order to maximize
customer exposure to key messages. However, the majority of carbon
reduction benefits associated with demand management measures
are not currently captured. As a result, demand led solutions,
although important, are not anticipated to result in significant
emission reductions over the next asset management planning (AMP)
period (2010-15).
14. All water companies aim to achieve the
Economic Level of Leakage—the point at which it becomes
more economic to leave the leak rather than to fix it. This means
that the volume of lost water is reduced as far as is economically
viable taking all environmental and social costs, including GHG
emissions, into account. All companies have met or have plans
in place to meet leakage targets, demonstrating the importance
ascribed to this issue.
RENEWABLE ENERGY
15. We view renewable energy generation
as integral to efforts to reduce our carbon footprint. Current
installed capacity across the sector amounts to 530 GWh (2007-08),
comprising around 79% Combined Heat and Power (CHP), 14% hydro-electric
and 7% wind. Water industry commitment to renewable energy is
demonstrated by our aspiration for at least 20% of all energy
used by the industry to come from renewable sources by 2020. This
reflects the UK government goal to meet our share of the EU target,
to source 20% of EU energy from renewables by 2020. Although we
understand that there are a number of regulatory mechanisms and
incentives in place to work towards this target, such as the Renewables
Obligation (RO) and the Energy and Planning Act (2008), we remain
some distance from the target, with the concern that action is
not happening sufficiently fast.
16. We believe that there is therefore a
clear need for a step-change in approach, involving full sectoral
contribution towards targets, in order for us to progress towards
this level of renewable energy generation.
17. The water industry has considerable
scope for further cost-effective investment in renewable energy
generation. There is also potential for collaborative, large-scale
investment in energy from waste. The water industry's expertise
and existing anaerobic digestion capacity could be harnessed to
increase biogas production through the mixing of waste streams.
Working in partnership on such schemes would facilitate knowledge
sharing and maximise efficiency whilst simultaneously delivering
significant contributions to targets for landfill reduction and
renewable energy generation.
18. There are, however, a number of factors
affecting our ability to participate in this kind of project and
invest in renewable energy generation. For example, although Ofwat
has expressed general support for the use of renewable energy
for carbon mitigation, guidance tends to be somewhat ambiguous
and, on occasion, conflicting:
(a) "Company's mitigation strategies could
include the use of renewable energy" (Preparing for the
future,climate change policy statement, Ofwat, July 2008,
p19)
(b) "Mitigation strategies should include
the development of renewable energy sources" (Setting
Price Limits for 2010-15: Framework and Approach, Ofwat, March
2008, p17)
(c) "We expect each company to play a full
part in mitigating climate change by reducing greenhouse gas emissions"
(Setting Price Limits for 2010-15: Framework and Approach,
Ofwat March 2008, p17)
(d) "It is important that each company….
take responsibility for its fair share of the UK carbon burden"
(Preparing for the future, climate change policy statement,
Ofwat, July 2008, p15)
(e) "Renewable energy is a separate and
competitive market with its own regulatory and market support.
We do not believe that it is appropriate to provide further support
through higher bills for water and sewerage customers." (Setting
Price Limits for 2010-15: Framework and Approach, Ofwat, March
2008, p17)
19. Whilst Ofwat has expressed general support
for the principle of carbon mitigation and the use of renewable
energy generation, other aspects of the regulatory stance severely
restrict our ability to reduce carbon emissions through renewable
energy generation. As a result there is an increasing divide between
the UK government aspirations for carbon reduction and renewable
generation and our ability as a regulated industry to meet the
level of emissions reductions set out in the Climate Change Act
(2008).
20. Ofwat's latest guidance, "PR09 Treatment
of Renewable Energy", states that to obtain funding for renewable
energy generation companies must demonstrate that the chosen technology
has "natural synergies with the functions of the appointed
business". Wind energy falls outside this definition and
cannot therefore be funded through the regulated business, even
where 100% power is used onsite to power the treatment process
and no losses occur via the grid.
21. Wind energy generation is an established
technology offering proven returns within a relatively short time.
Existing turbines and studies of future proposed investment have
proved that wind is cost-beneficial, reducing price volatility,
saving costs and reducing customer bills in the medium and long
term.
22. We believe that generation should be
part of the regulated business where:
(a) The aim is to utilise the power generated
on site.
(b) Installations are on or adjacent to water
industry sites ie land that is integral to the appointed business
activities.
23. The reform of the Renewables Obligation
(RO) introduces a banding system for differentiating support for
different types of renewable technology based on perceived commercial
viability. This may not provide adequate incentive for investment
in existing technologies that may deliver the greatest carbon
benefit.
24. Reform of the RO also differentiates
levels of support for "sewage gas" from anaerobic digestion,
and "anaerobic digestion", awarding 0.5 Renewable
Obligation Certificates (ROCs) and 2 ROCs respectively. This
represents an arbitrary division of identical technologies.
25. We believe that the government should
consider options for improving incentives for renewable generation
in order to achieve national targets. Options could include strengthening
the RO through raising the level of the Obligation past 35% (increasing
the price of ROCs in return), or proposals outlined in the Renewable
Energy Strategy such as feed-in tariffs. "Sewage gas"
from anaerobic digestion should be awarded the same level of ROC
and feed-in-tariff support as "anaerobic digestion".
CARBON SEQUESTRATION
26. A number of water companies have the
potential to make a significant difference to the UK's capacity
for carbon sequestration, particularly through upland peat management.
At present there is no carbon incentive to promote sustainable
land management practices, as sequestered carbon cannot be included
with carbon accounting, according to Defra guidelines. We think
the government should establish an effective accounting framework
to incentivise land management for carbon sequestration.
CARBON ACCOUNTING
27. Purchase of levy-exempt electricity
potentially provides an opportunity to reduce our carbon footprint.
Energy that has been awarded exemption from the Climate Change
Levy is generated by a low-carbon source. LECs are traded with
electricity, and as such the end user is the only beneficiary
and should be able to claim the carbon benefit. This is not currently
recognised, and is not an allowable mechanism for reduction under
the CRC.
28. We think that levy exempt energy should
be treated as low-carbon under Defra company accounting guidelines
and be an allowable carbon reduction mechanism under the CRC.
29. In addition, the use of a "grid
average" emissions factor does not provide electricity customers
with the incentive to drive the renewables market. The water industry
supports the view that the "grid average" emissions
factor should be replaced with a series of product specific factors.
30. The water industry invests significant
amounts of money in renewable energy generation (primarily onsite
CHP, wind and hydro), which we use to generate renewable energy
to power onsite processes. Investment relies on a ROC income to
be cost effective. ROCs represent an economic incentive, with
banding reflecting perceived commercial viability rather than
magnitude or carbon reduction, and as such should not be viewed
as carbon credits. Defra guidelines do not allow companies to
claim emissions reductions where ROCs are sold. This reduces the
incentive for making this investment and fails to acknowledge
our contribution to UK emissions reductions.
31. We believe that carbon accounting should
recognise the carbon benefit derived from onsite renewable energy
generation, providing greater incentive for companies to invest
in renewable energy.
June 2009
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