Photo courtesy Southern Water
Thames has won a license to
start selling water across England and Wales. The move is in response to Defra
allowing companies that use more than 5 MGl per year to buy their water from a
third party. But will this really drive down costs for companies like Coke Cola
or Tesco?
For a nationwide company to
have just one supplier and a combined bill may help it understand where its
using water and where savings are possible. But the cost of the water will not
reduce significantly by competition. The water companies will still have to buy
the water from an existing water company. It will be exactly the same water
being supplied to a factory as is currently the case it is just the bill that
will come from another supplier say Thames Water.
The problem is that the cost
of water is dominated by the fixed costs of maintaining and investing in the
infrastructure. Billing costs are relatively trivial. Look at what has happened
in Scotland. When Business Stream the industrial retail arm was separated from
Scottish Water, significant one off costs were incurred that Ofwat estimates
will take over four years to pay back. Worse annual costs were also higher due
to the complexity of the new systems and new IT costs. The net saving was only
£4 million a year. This is less than 0.5% off water bills. Would you switch
water suppliers for a saving of 0.5% off your bill?
In the view of this blog
competition is an unnecessary distraction for the water companies. It would be
better that they should focus on their core business and drive down their costs
for 99% of the business not waste management time focussing on the roughly 1%
represented by the cost of sales
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