June 2020
Big Ideas
By Karma Loveday, The Water Report



About 30% of all water consumed in England is used by about 200,000 customers. That’s the headline
figure to emerge so far from MOSL’s work to scrutinise water consumption by customer type in the
non household market.

It’s a pretty startling statistic and suggests the water sector is missing a huge trick when it comes to tackling water scarcity. At present, not only are most incentives and messaging focused on the domestic sector, but there is little sophistication in the messaging to business customers, despite their widely varying situations.

There are 2.6m supply points (which equates to approximately 1.2m customers) in the market, between them using around a third of the water consumed in England. Around 46% consume less than 100 litres per day, less than the average domestic customer (143 litres). A further 34% consume between 100-1000 litres per day. This means that around 80% of SPIDs have a consumption that is broadly similar to households. The remaining 20% account for approximately 90% of total NHH consumption. MOSL chief executive Sarah McMath spells out the raw message:
“You’ve got a very small number of customers using a lot of water.”

Lacklustre water efficiency

MOSL’s work, looking at consumption by customer type, followed a challenge from Defra at the start of the year. The essence of that was, three years on from market opening, water efficiency remains a great white hope – so what might be done about it? Ofwat’s 2018/19 State of the Market report found only around 0.3% of customers who had switched since market opening reported leakage control services as a benefit of switching, while around
4% of customers who had renegotiated since market opening reported water efficiency services as a benefit. Outside of self supply customers, this year’s report is not expected to show much improvement. MOSL’s R1 settlement runs show monthly market consumption has not changed significantly since market opening
and throughout 2019/20 has remained steady.

There are a number of reasons behind this. Data quality is frequently cited, with many customers unwilling to invest in water savings until they have access to reliable consumption data. McMath also points to incentives as a chief explainer. “The provision of water efficiency services was quite knowingly and intentionally moved at market opening from wholesale to retail because there wasn’t that much value in the retail market. However, there is really no incentive for a retailer to promote water efficiency because you get a cut of what you sell.” While some
retailers have come up with innovative tariffs to promote water efficiency to customers, the overall figures speak for themselves. Dicing the data However, targeting the 200,000 largest consumers could be a
game changer. Not only are they the big users, but also the big spenders. McMath says: “The vast majority of the money flows through the 200,000 customers.”

To drill down further, the MOSL team has been using publicly available information to identify the purpose of those 200,000 premises – McMath calls it a “manual, centralised data cleanse prioritising those customers who use more.” Previously only around 15% of SPIDs in CMOS had a SIC code, so MOSL’s understanding of what sort of business was consuming what has been hazy at best.

Subsequently, the team has been building ‘data cubes’ enabling the dataset to be searched by three parameters, such as wholesaleregion, retailer and ‘hairdresser’; or wholesale region, retailer, and business name. She explains: “At the moment, to answer the questions that I ask regularly about consumption by geography and by type, the team have to go away and run an algorithm. What we’d affectively be looking to do is automate it so that you can  ask various different questions and the answer will be readily available.”

There is the caveat that consumption is measured mainly by metering, and there are well established problems with consumption data in the market. But McMath says it a vast improvement on what has been available to date, and has begun a welcome move away from reporting everything by SPID. “Ever since I started a MOSL, I’ve had a deep-rooted frustration that we report everything by SPIDs…it’s completely illogical because a single SPID could be a scout hut that uses a few litres of water a week or it could be a brewery using hundreds of thousands of litres an hour.”

Time of use tariffs and take-aways The new level of insight opens the door to an array of options for targeting heavy users with incentives to be more water efficient. In particular, MOSL is now looking at geo-mapping the major
users against supply/demand nationally; if business use in water stressed areas could be cut, it would contribute to the alleviation of water scarcity in those areas. “If we could match that data against the supply and demand deficit we could start to create real value by effectively creating headroom,” McMath says.

Customers would need to be incentivised. The table sets out some options. To bring it to life, McMath offers the examples of cheaper rates for a brewery in Southern Water’s area if it switched to 10pm-4am production; cheaper rates for businesses in Slough if they don’t consume in the summer when peak demand is hard to manage; “or, really interesting, are there businesses that you can take off grid completely – who don’t necessarily need fully
potable water – for example, golf courses?”

Incentives would likely need to be matched with customers in a reasonably sophisticated way, rather than simply by consumption.  A simple example: “If you cannot function without water – for some people there is an intrinsic business need, for example, if it is your product, say if you are in the beverage industry – your reliance on having a supply of drinking water is different than if you were a golf course where you still need a constant supply of water but you have different options.”

As well as benefits for water resources, there could be additional value for wholesalers. In her golf course example: “The rate of deterioration of an underground pipe is directly proportional to the flow and pressure going through that pipe, so if you can take some of that flow and pressure out of the pipe and shift it to a tanker, you could delay real asset investment and put some real pound signs on it.” In other cases, shifting or reducing large business consumption could mean investment in supply side solutions could be delayed.

MOSL is now analysing consumption by customer segment across all the wholesale regions – with some surprising emerging results. McMath offers: “For example, Anglian and South West – more than 20% of their total consumption across household and non-household relates to their high band customer users …So those two regions have got a very high level of consumption in a very small number of customers.”

Among other possible ventures are working with regional water resource groups and the National Framework team to cut the data in other ways. McMath accepts it may not prove a silver bullet for water scarcity – “this may be a red herring because what we might find is actually all of the major usage is in areas where they’ve got ample supply of water and it’s not going to make much difference”. But she says: “For me the main purpose of it is really to understand where the value is in the market that we’re not currently recognising.”

Structural questions 

From the first glance, it seems that most of any potential value that may be revealed by working with the top 20% of consumers to create headroom will benefit wholesalers. McMath: “The question then is: what’s the role of the retailer? …There is more motivation currently from a wholesaler to ask about water usage and water efficiency than for a retailer, and yet the codes dictate it is the role of the retailer.”

That is one question about the structure of the market as it is currently formed that we might expect to surface, should MOSL’s consumption/customer segmentation work reveal valuable information.

In the immediate term, McMath says the market operator’s role is to put its findings out there, provide insight there there was none, and stimulate debate. “I think it’s all about using the data we’ve generated in the past three years, and asking: what are we seeing? What are the patterns? And how does that information help us move the market forward?”

MOSL will be sharing its data and encouraging others to consider what to do on the back of it. “I think part of our role is just pushing that out and saying ‘that is a hell of a lot of water in a country that is running out of water’…I think it informs a discussion about what the future market might look like, and can contribute to an open
conversation around the challenges in the market today.”

Some structural aspects that need consideration might include why wholesalers’ PCC targets relate to domestic customers only, and why their tariffs are structured to reward larger usage. Moreover, while retailers are paid by volume, what incentive do they have to encourage customers to reduce usage? While margins are low, how can retailers afford to invest in water efficiency services, especially while water is cheap and most NHH customers won’t ask for help to use less. And why should a retailer invest in providing a customer with a smart meter or logger when that customer could easily switch away?

MOSL plans to continue to play its part by refining central data insights, and contributing to the debate.  Government and regulators will also need to play a part in deciding whether changes to existing arrangements might be beneficial – for instance, a review of wholesaler tariffs; setting regulatory targets for wholesalers to deliver business as well as domestic market outcomes; and adjusting incentives. Meanwhile, trading parties themselves could seek ways to collaborate for mutual – and societal – benefit.

 This article has been replicated with the approval of The Water Report. To subscribe, visit their website.


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