[00:00:00] Speaker A: Since privatization, there's definitely been a number of changes in both. Again, that regulatory framework driven by offwat, but also in the way utilities structure and plan their investment strategy.
[00:00:21] Speaker B: I am Reese Tisdall and this is the future of water, which we talk about all the ways which companies, utilities and people are addressing the challenges and opportunities in water.
Welcome to episode 100 plus one. So this is the 101st episode of the Future of Water podcast and I know it's going to be a good one. That is because today I'm going to be joined by Bluefield Research is Chloe Meyer. Chloe's been doing some extensive analysis on the UK water market and so in this episode what we're going to hopefully do is dive into what seems to be a critical juncture facing the UKS water sector, particularly as it prepares for the upcoming AMMP investment cycle. It essentially defines the budgetary outlook for what is the worlds most privatized water market. So theres always a lot of eyes on the market for a number of different reasons. And I think just to kind of frame it, its an unprecedented 105 billion british pounds of investment on the table, at least being proposed. So amp eight promises to be the most significant cycle since privatization in the country. And Chloe, I think hopefully we'll get into that, but the goal is to tackle aging infrastructure, enhance environmental protections and ultimately, I guess secure a sustainable water supply for the country, the customers and so forth. And we'll explore some of the challenges, opportunities and regulatory pressures that will shape the market over the next five years in the UK's water industry. And so this for a little bit of background. Why are we talking about this? Well actually Chloe's just released a 60 or so page report, UK water utilities road to amp eight talking about proposed business plans, but also the regulator offwat's review of the proposals and business plans submitted by English and Welsh Water Utilities and off Watts draft determinations, what they think should or shouldn't happen. In addition, that there's also a lot happening in the UK if you're reading the news, that might be of interest. And so we thought it was pretty topical. But before we bring Chloe into the conversation, let's talk about one thing that's caught my attention recently.
Well, on 5 August, so a couple weeks ago, TJC, which is formally known as the Jordan Company, a private equity firm, it acquired us Alco from HIG Capital for approximately $2 billion. HIG will maintain a minority stake. And Us Alco, who is us alcohol, well it's a Baltimore, Maryland based manufacturer of aluminum based chemicals used primarily in the industrial and municipal water and wastewater treatment sectors. So that's why we're interested. Under Hig's ownership, which it acquired or you acquired us Alco in June 2020, the company has grown significantly through acquisitions.
It's expanded its, I think, facility footprint from nine at the time to 33 facilities across North America, which has also made it one of the leading layers in its respective segment.
So were really interested in that. I think its important to not overlook the chemical sector. Theres been some significant disruptions that have happened over the past couple of years, at least in the supply chain, but also theres a tendency to focus on the latest and greatest tech, advanced water treatment tech. But water and wastewater utilities spend a significant amount of their operating budgets on chemicals and theyre directly impacted by everything from the disruptions, the inflationary impacts of that, and just supply chain and logistics. But also, what does it mean for new players in the market? But why should the water industry care and why do we care at Bluefield Research? Well, as we track the market, we are seeing the fragmentation of the chemical supply chain and segment as a growth avenue. The continued fragmentation in the water treatment chemicals market is 61% of the market is still controlled by small regional players. And we think it presents a significant opportunity for larger firms, such as a growing US Alco and private equity firms such as US Alco to drive consolidation further. The market's right for players to rapidly scale and capture market share through m and a. And to that point, strategic m and A is a competitive differentiator. Those that are willing to do it at a time like this, us Alco has been aggressive in doing so, as I mentioned, going from nine to 33 facilities, but it's also expanded into the western US, and that sets somewhat of a blueprint for, or potential blueprint for others to follow. Companies that can execute similar strategies are going to be better positioned, obviously, overall, but also it could carve their positions out as a dominant regional or even a national player gaining a competitive edge. So we are looking at m and a as something that's really interesting and a key point of growth and something that we track closely every quarter through our water m and A and company strategy service. And then lastly, the supply chain resilience is a selling point, given the, as I mentioned, recent supply chain challenges facing all companies, let alone just chemical companies themselves. Companies that can demonstrate resilience through ownership of logistics, operations and diversified supply chain sources are going to find themselves in high demand. It offers a significant market opportunity for firms that can really deliver reliability and stability to risk averse utility customers. Utilities cant turn on and turn off as they like. Theyve got on steady demand and they dont really have an option.
Anybody that can deliver stable supply, stable prices, theyre going to go to. And thats whats happening in the space. And if youre interested, I guess, lastly, why am I talking about this one? It was in the news, like I said. But also my colleague Ethan Edwards has done some analysis on this. Hes really interested in this segment and thought hed share some of his perspectives. So take a
[email protected]. and if you see anything, whether it be Ethan's research note on the US Alco deal but also Chloe's report on the UK water market. And if you have questions, you can always reach out to us at water experts bluefieldresearch.com dot one last thing before we jump into the conversation with Chloe. I know we're in the doldrums of summer, whether it be school starting up in the next week or so, depending on where you are and people are on vacations, but looking to September, we are getting back out on the road. It looks like my colleague Christine AO is going to be at the water infrastructure conference in Phoenix, Arizona from the 8th, 11 September. She's presenting there. And I will be in New York with my colleague John Berryman on September 24. I think that's climate week in New York as well. But, but we will be at the rethinking water conference 2024 up at Columbia University.
So if you'd like to meet with me, meet with John, have a conversation about the water sector as a whole or anything else for that matter, let us know. And we've got, I believe it's my colleague Chloe Meyer. It makes sense. This one's in France, the water Reuse Europe conference. We will be presenting at that conference as well. So for all you Europeans out there that want to stay closer to home, I believe Chloe and possibly others will be at that conference. And then further out on the horizon in early October, we will be at WefTech 2024 in New Orleans, Louisiana, with a number of us there. We've got a number of client meetings already, set up, presentations beforehand. I, and we would really like to see there as well. That's a big one with upwards of 20,000 people walking the floor talking water and largely wastewater at WebTech. So if you'd like to meet us once again, water
[email protected]. just send a note and say we'd like to chat and we can set something up, and if we can't do it there, we can always do it by Zoom. So, with that being said, let's get Chloe into the conversation and talk a little bit about the UK water market.
All right, so I'm joined here by Chloe Meyer. Chloe, how goes it?
[00:09:12] Speaker A: Hey, Reese. Hey, everyone. Thanks for having me. It's great to be back on the podcast. It's going good. End of the summer here. We're in between olympic and paralympic games, so everything is great.
[00:09:25] Speaker B: You're french, so you do summers and vacations and holidays better than we do here. I'm certain of that one. We can't stop doing what we're doing here. But also, yeah, I'm sure it's really nice now that the Olympics are over, now you can move about Paris and the city without, uh, security restrictions and registrations and all of the above.
[00:09:47] Speaker A: Yes, exactly. But to be fair, it was. It was a really nice event. I think, from a sport perspective, I.
[00:09:52] Speaker B: Don'T know whether it was time zones or not, but for us, we watched a lot of the Olympics and it was nice. And I think I told you this, like, just watching even the cycling or. We talked a little about equestrian. It's just really nice. So I think it's no wonder half of the US is in Europe right now, vacationing, driving everybody crazy, but. All right, so let's get to it. So one of the. So, obviously, I wanted to bring you on because you've been doing a lot of research on the UK water market. There's a lot happening in the UK. It's been in the news for a lot of different reasons, whether it be politically, policy wise, Brexit, but it's also the time of the. I can't say year. I guess it is the year, but also the decade where we're running up on the AmP cycle, the asset management planning cycle. So we're at AMP eight, and you've actually put some research out on that. But let's start with some generalities, maybe, and can you give us a quick overview of the UK market? Like, I guess, why are we interested, and what does it mean? What sets it apart from other markets globally? Because it is somewhat different.
[00:11:03] Speaker A: Sure. And I think you're right. It's the UK market, and specifically the England and Wales one is very unique in sort of three different ways, in its structure, in the way it operates, and also in the way it is regulators. So if we look at the structure first, we have in England and Wales 16 large private utilities that essentially act as regional monopolies. They are big systems. They serve between, I think, 200,000 people for the smallest one to over 10 million for Thames water, which is the utility that serves London and its region. So even though large utilities are not uncommon, particularly in urban areas, what's interesting here with the UK is that the service areas are really spread out. So it's not just large utilities in terms of population, but also large utilities in terms of asset base. The largest system has around 50,000 pipes, for instance. It's seven trends, hundreds if not thousands of treatment plants. So really big monopolies. It's also unique in the way it operates because it's a fully privatized market. Privatization took place in the late eighties, and assets are not just effectively operated, but also owned by those privately held companies who are responsible for the provision of services. It's quite different from what we see in most countries, where assets can be privately operated through concession contracts, for instance, but in which they remain owned by public entities, whether municipalities or local governments. In England and Wales, those assets are fully privatized.
[00:12:56] Speaker B: Yeah, I mean, I think the countries that we typically compare to at least a bluefield, you know, we talk about Chile to some extent, it's privatized the US as is. For listeners, the US is hardly privatized. I mean, I think we've talked about 6% of the population served in the US is. Is owned or served by private or investor and utilities.
I think one thing thats also interesting is how its regulated, what is specific about the way the UK is regulated? And maybe we dive into the amp cycle and what that means.
[00:13:31] Speaker A: Right? So when the market was privatized. So around 35 years ago now, two things were created. First, an economic regulator for the water sector called offwat, but also secondly, a specific mechanism to structure utilities investment called the M cycle. Like you said in the introduction. Right, asset management plan period. The M are five year cycles of investment during which utilities must deliver improvements in a number of areas, for instance, leakage, overflows, pollution incidents, carbon emissions, etcetera. And the utilities are financially rewarded or penalized for their performances. The work of utilities during those M cycles is determined by a five year business plan. And those business plans are prepared by each utility, reviewed by the regulator of what during a process called the price review. So, PR.
And right now we are in the middle of PR 24. So the price review of 2024 to prepare for AMP eight, which will start in April next year, and which will run until 2030. What's interesting is that the price review will ultimately determine the levels of performance and improvements that utilities must deliver in the next five years, how much they are allowed to spend to do it, whether capital or operational spending, and therefore how much they can bill their customers. And this is the reason why this process is called a price review. So this regulatory framework is really unique globally, I believe.
[00:15:25] Speaker B: Yeah, I think it's kind of provides the transparency that everybody seems to be looking for. I think that's the case when it comes to offwat. I know there's a lot of push and pull about how much authority on how many, what are the size of the teeth, regulatory teeth that offwod has. So I think over the last elections in the UK, that became part of the discussion, particularly around things like Tim's water. But let's talk privatization dynamics.
This happened, like you said, 35 or so years ago. How was privatization? Does it influence investment strategies in England and Wales, and for those utilities, particularly as they approach what is amp eight?
[00:16:11] Speaker A: Yeah, I think over the last three decades, investment has definitely evolved and it's been influenced by changes in regulations, obviously also shifts in utilities priorities as well as their delivery strategies. I think the first 20 years after privatization, there was mostly a focus on capital expenditures, with large infrastructure investments and greenfield and retrofit projects being planned and delivered by the utilities. And there was a shift around ten years ago, so around amphennous six, when utilities starting to focus on Totex, due to increased attention to service provisions and the cost of operating and maintaining their asset base as well. Now Totex total expenditure remains very much the lens used by utilities when working on their business plans, with strong attention being given to the operational costs, but also the return on investment. And it was also around that time, so 1015 years ago, that the engineering alliance model was widely adopted by the utilities. The idea is to create partnerships of companies, mostly engineering consultancies, service providers, to streamline and optimize infrastructure development and management, and again, ultimately to reduce the costs. It's still a model that utilities rely on massively. And several alliance have already been announced for M eight, with the big usual names like Atkins, Jacobs, Binneys, Arcadis, Tantec, Arup, et cetera. And I think historically as well, some regulatory mechanisms have changed, of course. Pure 19. So the price review that happened in 2019 in preparation of m seven was, I think, a pivotal moment in terms of the measurement of performance. A lot of reduction targets, for instance, leakage reduction, per capita consumption reduction, et cetera, were now measured against the 2019 to 2020 baseline and it's also during M seven. So during this cycle we're in still that utilities were requested to publish their long term delivery strategies, showcasing their plans to meet a number of performance targets in 2050.
And for AMP eight, specifically Ofwat has proposed to change the outcome delivery incentives methodology so that all performance targets will now have both financial rewards as well as financial penalties or underperformance payments. And before M eight, some performance levels were only subject to a reward, but no underperformance penalty or vice versa. So since privatization, there's definitely been a number of changes in both. Again that regulatory framework driven by Ofwat, but also in the way utilities structure and plan their investment strategy.
[00:19:40] Speaker B: Yeah, and I think also your point about the companies, I think it's pretty competitive, at least all these engineering companies are bidding and sort of navigating with their proposals and the ramp up. So its interesting to see who to some extent its a lot of the same companies period over period, but there is some sort of some entering and some exiting one that stands out. You mentioned bennys.
I think thats the old partly black and veatch business if I recall. So they picked that up when black and Veatch retrenched somewhat in the US and some other markets that it's in. So the off Watt, as I mentioned, and as did you, offwatch role and influence is huge, right? And sometimes they are under pressure because the argument is, or they are being stringent enough and regulating enough, what's happening? So offwatch draft determinations that you've looked at, they've called for significant revisions of these business plans. I think that happens every time they kind of come back and do that. So how much influence does actually does offline actually wield or have over the long term strategic direction these utilities you mentioned, 2050 is now sort of the outlook.
What role do they play and are these tensions between the regulatory oversight and utilities ambitions, are they real?
[00:21:07] Speaker A: Right. So yes, offware has definitely an important influence on utilities business plans and what they implement. And to your point, the draft determinations are an example of this, right. Utilities have proposed almost 105,000,000,000 pounds of investment for m eight. And Ofwat has now told them that they can only spend 88 billion pounds. So the regulator also called some systems out and requested them to set up more aggressive performance targets. So now utilities have to revise their plans before submitting them back to offwork. So the influence is there really. But I think what's interesting, and you've mentioned it, is that the relationship between the utilities and the regulator has tensed over the past few years and it has shown flaws in the system. I think for instance, historically ofwat has requested investment to benefit present consumers and customers. But this is increasingly being challenged by utilities because. Because they now have to take two timelines into account, that of the next investment cycle, but also that of the long term delivery strategy with its 2050 targets and leakage is a good example, I think, of what's principles being challenged. Utilities are legitimately, I think, pushing for more pipe rehabilitation and replacement in order to prevent future leaks. But that's an investment that is borne by present customers, but that will benefit future ones by avoiding leaks in the future. So Ofwat's principle here is going in contradiction or entering into contradiction with utilities reality of maintaining and operating assets. I think another source of tension between regulator and the systems is around the two types of spend that business plans are structured around. You have the base spend and the enhancement. Spend and base expenditures are for maintaining the baseline of services and enhancements. Expenditures, as the name would suggest, are for increasing the quality of services. And so logically performance improvements come from enhancement expenditures. But again, historically Ofwat has tended to request utilities to maximize performance improvements using their base spend. Asking for lower cost options were feasible. But the fact is that as the pressure on utilities to perform better has increased, they have proposed major augmentations of the enhancement investment. And this was pretty clear in the amp eight business plans. But it's also where the draft determinations have cut the most. Offwat asked for a 7% reduction in base spending, but asked also for 25% reduction in enhancement spending. So there's definitely a lot of tensions here around how to invest and how to use investment to improve the quality of services and meet performance commitments. And in the past, like you said, several utilities challenged Ofwat's decision to reduce their enhancement allowances, bringing their case in front of the CMA, the competition and markets authorities, some with success, some without. And I think this could really happen again early next year as we get closer to m eight.
[00:24:57] Speaker B: This is super interesting and I'm trying to read between the lines here what you're saying. You seem pretty positive about the market as a whole, or at least in its transparency and what's happening, at least the process. And I think you've let you kicked it off by saying it is unique because it is all out, seemingly out in the open about what's happening. And so I think the rest of the world could use a little bit of that or a lot of that. Now, does it always work perfectly. Which kind of leads to my next question. And that is kind of the financial health and risk of the market, or of the utilities themselves? Some utilities, are they toeing the line or up to the line of bankruptcy because of accumulated debt? So how is the sector, the private sector, addressing the risk of financial instability? And I guess along those same lines, could we also continue to see a shift in ownership structures, or even a return to some public control? I think Tim's water stands out, among others. But do you have any thoughts on that?
[00:26:03] Speaker A: Sure. I mean, as much as the UK market is indeed unique, and is one of the few globally, with such a strong regulator, it obviously doesn't mean that there's no problems at all. And there are big issues with that whole system and the way the market functions right now. One of that, those issues is the level of indebtedness that utilities are currently facing. And actually, since being privatized almost debt free at the end of the eighties, the utilities in English, in England and Wales, have collectively accumulated nearly 70 billion pounds of debt. Which is huge, right?
A significant problem presently. But it's also a continuous problem, because utilities are continuing to plan to finance investments by using and leveraging debt. And like you said, some systems, like Thames Water, have been threading close to bankruptcy for several months, if not years now. And I think the, the link between, in regulation, the link between operational performances of utilities and debt levels and dividend payouts, has definitely lagged for a long time now. In the UK, it was only last year. So in 2023, that Ofwat obtained the authority to limit excessive dividends payments and to link them to the actual performance of utilities. But still, it's not clear how and if, of what will actually use this authority, and whether it will curb the financial engineering that utilities have been accused to use.
I think earlier this year as well, in January, the government proposed to review some insolvency rules for utility, and to ease the implementation of the so called special administration regime by the government for those systems unable to pay the debts back to m eight, Ofwad announced that Tim's water will be placed into a special delivery mechanism, so that customers won't pay until the timing and the profile of the plan are clarified. So things are being done. There are efforts to increase the public oversight of utilities and to develop some additional control mechanism, but still those issues are here, right? And to be honest, I don't think that we're close to seeing the nationalization of an english or welsh utility. No one wants to strap themselves with Thames Water, 16 billion pound debts, and especially now, as the uk government is contemplating the state of its public finances and a much higher than expected deficit.
[00:29:08] Speaker B: Yeah, like you said, I dont want to let Thames water and its investors off the hook, that theyre being criticized, but saying 16 billion pounds of debt, but across the board were looking at 68 billion. That was the number you threw out there. So its also the largest utility in the market itself.
Yeah. And renationalizing. I think it sounds good on paper, it sounds good in the press, but there's a lot of unwinding that would have to happen. That would probably take decades, not only in the courtroom, but also just operationally and what's happening. So, no, I think it's super interesting and that's where a lot of the news is focused rather than, I mean, there are, like you said, there are positives, there are unique attributes to this market that are beneficial. Let's shift a little bit, because one of the things you looked at in the report is really a strong focus on, or at least emphasizes in the report, things like environmental protection and the adoption of smart technologies like metering and leakage detection. One would imagine the UK, London specifically, it's an old city, it's had infrastructure for a long time. Some of these pipes, not unlike other old cities, they're old, they leak. How to keep pace with them. So when it comes to technology like metering and leakage detection, how are these advancements? How are they expected? Or even now, how are they reshaping the operational landscape for utilities? And could it lead to changes in the sort of water management paradigm by at least by the end of amp? Eight. Are there signals in the proposals?
[00:30:53] Speaker A: Right. So definitely the questions of the availability of water and the quality of the environment are at the heart of the amp eight business plans. And again, longer term, they are at the heart of the long term delivery strategy and this 2050 targets. And again, it ties back to this sort of two timelines, the short term timeline and the longer term timeline. To sustain the availability of water. Utilities have obviously to look at both supply and demand.
Smart meters are being pushed as a way to influence customers to consume less and as a way for utilities to identify leakages. Offwat has also requested utilities to invest in smart technologies and better data to reduce leakage levels. And when looking at environmental quality, it's really about infrastructure investment to better capture and manage stormwater and wastewater, but also back into the idea of producing more and better data and leveraging those data for optimizing management. It's about increasing telemetry to improve the monitoring and the control over the infrastructure. And I think the UK is one of the most digitally advanced or digitally mature markets globally. And the plans for M eight do really exemplify how the sector is trying to further leverage data in order to be less reactive in managing their assets and move into predictive analytics. At the end of the day, it's back to a question of cost optimization, both operational and capital, through targeted activities, keeping in mind to a point that the networks and the assets are aging, if not already old for a vast number of them.
[00:33:00] Speaker B: Yeah, so sort of sticking to that. I mean, despite the ongoing efforts, the leakage stands out, right? Everybody talks about it. I mean, it's between that and, I think, stormwater or wastewater overflows. So let's stick to leakage, though. What strategies are being proposed or what are we seeing? Is there anything unique? And how might these efforts, when it comes to leakage, how might they tie into broader sustainability goals? And I guess, you know, I think just sort of wrap that as are there any emerging technologies or maybe methodologies that could offer a breakthrough, if any?
[00:33:37] Speaker A: Right, so english and welsh utilities have adopted the palm p a l m approach for a few years now, and it translates into the prevention, the awareness, the location and the mending of leaks. And several methods and technologies are used by utilities to deliver this palm approach for prevention. We are looking at pressure management, or advanced pressure management, pipe rehabilitation and replacement with condition assessment, for instance.
With regards to awareness, utilities are implementing a range of high and low technology solutions.
High technologies can be fixed, acoustic leak detection, loggers and correlators, for instance, as well as satellite detection. And on the lower tech end of the spectrum, we have methods like using sniffer Docs, for instance. And indirectly, smart metering does contribute to developing that awareness around leakage. When it comes to location, utilities are essentially using active leakage control, with people on the ground, teams doing lift and shift with listening sticks. And finally, around mending. It's really about optimizing the repair of pipes, including with no dig pipe repair solutions to avoid disruptions. So there's already this sort of holistic strategy that is really about not just leakage detection, but leakage management as a whole, including the prevention of leakage. I think there are two main changes in the m eight plans. The first is how utilities are advocating for more pipe rehabilitation to prevent leakage like we've discussed earlier. And they are definitely also pushing for more smart technologies. For instance, most utilities have planned to increase the share of network Covid by fixed acoustic leak detection loggers. And conversely, the majority of systems are also planning to keep the hours of active leakage detection activity stable with people on the ground or even decreases. And this means that utilities have really identified smart technologies as being an efficient way to deliver leakage reduction and optimizing on the ground work. So again, back to this idea of becoming smarter, I suppose, or leveraging the data to optimize the operation of assets.
[00:36:24] Speaker B: Okay, so you said something that I just want to make sure I heard correctly and maybe everybody else. Did you say sniffer dogs? Is that like, are we talking animals? As in like.
[00:36:34] Speaker A: Yes, absolutely.
[00:36:36] Speaker B: All right, so it's really funny. So it's hard to believe that that is the case. And it does work because I remember, man, it must. It's probably. It was definitely pre Covid. I remember being at Great Lakes Water Authority and there were meetings, actually, I was doing something like a workshop with arcadis. I think that's where it was when we were talking about leakage, leakage management and sort of preventative maintenance and such. And someone said, look, someone, I think they were from Arkansas, said, look, the most economic, easiest thing to do is just get a good dog and walk down the street, and they will smell all the. I mean, that's. I guess it's real.
[00:37:17] Speaker A: Yes. And it's still being used as a legitimate way by some utilities, particularly in more rural areas, to detect leaks. And I think what's interesting is that leakage is rarely something that end customers realize happen unless you have a pressure drop and you open your tap and there's no water out of it. But a lot of utilities have also realized that having sniffer dogs is also a way to engage with customers because people are just attracted by animals, and then they come to the technician and ask questions. So it's also a way beyond leakage detection, beyond detecting leakage. It's also a way to engage with the public on the work that utilities are doing and how they are maintaining assets.
[00:38:01] Speaker B: Yeah, I think that's definitely the upside. I think the downside is people might say, oh, my God, what are we paying for? We're paying for people to walk up and down the street with their dogs.
I like it. I mean, I actually really like it. And that's definitely taking that home with me to talk about with my friends.
All right, so now for the fun for some, maybe not so fun for others. One question that sort of hangs over all of this is Brexit, right? With Brexit. Brexit sort of altered the landscape. It's altered public sentiment about the UK as a whole. And then it gets into.
Not to be overlooked are the impacts on environmental standards and funding that were once under EU jurisdiction. So is this really having any impact on sort of, whether it be the regulatory landscape or what utilities and companies are doing when it comes to water wastewater management?
[00:39:01] Speaker A: Yeah. So after Brexit in 2020, the UK has retained some european water standards through transposition, while also scrapping others. So the EU water frame rate directive, for instance, was transposed into english law after Brexit. But on the other hand, there have been some diversion from EU standards, with some pesticides, for instance, being authorized in the UK. Why they are banned in the EU.
And I think to some extent, Brexit has also already shown impact and impact on the water sector in the UK. For instance, I think it was in 2021, during the summertime, Brexit, and admittedly also Covid, caused disruptions to normal wastewater treatments. Supply chain bottlenecks for accessing certain chemicals needed for water treatment led the UK Environment Agency to authorize impacted utilities to temporarily discharge effluent without meeting the conditions of their permits. Something that wouldn't have been possible in the EU without a consequences and most likely a financial payment or fine. I think it's a very important question because especially as the EU continues to move forward with its regulation, there's a risk that the UK may start to trail behind. For instance, the EU revised earlier this year its urban wastewater treatment directive, the corpus of texts that govern the treatment and the handling of wastewater in the European Union, in member states and the EU introduced an obligation for pharmaceutical and cosmetic manufacturers to pay for the treatment of their wastewater bay utilities. In other words, the EU requested them to pay for the pollution that they generate.
The EU also requested large wastewater treatment plants to treatment, to remove micropollutants. And right now, England is definitely not planning to adopt a similar law.
So there is this sort of divide or gap that starts appearing in between England and Wales and what the EU continues to do in terms of regulation. And I think in the UK, it looks like a lot of environmental policy regulations or focusing on water and wastewater utilities by, like we mentioned, requesting them to invest in solutions to limit pollution incidents, to limit overflows, et cetera. But the holistic approach to water quality, which takes into account other point and diffuse sources of pollution, like the industry or industrial activities, agriculture, and which is really quite strong in e regulation, is sort of lagging behind in England. So there's definitely the risk of seeing a gap getting bigger here in between standards in application in the European Union and those in applications in application in the UK.
[00:42:34] Speaker B: Yeah, I don't know how much of that is because of sort of just different approaches to just different regulatory environments.
They're sort of dividing, going their own way. But the other part is, like, economically speaking. Right. This is one of the things I always sort of.
It's a generalization, but the UK is under financial stress. It's had all sorts of over the past decade or two. Obviously, the recent election has sort of indicated as such. And when it comes to, like, whether it be energy prices, supply chain, the UK, I mean, just getting crushed in many respects. I don't know if that impact has been as great in Europe, at least as a whole. And so I don't know much of. Also, the regulators, over time in the UK are going to say, look, we can only add so many more regulations. We can only add so much because tightening of regulations typically means an increase in costs in one way or another. Now, I'm not to exclude the benefits on the back end, whether it be clean drinking water is one way to look at it. So it'll be interesting to see how that plays out. And it's going to. I mean, it would be interesting even a decade from now to look at where does the UK stand versus the rest of Europe. Will Europe be so much further ahead? And so many other things like pfas or even biosolid management or micro pollutants, where the UK, like you said, if they're already lagging behind, I don't know if that bodes well going forward. So if you had to tell someone, sort of. This is my last question for you. If you had to tell someone, perhaps a new, want to be new market entrant, they're looking at the UK and you wanted to tell them about the market and really opportunities and its future outlook, is there anything that you would tell them, like good, bad, ugly or all of the above?
[00:44:27] Speaker A: So I think the UK is definitely. It remains one of the largest market opportunities for a municipal water and wastewater in Europe due to the sheer size of its asset base and the size of the population, obviously, but also because of the way it is regulated and how those regulations are constantly requiring the utilities to push forward and continue to invest massively in the sector. So definitely a big opportunity. It will remain a large opportunity is in the years to come. And it's also, again, back to the way it's regulated. Probably one of the fastest growing markets in Europe. Again, if we look at the municipal segment.
I think there are lots of opportunities in terms of both infrastructure, again with the objective of better managing stormwater, for instance, or better ensuring the sustainability of water supply. There are lots of very large infrastructure projects being developed at the moment for transferring water between one utility service area to another, implementing retention and detention tanks underground to manage stormwater, et cetera. But I think definitely the digital segment of this market, where the digital solutions will continue to be at the forefront of the opportunities moving forward. Like we've said a number of times already, the UK is marked by aging assets. It's also already a very mature market from a digital standpoint. So there is this push to continue looking at solutions for moving from a reactive to predictive management and operation of assets, with the idea to optimize and if possible, reduce costs as well. So there's opportunity for innovative technologies, new deployment of digital technologies, but also the replacement of existing rtus logger's battery, for instance. So there is this large digital related opportunity, I think, in the UK market.
One more downside aspect of it, I would say, is the fact that it's a small market in terms of the number of customers. We are speaking about 16 large utilities, which is a fairly restrained number of potential customers. And it's a market that is already full of vendors, so it's not necessarily easy to penetrate. We've mentioned engineering consultancies earlier. They can act as gatekeeper to certain areas of the market. So big opportunities, but not necessarily the easiest to enter for newcomers, I think.
[00:47:37] Speaker B: Yeah, and like I think you've said that, said as much in that it's at least transparent. You kind of know where you stand. So this is super interesting for anybody who's interested in water, because I think, you know, everybody looks. There are key markets around the world that people do look at. The UK is. Is clearly one of them. Like you said, it's. It's not a small kind of. I mean, how many people live in the UK? 670 million people, my office. So 70 million people, but limited number of utilities. But they are being. Someone's turning the screws on them to be more efficient and find and achieve performance targets over time. So I think that's really important.
Whereas the alternative is an incredibly fragmented market, whether that be other european markets, whether it be Spain or France or definitely the US. So the UK is interesting. So I know you've spent a lot of time on this. I know you've talked to a lot of people about this, so maybe I'll finally set you free and you can move on to other markets and other research, but this is great. So thanks a million for jumping on and, you know, sharing your thoughts on the market. This is helpful, of course.
[00:48:54] Speaker A: Thanks for having me.
[00:48:57] Speaker B: All right, so, man, we could have gone on forever, but that's, that's a wrap for the 101st episode. So thanks for being part of the journey works. We're excited about future of the water industry, including the UK and the innovations that lie ahead. So in this case, stay tuned for more insightful discussions from people like Chloe and my other colleagues Bluefield research with their, the expert interviews. So here's to the next 99 episodes so we can get to 200. So that's the, the next goal. Before we sign off, if you're in Boston, Barcelona, or really anywhere for that matter, let us know. We'd enjoy the opportunity for a meeting. Please subscribe. Please, please, please. I'll say it again, please give us a review. It really helps. It helps our site engine optimization. It helps us move up the rankings for podcasts. And if you like water, just do it. It doesn't. We're just giving you information. Hopefully that's useful. And if you have questions, comments or their topic ideas you'd like us to discuss in the note to us at water expertslewfieldresearch.com dot. We're doing this for you. Lastly, tell a friend about it. This podcast and these water industry insights have been brought to you by the one and only Bluefield research. To learn more about us, visit
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