Water trading is when the appointed water company responsible for supplying water in an area buys it from someone else (either a neighbouring incumbent or third party) rather than developing its own water resources. Trades can be for either raw or treated water – the largest volume trades are for raw water (e.g. Elan Valley which is the supply from Wales to provide water for Birmingham), but in terms of number of trades, there are more treated water trades. Typically the contract is of long duration, to justify investment and fit with the water resources planning framework.
Water trading can be:
Good for the environment
- Water trading both within and between existing companies will tend to move water from areas where it is more plentiful, to areas where it is scarce and the environment is under pressure
Good for customers
- Water trading can reduce the cost of water resources (e.g. by reducing the need for new resources) and hence reduce bills
- Interconnection of separate water supply systems gives access to more sources. This makes the supply to the customer more resilient against shortages and technical problems
Good for the water sector
- If water companies can reduce their costs through water trades, they receive a share of the gains
- There may be profitable opportunities for incumbent companies and other people to provide water in new innovative ways
To encourage greater levels of water trading we are asking the water companies to think about their own water resources activities as separate from their other water duties of treatment and distribution. This will bring management focus to the area and help companies to understand the true costs and revenues available. We are also going to ask companies to publish market information. We are looking to make available key market information so that the market opportunities for trading water are clear to all. We have also introduced financial incentives to encourage water trading by water companies.
Our water 2020 May 2016 document explains the rationale for why we are promoting water trading.
To support this we set up a water resources working group to cover key issues such as how to separate out water resources from the other water company activities and also looking at the market information that companies should publish. The details of these working group meetings are available on our website.