In the 2014 price review (PR14) Ofwat introduced water trading incentives to encourage water trading by incumbent water companies. 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 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.
Incumbent companies can only receive the PR14 water trading incentives if they produce, and are compliant with, an approved trading and procurement code. The codes are voluntary and are only required if companies want to claim water trading incentives at the 2019 price review. In order to claim water trading incentives company codes must be approved by August 2018, before Business Plans are submitted. The full requirements for the code are set out in Appendix 3 of our final PR14 methodology statement.
What is a trading and procurement code
A trading and procurement code sets out the principles and assessment criteria that companies will follow when assessing proposed water trades when dealing with other appointed companies or third parties. It can also include how the companies will communicate with potential trade partners and some of the terms of trading with the companies.
What is the purpose of a trading code
The purpose of the codes is to make sure that companies are not trading in order to game the trading incentives, and are engaging in trades that are environmentally and economically beneficial. The codes also work to make sure that companies assess water trading options fairly and on an equal footing to their own water resource schemes.
As part of the process of approving the codes we publish a company’s draft code on our website for comment. Following the conclusion of this consultation period we will approve the code or provide reasons for not approving it within six weeks.
Approved company codes are linked to below. Copies of these codes are also available on company websites.