Water efficiency fund

Water Efficiency Fund logo

By 2050 England and Wales will need more than 4 billion extra litres of water available per day through the public water supply.

Paul Hickey, Senior Director at Ofwat, said:

“To secure long-term supplies of affordable, resilient water supplies we need to do three things: tackle wastage, boost supply and reduce demand. Companies know they have to deliver on the first and have been set a target to halve leakage. On supply, we are driving ahead with multi-billion pound projects to deliver new sources of water, including several new reservoirs.

“The final piece of the puzzle is to reduce demand. Under the Government’s Environmental Improvement Plan, we are aiming to achieve a consumption target of 110 litres of water per head per day, down from about 146 litres per head per day currently.

“We have seen customers in England and Wales increasingly want to make environmentally conscious choices, and we want to empower them to be able to do that.”

We think a central fund has the potential to support the sorts of collaborative and innovative work that is necessary to get the sector on track. This is why Ofwat plans to establish a £100 million water efficiency fund (also known as WEF) from 2025 to help deliver a transformative, sustained, and measurable reduction in water demand across England and Wales.

We have now launched our second consultation, Scoping the Water Efficiency Fund: Second Consultation, which covers our approach to the water efficiency fund and builds on the responses received to the first consultation. The closing date for this consultation is 25 June 2024. Please respond using our online form. Alternatively, you can also email your responses to [email protected]. Alongside this consultation, we have also published a number of supporting documents that can be found here.

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Page last updated: 14 May 2024

About the Ofwat water efficiency fund

The aim of our £100 million water efficiency fund is to stimulate a transformative, sustained, and measurable reduction in water demand across England and Wales by using a range of water efficiency approaches. We want to encourage collaboration and innovation that would not, and historically has not, otherwise happened.

"PR24 will introduce a fund of up to £100 million to help stimulate a transformative, sustained and measurable reduction in water demand nationally, using a range of water efficiency approaches

The fund aims to address two challenges.

  1. To encourage people to use water wisely.
  2. To help water companies overcome barriers they face in this area. While we have introduced incentives for water companies to increase water efficiency through targets and our 2024 price review framework, these barriers include:
    1. Being dependant on customer behaviour to deliver improvements
    2. Limits to the skills and experience available within companies that tend to favour engineering approaches and solutions
    3. Coordination challenges across the sector and the companies responsible for supplying water
    4. Perceptions about the long-term nature of demand reduction, with targets set years in advance

It is Ofwat’s ambition to prioritise water efficiency on par with energy efficiency and other sustainability challenges, promote its efficient use, gather greater understanding, and remove barriers to help water companies deliver on their responsibilities.

The fund will also complement Ofwat’s innovation fund, which has already encouraged several innovative projects to increase water efficiency.

We intend the fund to benefit customers in both England and Wales, so it will be paid for by bill payers. It will cost £100 million, or 62 pence a year per household on average.

Why the water efficiency fund is needed

Water companies currently supply about 16 billion litres of water into supply per day in England and Wales.1

Water companies in England and Wales predict we will need upwards of an extra 4 billion litres of water a day by 2050, which is around 25% of the water currently put into supply.

The extra water is needed to:

  • reduce unsustainable abstraction, so that sensitive habitats are protected
  • increase resilience to drought to reduce the likelihood of interruptions to supply
  • supply a growing population
  • adapt to changing water availability driven by the impacts of climate change

At least half of this extra 4 billion litres is expected to come from increasing water efficiency and reducing leakage.

As well as helping make supplies more resilient and reducing the need for investment in additional water supplies, water efficiency will help keep customers’ bills affordable and reduce greenhouse gas emissions.

Water companies will be putting forward significant programmes to manage demand over the coming years. This is likely to include:

  • a widespread shift to smart metering to help customers reduce their water use by improving the information available to them on how much they use
  • installing water efficient fittings and appliances, such as efficient showerheads that provide the same experience with less water
  • communicating with customers on the importance of using water wisely and exploring alternative tariff structures to put incentives in place to reduce usage. The UK Government’s Plan for Water includes a range of policies to support water efficiency and Waterwise has published a UK Water Efficiency Strategy

But even with these programmes, the associated investment, and the expected supporting policies, we think the sector is likely to fall short of its long-term goals for water efficiency.

While the sector has worked on water efficiency for many years, we have not seen the sort of coordinated, sustained and large-scale initiatives that we think are required to achieve significant progress.

We think that a different approach is needed urgently, and that a central fund has the potential to kickstart the sorts of collaborative and innovative work that is necessary to meet our long term needs.

Developing the Ofwat water efficiency fund

In ‘Scoping the Water Efficiency Fund: High level consultation’, which we published on 31 July 2023, we set out our emerging proposals about the fund. In response to our consultation:

  • More than 80% supported the objectives of the fund and the need for it, though some challenged whether it was big enough. Nobody explicitly disagreed with the objectives of, or the need for, the fund.
  • Around 70% supported dividing the fund into segments. Dividing by project area was favoured, though some urged caution on creating silos between projects.
  • Most (68%) supported our proposed eligibility criteria and scope. Questions were raised around how we define additionality (the requirement that proposals are in addition to work already planned or taking place) and whether we specifically want innovative approaches or are more focused on proven techniques.
  • Responses said that water companies had an important role to play (65%), but more (53%) thought their involvement should not be mandated than those who thought it should (35%).
  • Large-scale behavioural change was the most popular single intervention (60% of responses proposed this approach in an open question about how the fund could best achieve water savings).
  • Over half (58%) of responses supported our intention to focus on fewer, bigger projects with some noting that a broader range of project sizes would be beneficial to increase engagement and innovation as well as diversifying risk.

We have now launched our second consultation which covers our approach to the water efficiency fund. It builds on the responses received to the first consultation. This consultation sets out our current thinking on how the water efficiency fund should operate. We are seeking views on a wide range of related questions to help develop this thinking.

We have now published:

The closing date for this consultation is 25 June 2024. Please respond using our online form. Alternatively, you can also email your responses to [email protected].

We intend to publish responses to this consultation on our website at www.ofwat.gov.uk. Subject to the following, by providing a response to this consultation you are deemed to consent to its publication on our website.

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1. Water Company Performance Report 2021-22 data