When white water becomes white gold

John Osmond explores the arguments for charging for Welsh water and finds that, as with devolution itself, the genie is out of the bottle

By one calculation Wales’ present export of water to England, from the Elan Valley to Birmingham and from Lake Vyrnwy and Tryweryn to Liverpool, could be worth as much as £4.5 billion a year. This is the net transfer of social security payments coming into Wales after our National Insurance contributions are taken into account.

Rhodri Morgan drew attention to the relationship between resources such as water going out of Wales and net public expenditure coming into the country in a remarkable essay when he was First Minister. Entitled ‘Welsh Labour’s Future’ it was his contribution to Politics in 21st Century Wales, a collection of essays published by the IWA during 2008. In it he explained in typically forthright terms why Welsh Labour should cling to devolution as the best practical means for projecting a sense of Britishness alongside Welshness. As he put it:

“The Labour Party position which I advocate, can be summed up simply in this way. Devolution – as opposed to unionism, federalism, or nationalism – offers the people of Wales the best of both worlds. We are able, increasingly, to take control of our own domestic affairs, while retaining the benefits which flow from being part of Britain.”

This argument about the inter-dependency of Wales and England is worth some reflection in a week when the hoary old question about the value of Wales’ water and whether we should be charging for it has leapt once more into the headlines. On Tuesday evening Taro Naw, S4C’s current affairs programme, quoted John Elfed Jones, former chairman and chief executive of Welsh Water, as questioning the fairness of water being exported to England without any return. “In 50 years will our people look back and ask why didn’t we invest years ago,” he asked. And accusing the Welsh political class of lacking energy and vision, he declared, “Its about time we took this option seriously.”

By investment John Elfed Jones, a man who enjoys stirring the pot, was presumably thinking of the potential for our building more reservoirs and exporting more water at a time when the English south-east is experiencing what looks to be long-term shortages. Indeed, as Taro Naw was being broadcast Severn Trent Water Authority announced plans to sell (at cost) 30 million litres of water a day to Anglian Water, one of the seven companies that imposed a hosepipe ban at the start of this month. So evidently, a market is there and looks destined to expand.

Key: SEW – South East Water; SES – Sutton and East Surrey;

VEC – Veolia Central; VSE – Veolia South East.

However, according to Rhodri Morgan, this notion of a market in resources between Wales and England would undermine the social solidarity that underpins his vision of what Britain should be all about. As he argued in his essay three years ago:

“Wales has been, and remains, a net resource beneficiary from being part of Great Britain. In Scotland, the issue of North Sea oil and gas clouds discussion of resource transfers. In Wales the position is far clearer. As part of the British ‘club’ we contribute hugely to the combined well-being of the whole – be it through supplying water to Midland conurbations, or in future, through the renewable energy potential of a Severn Barrage, or in retirement destinations for the pensioners of the Potteries.”

Of course, putting this argument down to a pragmatic judgement about the relative values of the resources being transferred, begs the question about what happens if the relative values alter. Why Rhodri Morgan’s argument was so arresting was that, until that point – and certainly until the onset of devolution – most people didn’t think in terms of putting a commercial price on water. It was somehow assumed that, like air itself, and apart from the charges associated with abstraction, purification, transportation, and handling waste, it should be free at the point of use.

For most people that is still the case. But as water becomes increasingly scarce in south-eastern England, there is a growing argument for putting a commercial price on it. This is quite apart from the specifically Welsh argument that we should get paid for a valuable commodity. The case is simply that if people were paying for water by the litre they would be much more careful how they used it. They wouldn’t waste it by allowing out-dated pipes that leak to go unrepaired for example. And, certainly, there wouldn’t be any need for hosepipe bans.

It seems to me that we are entering a new era, hastened by climate change, when Welsh water, of which after all, there is seemingly an endless supply, will come to be seen as more valuable than the steadily reducing amounts of Scottish oil. In these circumstances the iron economic law of supply and demand will take over. And it will substantially change the terms of Rhodri Morgan’s calculation about the relative value of resource exchanges between Wales and England.

I would argue, too, that Rhodri’s computing the price of water, or Wales renewable energy potential, or, even more the value to England of their pensioners from the ‘Potteries’ retiring to Wales, against social security subsides to our young people out of work, is a dead end economic approach. Nonetheless, the fact that he put a price on Welsh water, even if only in terms of its value in an exchange of resources between Wales and England, let the genie out of the bottle. And, as with devolution itself, there’s no putting it back in.

John Osmond is Director of the IWA

10 thoughts on “When white water becomes white gold

  1. A mea maxima culpa. I had meant to do some work on this, but the personal abuse directed at me in 2002-03 for daring to consider if Wales’ water has a value dampened my appetite back in 2010. I am afraid I am too thin skinned for the knock-about side of politics. Now that it is a ‘respectable’ subject to consider perhaps I need to consider it again.

    £4.5 billion p/a would indeed be a wonderful thing, but I doubt if that would be the case.

    Based on the agreements drawn up at the time of privatisation in 1989, there are seven agreements in operation including Elan (DCWW to Severn Trent) and Vyrnwy (Severn Trent to United Utilities) as outlined below. The 1988/89 data is the last time detailed information about the individual licences was released on a comparable basis and it is a good indication of the current state of play.

    The water delivered is the licenced maximum (Ml/day is megalitres per day or 1,000 m3 of water per day).

    Upper Severn (Clywedog) – West Midlands (Severn Trent) – 600 ML/day
    Upper Dee: Merseyside (United Utilities) – 686 ML/day
    Lower Dee: Crewe (United Utilities) – 47 ML/day
    Upper Dee (Alwen): Deeside (United Utilities) – 45 ML/day
    Upper Wye (Elan): West Midlands (Severn Trent) – 359 ML/day
    Upper Severn (Vyrnwy): Merseyside (United Utilities) – 210 ML/day

    Out of a theoretical licenced capacity of 1,737 Ml/day in 1989/89 975 Ml/day was in fact exported, 315 Ml/day from the Elan contract and 660 Ml/day from the other contracts.

    975,000 m3 per day equates to 356 million m3 per annum. How much is this water worth to a water-short utility?

    A good approach would be to consider the long run marginal cost (LRMC) estimates for resources, treatment & bulk transport which were provided to Ofwat, the utility regulator in 2002.

    Data is in pence per m3, with peak demand first and setady demand afterwards. This data is for utilities currently affected by the ‘hosepipe ban’ that provided data to Ofwat.

    Anglian: 142 / 43
    Folkestone & Dover: 161 / 57
    Severn Trent: 211 / 42
    Southern (North Sussex): 71 / 22
    Three Valleys (North Surrey): 401 / 32

    Peak demand is extreme, referring to the cost of going beyond what is normally done. Perhaps a reasonable figure would be 10 to 25 pence per m3 as an abstraction charge with 50p as an exceptional figure. Much beyond this and desalination (no kidding!) becomes a viable alternative.

    Who owns the water? Not the utilities. They have the right to abstract it. Ownership is in government hands via the Environment Agency, which is a devolved institution in Wales.

    So, before we consider any new exports, what are the current exports of 356 million m3 per annum worth?

    10 pence per m3 = £36 million pa
    25 pence per m3 = £89 million pa
    50 pence per m3 = £178 million pa

    £4.5 billion for 356 million m3 per annum is a bit on the high side.

    There are other ways of slaking SE England’s thirst. Personally, I am strongly in favour of demand management, with compulsory smart household metering, rainwater harvesting and greywater systems mandatory in all new housing developments and wastewater recovery, which is a fair bit cheaper than desalination.

    New water transfers are long term projects, as are many of the other supply-led management (the ‘municipal supply paradigm’) alternatives. Demand management is about using less water and using it wisely.

    Putting these figures into a broader context, I have adapted calculations by the Environment Agency, Institute of Civil Engineers and the National Rivers Authority between 1994 and 2006 and made a stab at how much desalination projects would cost. The North-South plan envisaged 1,100 Ml/day transfer via five pipes taking water from Scotland, via the Pennines, while the partial plan envisaged using existing sources to transfer 200 Ml/day. Then there was a 200 Ml/day pipe from mid Wales adapted from the Pennine water transfer data and an earlier plan using the Trent to take water from Wales.

    Some supply management solutions summarised (£ million per Ml/day)

    Pennines transfer – full: 8.2 – 13.6
    Pennines transfer – partial: 5.0 – 8.0
    Wales transfer – pipe: 3.0 – 5.0
    Wales transfer – river: 2.4
    New resources: 1.6
    Desalination: 1.5 – 6.0

    The desalination numbers are a guide, based on major reverse osmosis seawater desalination plants brought into operation over the past decade, including operating costs and where data is available, supporting distribution infrastructure. The fact that desalination would be appreciably less expensive than many water transfer schemes highlights just how costly trans-national water transfer is.

    The Environment Agency’s 2006 calculations are quite chilling. We are not told how these numbers are derived but let us assume a 7% return on regulated assets for calculating how much the customer might pay. For the Pennine transfer proposal, the capital cost for the full scheme would work through at £630-£1,050 million pa and evenly divided amongst the 20 million people affected by the ban this is £72 to £121 extra for each household bill. That is a high price for supply-led water security.

    I would be happy to explore this, and the potential for new exports in much greater detail, but this gives you an idea of what values we should be considering.

    Dr David Lloyd Owen
    Managing Director

  2. You are all missing the point, this started with Thatcher (privatisation), there has been a real lack of planning/investment for the future, ie bigger population and more wastage yet not enough building of underground reservoirs, surface reservoirs and infrastructure and what not, don’t be fooled about the lies of investment. Time and time again I get sick of hearing sheeple moan and groan and fighting amongst themselves this is what these pigs have reduced you all to and you lap it up like medicine, instead you should be banding together and driving this filthy lot out along with the government. You watch things are going to get far worse and not just water.

  3. “seemingly an endless supply” – I’m not so sure. One of the key findings of the Climate Change Risk Assessment published in January was that Wales can expect:

    Reductions in river flows and water availability during the summer, affecting water supplies and the natural environment

    The CCRA also finds that areas of England are expected to suffer more than Wales but with our lack of groundwater and storage capacity I’m not convinced that we’ll escape a growing number of our own drought orders in the years to come. In that situation – where parts of England and Wales are both in drought – who gets the water? Doesn’t the Secretary of State still retain some sort of veto over water in Wales?

  4. You’re honestly quoting the CCRA? Might as well lay bets on weather forecasters actually forecasting weather. CCRA are yet another way to scare and subjugate the population, oh and make proclaimers and supporters of CCRA ideas rich, like I said – sheeple! Ready to be fleeced. No one can make even an educated guess on future weather and any individual proclaiming they can is deluded or has another agenda.

  5. Might I just add there is more than enough water that falls on Britain for everyone. The ways and means to collect and store it have not been utilised because the greedy of this country wish to profit at your expense and don’t mention the green tax added onto your electric bill (sorry, changing subject). Mind you they haven’t made as much of a fool of the gullible public as perrier did and the other water traffickers…yet. You couldn’t dream it up.

  6. Thank you David for your analysis. The debate clearly requires your clarity of thought!

  7. David’s points are very valid ones. We should be doing all we can to conserve and reduce our per head demand, and recycle far more. This by far the most cost effective and therefore sustainable method of managing water. However, I do not believe that this will be enough to meet the future demands of SE England. Desalinisation figures were I believe about £1 per cubic meter in 2006, but these have changed due to a move on in technology (I am advised) and also a shoot up in energy prices. If water is to be moved around the UK, then it can only conceivably happen from one adjoining water region to another, effectively passing on spare capacity by default. This immediately hits a roadblock, as the communication between the EA and water companies is bad enough, so how they would manage such a deal between themselves is anyones guess. It will take political pressure to resolve this and believe that Wales will have to play a role as the nearest upland area with potential spare capacity, to SE England. Can we also please talk about water in terms of total management, from when it hits the ground to when it enters the sea. Water supply is just one element of this and DCWW has a lot to offer the economy of Wales across the whole spectrum of water management.

  8. This whole article revolves around the belief that somehow England subsidises Wales. The UK is in deficit to around £150 billion a year with a total deficit of over a trillion pounds. Taking out the gaps in finances from N Ireland and Wales (even the unionists are starting to realise that Scotland is “at worst” breaking even) and you’ll find that England is somewhere around £140 billion IN DEFICIT EVERY YEAR.

    Now tell me again how the English tax payers subsidises the rest of us when they cannot even balance their own books. The UK is a sham, a faltering economy that is being financed by massive loans.

    Wales and every other “region” would be better off going their seperate ways and leaving London and the south east with the fascination for treating the rest of us like poker chips in their badly managed casino.

  9. The “English” budget deficit is 10 per cent of GDP. The equivalent Welsh deficit is over 30 per cent of GDP. They face austerity; without subsidies from the rest of the UK, we face ruin. The Welsh economy is a wreck. David Lloyd Owen’s numbers show clearly that the value of Welsh water exports would not cover even 5 per cent of our social security deficit. If Wales is to emerge from this situation, which we all presumably want, we must face harsh realities and not retreat into fantasies about us being “better off” without the UK or being able to pay our way by flogging them water.

  10. I never mentioned flogging them water. Keep it for ourselves and make the water intensive industries move here would be the ideal scenario.

    As for your figures, I wont dispute them. In fact I will take them at face value and assume they are true. And if they are then I’d say Wales is doing well in comparison considering the decimation of our industries by the Tories and complete apathy from Labour. And yet despite the fact we have never had anyone in charge of Wales that actually gives a toss about us we are only 20% behind England who have been bankrolled by Scottish oil for decades.

    No one subsidises anyone, it’s all a sham that you and millions of others across the UK are apparently falling for.

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