Ackroyd: no more disaggregation of Scottish Water

Scottish Water chief executive Richard Ackroyd tells Karma Ockenden why the company is bent on cutting its carbon footprint.

It is no surprise that Scottish Water wants to reduce its carbon footprint. The company is Scotland's biggest electricity consumer, it is owned by the turbo-green Scottish Government, and it is required by the Climate Change (Scotland) Act to contribute to the country's greenhouse gas reduction target of 30 per cent by 2020.

As chief executive Richard Ackroyd puts it: "Scotland has set itself up to be a world leader on tackling climate change. Rightly or wrongly it has. The Scottish Parliament has set tighter targets than the rest of the UK for greenhouse gas reductions. And here we sit as one of the biggest companies in Scotland, owned by the Scottish Government. And we happen to be the biggest user of electricity in Scotland, accounting for around 2 per cent of electricity demand."

Vision

Even in this context, the profile Scottish Water is giving to emissions reduction, and the scale of its ambition - to serve up the greenest water in the world - are remarkable. Sustainability is at the heart of Scottish Water's corporate and equally ambitious "vision" to become Scotland's most valued and trusted business.

Ackroyd explains: "Hitherto, Scottish Water's strategy has been very two-dimensional. It focused on value for money for the customer and driving up OPA [Overall Performance Assessment, Ofwat's measure of service delivery]. All of that was really important in the period that's just gone because they were the things we weren't doing too well on. But now we are, so we've decided to have a vision which broadens out what we do and looks far further ahead than the next five years."

Ackroyd admits the vision, a key feature of his two-year tenure at the helm, is aspirational, almost impossible to quantify and without a firm delivery deadline. But he explains there are detailed, quantifiable sub-goals, with action on sustainability crucial.

Carbon footprint today

Scottish Water's carbon footprint for 2008/09 475,265 tonnes of carbon equivalent, down 9,800 tonnes on the previous year on a like-for-like basis, although data issues make direct year-on-year comparisons difficult. Any fall is an achievement, given that consumption has increased by (on average) 2 per cent a year for the last ten as treatment processes have become increasingly energy intensive.

There is a three-pronged strategy to shrink the footprint, the most important and ambitious of which is a long-term aim to power the business entirely on self-owned renewables. At present, Scottish Water meets only 5 per cent of its demand, mainly through hydro power. "We've set some really quite ambitious goals on this," Ackroyd says. Within the next couple of years that figure will be 10 per cent. By 2015, Scottish Water aims to meet 20 per cent of its demand through onsite wind and by retrofitting small-scale hydro. "Beyond there, the world's really your oyster," Ackroyd says.

100% renewables

A feasibility study has suggested that Scottish Water could be entirely powered by renewables, using onshore wind on its landholdings. "We can't do that ourselves because it would need £250 million of capital, let's say, which we're not going to be able to raise ... so we need to find partners to work with on that," Ackroyd says.

The company has issued tenders for six sites already and is in the process of selecting partners to finance and develop them. "It's a very real potential," Ackroyd says. "I don't think we're ever going to get to 100 [per cent], but we could have the greenest water in the world in Scotland in not many years' time."

Climate change manager Mark Williams explains the other two prongs of the strategy: reducing demand and increasing the efficiency of the energy that is used. Last year, Scottish Water's leakage programme, saving 122 megalitres a day, was the biggest contributor to the reduction in its carbon footprint. Leakage will remain a target, with the company funded in its recent price review to reduce leakage by one-third by 2015. Greater use of energy-efficient equipment in treatment plants and pumping stations will be another focus, and attention is set to switch from purely operating carbon to capital carbon too.

Whole life carbon impact

Staff are being encouraged and equipped to assess a whole range of capital options, from no-build to, where construction is necessary, the most cost-effective and energy-efficient option available. Williams says: "When we seek to procure even big capital solutions, one of the key things we're starting to look at is how we assess the whole-life carbon impact of any plant that we commission."

Wider gains require working with regulators and legislators - for instance, to introduce risk-based rather than absolute treatment standards and to ensure carbon is taken into account when legislation is drawn up on treatment requirements. Ackroyd is optimistic on this front. "I think there's a real willingness among legislators in Scotland to open up that question and look at what legislation already exists that really is not appropriate for a world of carbon reduction and revisit it," he says.

Ackroyd is well aware that sustainable solutions also have to be cost effective, but he says risk-based approaches and greater innovation do not necessarily equal bigger bills. "It's not about throwing money at it ... it could all be wasted. A lot of work needs to be done to come up with scientifically sound ways of investing wisely and having a real impact." Some funding has been allocated under the price review for green measures, and Williams says most of this will be spent on learning and building an evidence base for future decisions.

"Sensible" price review

Turning to wider issues, the other key feature of Ackroyd's time as chief is the successful completion of the 2010-15 price review. Prices have been frozen for 2010/11, with a 5 per cent fall in real terms by 2015. At £2.5 billion, the investment programme is smaller than for the previous period, allowing borrowing from the Scottish Government to fall from £200 million to £140 million a year.

Ackroyd describes the outcome as both "satisfactory" and "sensible", particularly the smaller capital programme. "We've been running at about £600-700 million a year. It's going to be a bit over £500 million a year ... It was all about catching up with a backlog that England and Wales had dealt with in the past and probably too big to be efficiently managed.

"We've got a programme now that is slightly smaller in scale but still pretty big. It does what we need it to do: it's got adequate capital maintenance; we've got clarity with the government and regulators about what the investment priorities are; and it's small enough to be manageable."

Investment priorities include providing infrastructure to new developments, upgrading rudimentary water treatment works in rural areas and dealing with Glasgow's drainage issues ahead of the Commonwealth Games. Around half the programme will be delivered by the new Scottish Water Solutions consortium, a slimmed down and finely tuned version of the Scottish Water Solutions consortium that operated in the last investment period.

No Ofwat-style regulatory review

Given the satisfactory outcome, does Ackroyd believe water regulation in Scotland is fine as it is, or does it need an Ofwat-style overhaul? Certainly, there is no intention to blindly follow the course being taken south of the border.

"There's always a question about how far we want to have convergence and how far we want to have divergence," he says. "I think there's quite a delicate balance here. It is desirable that the process in Scotland enables comparisons to be made with England and Wales so we can measure our performance relative to others. But it is also important that Scotland is a separate nation with a devolved administration, so it is important the process enables Scottish Water to do what's needed for Scotland, and that might be very different from what's needed in Birmingham or Bristol or somewhere else." That said, he expects the next price review to incorporate some new developments. Discussions are under way between the company and its regulators on matters such as a simpler process and incentives of a different nature.

Competition caution

Despite Scotland taking the initiative on water competition and opening up its non-domestic market two years ago, the prospect of further competition is not a priority for Scottish Water.

Ackroyd says he wants the existing market to work and explains he is supportive of accounting separation - funded in the price round - "because it will reveal all sorts of things we didn't know that will be helpful in running the business better and more efficiently".

But, he says: "That's very different from business separation, which is not necessarily a good thing ... The case is not made at all for further disaggregation of Scottish Water." Ackroyd is confident that there is no political appetite in Scotland for household competition, and doubts the value of abstraction trading for a country with a geographically dispersed population.

Looming privatisation?

Finally, the old question of ownership. Scottish Water, and Ackroyd in particular, have been under fire of late in the Scottish press on pay and bonuses, given that the company is publicly owned. This culminated in Ackroyd committing to donate a quarter of his bonus this year to charity WaterAid. I ask if privatisation would be welcome at this point? Ackroyd holds the line that the nature of Scottish Water's ownership is a matter for politicians, but points out that the business could function effectively in the private sector.

"The current public ownership model works, provided the politicians continue to make £140 million a year available to us by way of loans. If for whatever reason, due to public spending priorities, they'd rather spend that £140 million a year on something else, then it's quite possible to finance this business through the markets. But it would have to come out of traditional public sector ownership to do that."

Comment on this story

Screen name

Email (For verification only. Your details will not be retained or passed on. Not for publication)

Comment

Report Abuse

Sign up to our free email newsletters