AMP8: What’s Next for the Water Sector?

The UK’s Asset Management Plan Period 8 (AMP8) for water companies in England and Wales is set to commence on the 1st of April 2025. AMP8 is anticipated to be up to four times bigger than previous asset management plans and is intended to help water companies improve efficiencies and alleviate the supply chain risk. [1] However, there are increasing regulatory challenges associated with AMP8, and as a result there are concerns within the water sector that the programme may not be successfully delivered by 2030.

What is AMP8?

In 1989, the water sector underwent significant transformation as it was privatised under the Government at the time. This pivotal decision led to the introduction of AMP cycles, which last 5 years and allow the Water Services Regulation Authority to conduct price reviews for privately managed water companies. Initially the focus of AMP was to upgrade water facilities previously under government management, including the construction of new infrastructure.

However, the focus for AMP8 has changed, reflecting the impacts of COVID-19, Brexit, and the ongoing conflict in Ukraine. The culmination of these factors has resulted in a period of uncertainty and rising costs in the water sector.

Risks to AMP8?

There are concerns that the water sector will not have the capacity to adapt to the change in priorities which will take place over AMP8. These include hitting environmental targets, implementing social value initiatives and affordability due to local and global supply chain disruption, labour shortages and rising costs.

For example, evolving regulations and the urgency of addressing climate change has meant that water companies must invest in infrastructure and technologies to reduce their environmental impact. Failure to do so could result in regulatory penalties, fines, and reputational damage.

In addition, ensuring that water services remain affordable for consumers is a critical concern. Balancing key infrastructure investments with affordability is a challenge, and any significant rise in water bills could lead to public dissatisfaction and backlash.

In many parts of the water industry, the margins are slim and therefore there is a significant risk that subcontractors could move towards a different sector.

Opportunities for AMP8

The water sector will need to encourage and enable innovation throughout AMP8. These include:

Supply Chain Collaboration: The water sector should work collaboratively with their supply chain. By working closely with their subcontractors, water companies will be able to tap into their specialised knowledge and skillset.
Risk Management: Previously, the supply chain has had to shoulder the burden of development and innovation risks, which has posed significant challenges. By distributing risk, suppliers are more likely to remain engaged with the water sector.
Climate Change Resilience: Gaining a complete understanding of the supply chain, and how to reduce Scope 3 emissions will be critical (see our previous blog post Scope 3 Carbon Accounting: The Construction Sector). Water companies should set targeted key performance indicators (KPIs) to ensure environmental targets are delivered. This approach has already worked effectively within the natural resources sector, where contractual mechanisms have driven performance. [2]
Manage Client Satisfaction: Water companies should set realistic and achievable targets. The Ofwat Key Performance Report for 2022/2023, notes that customer satisfaction has fallen, and there remains concerns about the progress of a number of companies in delivering their water resources management plans. [3]

Closing Thoughts:

While AMP8 poses a number of challenges to water companies, the programme highlights the integral role it plays in driving meaningful action. As the industry seeks to create a more sustainable supply chain and engage in joint initiatives, water companies will be key in tackling these issues.

At Deecon, we bring a wealth of experience and expertise in the water sector. With a proven track record of working closely with key industry stakeholders during AMP7, we are well-placed to support organisations through AMP8 and beyond.

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Words by Hayley Lee

References:

[1]https://barkersprocurement.com/amp8/#:~:text=AMP8%20AND%20WHY%20IT'S%20IMPORTANT&text=The%20AMP8%20programme%20is%20set,unique%20challenges%20to%20the%20industry.

[2]https://www.water.org.uk/news-views-publications/news/nature-based-solutions-are-key-tackling-global-climate-change

[3]https://www.ofwat.gov.uk/regulated-companies/company-obligations/outcomes/water-company-performance-report-2022-23/