Barriers to innovation in the UK water sector

1
Barriers to innovation in the UK water sector
IWO Too late to innovate? Meeting the
challenges of a 21st century water industry 5
October 2007

• From our 2006 UKWIR study 06/RG/10/1
• Dr Duncan Thomas
• Manchester Institute of Innovation Research /
  Policy Research in Engineering Science and
  Technology (PREST)
• Manchester Business School

Disclaimer The original study was funded by
UKWIR, Ofwat and DTI Opinions expressed do not
necessarily reflect the views of these bodies
2
About the Institute / PREST

• PREST roots in 1960s water team since 1997
• Now Manchester Institute of Innovation Research
• Policy research... NW, UK, EU global
• Key interest in technological innovation
• Knowledge, products, processes, services
• Innovation main sustainable engine of growth

3
Overview

• UKWIR study approach
• Success failure case studies
• Drivers incentives
• Barriers enablers map
• Challenges controversies
• Ways forward

4
UKWIR study approach

• Building an evidence base
• 100 key UK stakeholders steering group
• 7 varied UK case study pairs
• Interview questionnaire approach
• Review of existing data
• Dissemination

5
Main findings

• Strategies, regulations, policies, users
  misaligned
• Inventive supply-chain hampered by multiple
  factors
• Water companies key but could do more
• Innovation comparatively slow... two generations
• Blame culture vs. collective learning
• Too parochial... Other sectors? Other countries?
• Long term (e.g. climate change) vs. short term?

6
Success failure Pair 1

• Internal external wastewater process
  innovations
• Both patented technically valid
• Internal process more clearly defined benefits
  packaged for conservative adoption culture
• External process riskier meant buying-in
  innovators services
• Better internal operator involvement could
  replace external case
• Bias towards internal innovation...?

7
Success failure Pairs 2, 3, 4

• Plastic pipes, sewers, leak detection...
  refurbishment, repair replacement
• More capital spend on replacement than
  operational spend on maintenance?
• Low-tech detection replacement vs. precise leak
  location dig
• Outsourced contractors skill levels problematic?
• Inconsistent approach to plastics in water vs.
  wastewater application?
• Problems with CAPEX/OPEX incentive balance...?

8
Success failure Pair 5

• Strategic rehab prioritisation with without
  modelling
• Innovation benefits linked to high-level
  acceptance in a water company... more strategic,
  more savings
• Modest strategic OPEX saved significant short
  long term CAPEX
• Long innovation gestation... end userinnovator
  technical groups feedback throughout
• Strategic acceptance of models approaches...?
• End user involvement?

9
Success failure Timescales
Innovation success requiring second phase of
product RD, demonstration and small-scale
adoption before becoming established in
widespread UK use
Innovation failure re-use/re-discovery of an
earlier scientific breakthrough failing to
secure water company support not in widespread
use
10
Success failure Pair 6

• Strategic approaches to supply demand
• Optimising supply vs. entering consumer territory
  via retrofit devices
• Sufficient evidence to invest? (More studies due)
• Right culture framework to tackle consumer
  behaviour?
• Scope to involve more supplier innovations?
• Water company boundaries duty of care...?

11
Success failure Pair 7

• Innovations in conventional wastewater kit
• Both help societal acceptability (odour,
  aesthetics)
• Success saved OPEX on landfill tax... reduced
  volume safer transportation
• Failure (odour) an optional extra... but
  successful via Scotland N Ireland PFIs
• Different business case outside England Wales?
• Clarity consistency of regulatory drivers
  incentives...?

12
Drivers

• Short term commercial vs. long term societal needs

Smaller sample
13
Incentives

• Cut OPEX, dont pre-empt new regulations... end
  users?

14
Innovation barriers enablers
15
Challenges controversies
Falling total RD spend Constant 2004 m prices,
total of the 10 WASCs source UKWIR Barriers to
Innovation report
16
Challenges controversies
Falling collaborative RD spend (subs to
UKWIR) Constant 2004 m prices, total of the 10
WASCs source UKWIR Barriers to Innovation report
17
Challenges controversies
Challenging post-privatisation efficiency
rhetoric? Source Saal, Parker Weyman-Jones
2006 (pre-publication, Journal of Productivity
Analysis)
18
Challenges controversies
Pre-privatisation under-spend
post-privatisation capital expenditure? Constant
1999 bn prices, CAPEX for England and Wales
source Thomas and Ford 2005
19
Challenges controversies
Trend of projected, determined and actual
operating costs Constant 2005/06 prices,
millions source Ofwat 2006
20
Challenges controversies
RD intensity across different utility sectors in
the UK () Source Oxera 2005
21
Challenges controversies
22
Challenges controversies
23
Challenges controversies

• Ofwat continues to display a lack of interest in
  innovation in the water industry, and is failing
  to understand the realities of funding science.
  The response to our recommendation on research
  and development is particularly unconvincing
• Source
• House of Lords Science Technology Committee,
  Water Management Follow-up Report, 11 January
  2007

24
Ways forward

• Continued dissemination... barriers to
  innovation still an UKWIR top seller...
• High-level calls for bold new actions
  incentives
• Can the water sector cope with climate change
  with its current innovation intensity?
• Is the single pass to waste approach
  sustainable?
• UKWIRs RD roadmap, Defras water strategy, EAs
  water resource planning, Ofwats business
  plans... drivers for innovation?

25
Thanks... Questions welcome
IWO Too late to innovate? Meeting the
challenges of a 21st century water industry 5
October 2007