Pennon Group
National Needs Assessment – Submission
About Pennon Group
Pennon Group Plc is a UK-based environmental infrastructure company focused on water and waste. It is UK-listed and is at the top-end of the FTSE 250. Pennon owns Viridor, South West Water and Bournemouth Water and has £5.8 billion of assets with a workforce of over 4,500 people and significant apprenticeship schemes at both Viridor and South West Water.
Viridor is one of the leading UK renewable energy, recycling and waste management companies providing services to local authorities and businesses. Viridor manages over 7 million tonnes of material per annum across the UK. Its strategy is focused on transforming waste, using input materials to produce vital renewable energy, high quality recyclates and secondary materials.
South West Water provides water and sewerage services to a population of approximately 1.7 million in Devon and Cornwall and parts of Dorset and Somerset. Pennon Group acquired Bournemouth Water in April 2015 and is now integrating the company into South West Water. Bournemouth Water provides water services to a population of approximately 0.4 million people in the Bournemouth and Christchurch region.
UK Capital Investment Programme
As an environmental infrastructure company, Pennon Group is constantly investing in its asset base and therefore has a significant capital investment programme in place. South West Water’s 2015-2020 Business Plan provides for up to £1.8bn of total expenditure (operational expenditure and capital expenditure) on its asset base, including Bournemouth Water. Viridor is currently over two-thirds of the way through a £1.2bn investment programme to deliver eleven Energy Recovery Facilities (ERFs) by March 2019.
Pennon Group Asset Base (£BN)
Why is Pennon Group responding to the National Needs Assessment?
Pennon Group agrees whole-heartedly with a cross-sector National Needs Assessment for the UK’s long-term infrastructure provision. Pennon has strong links with both the National Infrastructure Commission and the Institution of Civil Engineers. Pennon is also currently working with the Treasury on the National Infrastructure Plan for Skills and UK Infrastructure Delivery. Pennon is investing, innovating and working to deliver the infrastructure networks and services the UK needs.
Pennon approaches delivery of its infrastructure projects and services in an evolutionary way, using innovative thinking to deliver efficient and cost effective solutions. This can be seen in particular through the work we’ve done on “Upstream Thinking”, using the ecosystem and good relationships with stakeholders to improve water quality with minimal capital investment required. Also at Viridor, looking at energy storage solutions on our landfill sites such as our cryogenic energy storage project in Greater Manchester, which was funded by the Department of Energy and Climate Change (DECC).
Throughout this submission you will find suggestions and views on policy that would help the UK to address some of its key infrastructure policy challenges. Across Pennon Group, we will generate over c.1.2Twh of energy and 0.5Twh of heat in the year to March 2016, enough energy to supply a City the size of Plymouth and supply a resident population of c.2.1 million people with drinking water. Mid-sized companies such as ours are not always on the Government’s radar when it comes to looking at policy responses, but in total, the small and mid-sized players are contributing a huge amount, right across the country.
Whatever the results of the EU Referendum this summer, the UK will need a strong infrastructure framework. We believe that the policy suggestions we have outlined here are the right ones whether the UK stays in or leaves the EU.
Responses to Call for Evidence Questions
1. Do you agree with our proposed vision and outcomes? What amendments would you propose?
We broadly agree with your proposed vision and outcomes. We would suggest the following amendments:
· The UK will invest efficiently, affordably and sustainably in the provision of resilient infrastructure assets and services to contribute to drive the economic growth necessary to enhance the UK's position in the global economy, support a high quality of life and shift towards a low carbon future.
· We believe the addition of ‘resilient’ is obvious, as it is important that infrastructure assets are resilient.
· We consider that the word ‘drive’ within the vision infers that economic growth could only be driven by investment in infrastructure assets. Economic growth requires the stimulation of a wide breadth of factors of which infrastructure assets would be one. We would suggest that the words ‘contribute to’ would be more appropriate.
We agree with the strategic options that you have set out, what is unclear is how these will be assessed for each infrastructure group. We consider that it is important that there remains governance and oversight for each infrastructure group and that each group is assessed to ensure that it is fit for purpose and able to respond to the challenges of the future. A clear example of this is with regards to flood defence where the challenges of winter 2015/16 have stretched the capability of our flood defence assets. An independent technical review of these assets should be undertaken to assess the national capability against future challenges. Is this something that the National Infrastructure Commission can and will undertake?
A concern we have, particularly on the waste market side is that discussions are too future focused, looking at the situation 10 to 30 years into the future. We also believe that waste must be considered higher up the agenda as a critical area of national environmental infrastructure alongside flood defences for water.
The National Needs Assessment must address outcomes, but with a key point that the proposals are financeable/pay for themselves or create jobs/ Economic Value Added (EVA) at a multiple of the investment requirement.
Decision-making and planning of National or major Regional infrastructure projects with asset lives in excess of 25 years such as in our business, should be apolitical.
2. What will be the main drivers of demand for UK national economic infrastructure over the next 35 years that we should consider in our assessment?
We consider that drivers of demand for infrastructure over the next 35 years should be based upon;
· Population growth
· The impacts of population movement and immigration
· Climate change and extreme weather
· Resilience and adaptation
· Resource security
· Technological change (i.e. Broadband impact on home-working reducing travel needs)
People are living longer and this must be considered as this population will require to be managed. The impact of how this population will live and the infrastructure they will demand has to be considered. Therefore a key outcome for the commission will be to address the demographics of the population and what their demands will be.
In today’s society we are becoming increasingly dependent on infrastructure to deliver essential services to homes and businesses across the UK. Whilst many aspects of the services are managed independently, the interactions between these services are becoming increasingly intertwined. Operational trends within infrastructure providers include smart networks where power, data and telecommunications become essential to ensure continuity of essential services such as water, electricity and gas.
Whilst each industry plans for resilience of services, it relies also on the other service providers for support, assuming that they will not be impacted in the same way at the same time. However, recent experience shows that some of the greatest vulnerabilities occur when all services are impacted in the same area at the same time and there are not clear priorities for responses. (i.e. energy companies incentivised to return power to household customer properties ahead of power to water treatment facilities.)
Resilience planning for the future should therefore be across all infrastructure providers and should consider the overall loss of essential services and the impact this will have on homes and businesses. Specifically:
· There needs to be a clear focus on improving the national grid and local electricity networks long term.
· Decommissioning and dealing with legacy infrastructure in a sustainable manner will be an important outcome (e.g. landfill and leachate in waste).
Climate change and extreme weather
Whilst there are many who remain climate change sceptics, we consider that the continued occurrence of extreme weather events year on year, confirms the existence and impact of climate change. We therefore consider that we will be subject to continued extreme weather events and that as a service delivery and asset management utility that we will need to plan for and adapt our operations and asset base to be able to respond to these extreme events in the future.
The challenge for this planning is balancing the cost of this adaption against the risks of these extreme events and to do so based upon evidential economic knowledge, otherwise in inappropriate burden of cost will be placed upon either our water consumers and or shareholders.
Resource Security
The UK and global economy are experiencing periods of resource stress, driven by the scale and speed of demand growth from emerging economies and a decade of tight commodity markets. In addition to the depletion of global resources, the outlook is one of supply disruptions, volatile prices, accelerated environmental degradation and rising political tensions and protectionism over access to resources.
As the UK Government identified in its 2012 Resource Security Action Plan, global manufacturers increasingly cite access to resources as one of the biggest risks to their businesses.
(https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/69511/pb13719-resource-security-action-plan.pdf )
In the waste management industry, both the Department for Business, Innovation & Skills (BIS) and Department for Environment, Food & Rural Affairs (DEFRA) have recognised their roles in intervening to assist UK resource security, including the availability of consistently collected, high-quality, secondary raw materials. A UK that aligns manufacturers, re-processors and recyclers therefore presents a real opportunity to position the UK on the international stage, completing against Europe and the far-east. But to do so we need to re-align a UK recycling system.
Against this backdrop, Europe is increasingly throwing away old thinking about waste and is recognising its value as a resource central to economic security and prosperity. We need to ensure we’re embracing this thinking in the UK. Viridor is transforming waste to create quality materials and vital renewable energy, renewing our business inside and out, and working with our partners to give the world’s resources new life.
Greater use of underground resources should be addressed whether it is minerals, energy or water.
The Circular Economy
A circular economy maximises the sustainable use and value of resources, eliminating waste and benefiting both the economy and the environment. It offers an alternative to what is currently the predominant current (linear) approach where resources are used for one purpose and then discarded. This is an important concept that has been embraced in the EU through the EU Circular Economy package and we must ensure we are looking at the UK economy in the same way.
A more circular economy is essential because current rates of resource consumption remain unsustainable. The last decade has seen a dramatic shift from 20th century expectations that relatively ready access to cheap raw materials was the norm, and that the occasional resource crunch would be overcome by new technology and new sources of supply. This has been expressed in restrictions on raw materials like rare earth metals and substantially greater price volatility across a whole range of commodities. Over the past decade world food prices have doubled, metals prices have trebled and energy prices have quadrupled at times.
Resource management and waste policy and regulation in the UK is informed by the ‘waste hierarchy’, as required by the EU Waste Framework Directive, and transposed into law by the Waste (England and Wales) Regulations 2011 and the Waste (Scotland) Regulations 2012. The hierarchy, which is consistent with the circular economy approach, gives top priority to waste prevention, followed by preparing for re-use, then recycling, other types of recovery (including energy recovery) and last of all disposal or landfill.
A more circular economy also has economic benefits. The Environmental Services Association suggests that a more circular economy could increase UK GDP by £3 billion a year. The European Union has estimated that full implementation of the eight existing EU main waste-related directives could save €72 billion a year (€9 billion in UK). The value of the ‘waste industry’ in Europe could increase by €42 billion (€5 billion in UK), with 400,000 new jobs (50,000 in UK).
The UK Government acknowledged the potential of the circular economy in its 2013 Future of Manufacturing report, and it’s Waste Prevention Programme for England sets out a range of such initiatives. It also endorsed the business-led Circular Economy Task Force, of which Viridor is a founder member, convened by Green Alliance. The Government has also outlined a number of steps to support a circular economy, including encouraging circular economy innovation through the work of the WRAP and the Technology Strategy Board.
The European Commission’s Circular Economy package, if adopted, will place a significant demand on national economic infrastructure. The package offers an opportunity to re-connect policy in partnership with national governments, realising the opportunities of the resource sector in the green economy. A re-connect needs resource leadership in Europe and in national governments: strong, stable, clear and consistent policy from political leaders which encourages private sector investment.
We agree with the UK Government on the need to ensure a balanced package of proposals which are ambitious, are evidence based and are feasible for all member states.
We agree with the UK Government that the ambitious challenge is to meet our environmental objectives in a way which also promotes growth and jobs, by devising a simple structure which gives high level direction while leaving discretion to member states and businesses in how best to meet these requirements.
We note ambitions around resource efficiency and circularity, but agree with the UK Government that whilst targets can have a role, other measures such as voluntary agreements with industry, reward schemes, and other measures may be more effective.
Modern, efficient energy as recovery not only generates important baseload renewable energy for the UK, supporting energy security, but is capable of enabling social policy when linked with distributed energy and ‘smart city’ grids powered by energy recovery from residual waste in local authority and municipality areas.