The Ofwat Technical Working Group (TWG) is continuing with its discussions on the detailed and complex issues surrounding the design and implementation of the sludge market mechanism to facilitate the opening of a competitive bioresources market.
The working group was established by the regulator as an open forum to enable constructive discussion of detailed aspects of the main design features.
The papers published by the latest meeting of the Group, which took place on 20th October, clearly highlight a number of ongoing complexities which must be resolved in order to move ahead with market implementation.
Much of the discussions at the meeting hinged on sludge cost assessment and pricing- in terms of transfer pricing, market prices and trading.
What emerges from the discussions is that both existing participants in the form of the water and sewerage companies (WaSCs), and potential new entrants like waste management firms will be looking for ways to maximise operational efficiencies to gain a competitive advantage in the new marketplace.
Current thinking would see the WaSCs bear volume risk in bio-resource control and using their appointed assets in certain areas, together with seeking the same service in other areas using other suppliers offering bioresource services e.g. waste firms.
According to Khaled Diaw from Ofwat, trades in the new market should occur where a firm’s avoided cost from outsourcing treatment of its bioresources is greater than the costs incurred by a potential supplier of the service.
The regulator is now setting up a specific sub-group to look at sludge cost assessment – key issues the group will consider include the nature of sludge costs and the types of technologies available.
Anaerobic digestion accounts for 84% of sludge treatment technology
Ofwat has already collected historical wastewater data from all WaSCs for cost assessment modelling. For sludge, the financial data includes opex and capex for sludge transport, treatment and disposal. The non-financial data includes volumes of sludge produced and disposed of (split by incumbents and third parties), sludge treatment by process and energy consumption from sludge.
Anaerobic digestion is by far and away the most common form of treatment – 84% in total according to the latest data. The latest data on types of treatment used for 2015-16 shows that Conventional Anaerobic digestion accounts for 46% of sludge processed, while advanced anaerobic digestion accounts for 38%.
The meeting heard that types of sludge processes have very different costs so differences between WaSCs mean they face very different costs of treatment and energy production potential. The discussion also examined to what extent the differences reflected underlying external drivers or to what extent the choices of technology used were within company control.
Frank Grimshaw from United Utilities drew attention to the fact that the WASCs could be seen as having a dominant position in the market for sewage sludge, saying the regulated companies need to ensure that their charges are not seen as abusing a dominant position to exclude competitors from the market.
The WASCs would also need to avoid predatory pricing, setting prices below cost to drive out competitors and price discrimination, if this involved applying different prices to equivalent transactions with other trading parties, thereby placing them at a competitive disadvantage.
Looking at the discussion around cost-related issues, it’s clear reducing costs further via operational efficiencies will undoubtedly be a key driver to be a competitive player in the £780 million bioresources market.
AD operators and water firms could reduce energy usage of digester pumps and mixers by up to 50%
Leading AD technologies specialist Landia, who supply key components including mixers and pumps in biogas plants throughout Europe, has been following the work of the group with interest.
According to the AD specialist, AD operators and water companies could reduce the energy usage of their digester pumps and mixers by up to 50%. Landia technologies are key components in biogas plants and the company is expecting a further uptake in their industry-leading technologies as work on developing the bioresources market progresses.
Landia’s Paul Davies commented:
“It is somewhat ironic that in an industry trying to create and save energy that there is so much energy being wasted.”
“Poorly designed mixing systems located inside a digester, which are difficult to service, are typically using 7.5kW motors running flat out 24/7, using up 180 kW hours per day.”
“Motors on externally-mounted systems that are also far easier to maintain, may be bigger at 18.5 kW, but only have to run for 10-15 minutes per hour to achieve the same or often better results. Even at 15 minutes per hour, the energy usage is just 110 kW hours per day, compared to 180 kW. This is on just one mixer/pump, so the energy savings are substantial”.
The terms of reference when the group was first set up said it was expected that the group would conclude its meetings in autumn 2016. Ofwat is now gauging the appetite in the group for further meetings and discussion topics extending into 2017.
The regulator is planning to launch a consultation on bioresources guidance in early February and expects to publish a value for each company for its bioresources business unit in December 2017.
For more information on Landia biogas technologies visit: www.landia.co.uk