Samuel Pollard, Investment Associate, Baird Capital discusses how The tide is turning for the UK water sector, with the upcoming Asset Management Period 8 (AMP8) cycle likely to bring about a technological overhaul.

Samuel Pollard: Coming into effect in April 2025, the £88 billion investment, a 73% increase on the previous cycle, is set to transform the industry's approach to water management. This will bolster the sector’s resilience in the wake of profound challenges associated with climate change, ageing infrastructure and rising water demands, and provide innovative solutions.

Out of your depth

The planet is facing an escalating water crisis, with water scarcity impacting billions of people globally. According to UNICEF, nearly two-thirds of the global population experience severe water scarcity for at least one month each year. By 2025, half of the world’s population could live in areas experiencing water scarcity

Adding to the issues, governments trying to deliver on the UN’s sixth Sustainable Development Goal of ensuring “Clean Water and Sanitation,” are faced with huge funding gaps. It is estimated that global water-related infrastructure investment of $6.7tn is required by 2030, which could increase by ~3.5x to $22.6tn by 2050

Closer to home, the UK is impacted by severe water issues, with climate change affecting the water cycle and precipitation patterns, and degrading water ecosystems. This reduces freshwater uptake, leading to an increased threat of flooding and droughts which has an impact on businesses and supply chains.

With continued population growth, increased urbanisation and economic development, pressures on UK water infrastructure are only going to add up. For many years, water infrastructure has suffered from chronic underinvestment, leaving much of it ageing and not fit for purpose. We quickly need to find a solution. Fortunately, new technology, as part of the AMP8 upgrade is keeping the water sector’s glass half full.

Clouds are clearing

The water technology market is more nascent than broader climate tech, with only $470m invested into water start-ups in 2021, according to GWI WaterData. This compares to almost $27bn for climate technology in the first half of 2022 alone, which is less than 1% on an annualised basis. Given the lower levels of adoption and significant market drivers, many analysts expect digital transformation within the water sector to grow at >20% over the next few years.

The integration of technology within the water sector, from Internet of Things (“IoT”) devices to optimisation software, is seen by many as a way of addressing issues arising from climate change, growing urban populations and ageing infrastructure in the UK. Innovation and technology advancements are one of the primary focus areas of AMP8, and provide a significant opportunity for water software and providers of tech-enable solutions.

• Better insights and decision-making – smart monitoring devices capture a broad range of data fields in real time which provides more meaningful insights and actionable intelligence. This simplifies the analysis and management of water quality and wastewater discharges, ensuring it is more effective at both a plant and network level. In October 2024, Anglian Water announced a partnership with Clancy and Kier to roll out smart meters across their infrastructure by 2030 to deliver on AMP8 investment
• Prevent failures – Leak detection software and advanced data analytics can predict when components are likely to fail which enables water companies to proactively repair infrastructure, avoiding costly damages and service disruption.
• Avoid fines – In order to manage behaviours, Ofwat has been ramping up fines for water companies for underperformance. In August 2024, Thames, Yorkshire and Northumbrian Water found themselves in ‘hot water’, facing penalties of £168m due to excessive sewage leaks. As data collection continues to improve, the regulator can more accurately identify failures which will require water companies to perform better to avoid further fines.
• Budgets go further – Optimisation software and digital twins enable water companies to visualise their water infrastructure and mitigate problems before they escalate. AI and ML integration across software tools is improving insights, enabling better budget allocation and more cost-effective optimisation of water quality and operations.
• Plug skills gap and improve safety – Improved monitoring reduces the need for unnecessary maintenance visits and smart control devices can make simple adjustments without the need for human intervention which improves health & safety and boosts productivity in a sector with a growing skills gap.

There are extremely exciting investment opportunities for connected monitoring and control systems and the associated software and services. Providers are benefitting from the convergence of terrestrial and non-terrestrial (“NTN”) satellite networks which is ensuring more robust and resilient global connectivity and expanding network capacity, particularly in rural or remote areas.

Historically, NTN connectivity was prohibitively expensive for IoT applications and only ~10% of the earth’s landmass connected by terrestrial networks. However, the convergence of NTN networks is improving the efficacy of IoT devices which is bolstering the use of smart monitoring and control equipment within the water sector as data can now be reliably transmitted from isolated locations.

Technology solutions

Technology presents a promising solution to the global water management challenge. The persistent issues surrounding water availability and quality create an attractive investment landscape. Innovative water software and intelligent monitoring technologies offer robust strategies for enhancing water management and purification processes. The forthcoming AMP8 investment funding represents a significant catalyst for sector growth, enabling technological advancements and more efficient water infrastructure development, a positive turn of the tap.