Introducing competition into England and Wales water industry – Lessons from UK and EU energy market liberalisation

This paper summarises the experience concerning electricity and natural gas in the UK and the European Union since the 1980s with a view to drawing lessons for potential liberalisation and the introduction of competition into the England and Wales water industry. The paper suggests that the main lesson from energy sector experience is the requirement is to develop upstream competition in the supply of bulk water both to retail supply companies and to large industrial consumers. The pattern of water supply and demand in England and Wales is that there are excess supplies in the North and West and supply shortages in the South and East. In consequence, provided that there is sufficient interconnection capacity within and between regions, there should be major potential gains from trade both in bulk water supplies as well as in trade of abstraction licences. Such trade can offer potentially sizeable environmental benefits in terms of water sustainability as well as in short and long-term efficiency benefits to consumers. The paper concludes with recommendations for some experiments with abstraction licence and bulk water trading, e.g. in the South East of England.