Aquastrat

Strategies for water and renewables

Social Tariffs

17th September 2014, 13:22

Affordability and cost recovery have long been the key issues around investment in water and waste water infrastructure in the developing world.  However, a perfect storm of ageing networks, bad debt, climate change and rising demand are bringing them to the fore now on the agendas of Governments and utilities.  "Social Tariffs" are moving away from being a detail of CSR policies or managing grumpy local MP's to being a major feature of utility balance sheet management.

The estimates of investment needed in developed economies' water and waste water networks is eye watering. Severn Trent a while back set it at some £80bn to 2030 for the UK. At the same time tightened public sector budgets, and full blown fiscal crises means that household bills are facing hefty rises to ensure this investment can be paid for. The National Audit Office's 2013 report into the Impact of Infrastructure Investment on Customer Bills didn't feel able to speculate on a final number, warning instead that:

"Government and regulators do not know the overall impact of planned infrastructure on future consumer utility bills, or whether households, especially those on low incomes, will be able to afford to pay them "

Thames water's customers are getting a  foretaste of this with a predicted £70 supplement to their annual bills to pay for the £4bn Tideway Tunnel.   Meanwhile, increased metering levels, driven by the same factors, and depressed incomes are exacerbating the affordability challenge for water consumers – a challenge that is as much political as it is commercial.

This is not just a UK issue, and to meet this challenge, utilities, municipalities and governments across the world are experimenting with novel payment structures - “social tariffs” - to mitigate the effect of rising prices on the poorest households, to manage bad debt on their books, and maintain their “legitimacy” as monopoly providers.  For example: In France, tariffs have been related to incomes, in Spain domestic bills are calibrated per capita; while in parts of the USA rebates are being linked to installation of water saving devices.

With its links to financial stability and the debates on ownership and the “right to water”, will 2015 be the year we started talking about the "investment-affordability nexus" as the critical challenge for the developed world's water and waste water sector?