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S6009_BR_BP_UUW_IAP6_V1| Page 21

Bioresources Business Plan Chapter 7: Supplementary document

Document Reference: S6009

This document provides details of our long term strategy and AMP7 delivery plans for the Bioresources price control. It provides details of our costs relative to customer outcomes and performance commitments and provides details of the activities we expect to undertake to achieve our targets.

United Utilities Water Limited

Chapter 7: Supplementary Document – S6009 unitedutilities.com

Contents 1 Executive summary ............................................................................................................................................. 2

2 Bioresources business context ............................................................................................................................ 4

2.1 Bioresources activities ................................................................................................................................ 4

2.1.1 Engagement with Wastewater Network Plus .......................................................................................... 5

2.1.2 Engagement with agriculture................................................................................................................... 6

2.2 Overview of Bioresources operations ......................................................................................................... 7

2.3 Current and future drivers .......................................................................................................................... 8

2.3.1 Regulatory requirements ......................................................................................................................... 8

2.3.2 Sludge production forecast .................................................................................................................... 10

3 Strategic overview ............................................................................................................................................. 11

3.1 Current performance ................................................................................................................................ 11

3.2 Our strategy for AMP7 and beyond .......................................................................................................... 13

3.3 Use of markets .......................................................................................................................................... 14

4 AMP7 delivery plan ........................................................................................................................................... 17

4.1 The natural environment is protected and improved in the way we deliver our service ........................ 18

4.1.1 Developing the plan with customer views ............................................................................................. 19

4.1.2 What stakeholders have told us ............................................................................................................ 21

4.1.3 Risk and resilience .................................................................................................................................. 22

4.1.4 Activities and costs ................................................................................................................................ 25

4.1.5 Performance commitments ................................................................................................................... 29

4.1.6 Business plan summary ......................................................................................................................... 32

Copyright © United Utilities Water Limited 2018 1


1 Executive summary

This document provides details of our long term strategy and AMP7 delivery plans for the Bioresources price control. It provides additional details, at a price control level, of how we expect costs to map across customer outcomes and performance commitments and in particular provides detail of the activities we expect to undertake to deliver the targets we have proposed. Over the next five years our focus is to deliver an optimised and efficient service to Wastewater Network Plus and be their supplier of choice. We will maximise the performance and efficiency of our existing sludge treatment capacity and close higher cost facilities by optimising the end to end production line, asset throughput and explore innovative approaches to use markets where they are more efficient. We have used the current business plan period to learn about the size and nature of markets for sludge and other organic waste across and outside the North West. We have identified opportunities for third parties to deliver our service and explored areas of non appointed activity where we can work with others to generate benefit for customers. We continue to hold discussions with various third parties regarding the delivery of bioresources services from 2020 to 2025 but to date have not secured any contracts. In preparation for 2020 we have worked closely with Wastewater Network Plus to define ways of working to ensure we maintain an efficient and effective end to end production line and a clear commercial interface. This will allow both businesses to work efficiently, account for regulatory changes, benchmark against best practice and exploit opportunities in an integrated way across the wastewater production line. Since 2012 we have invested in our systems, processes, people and technologies to drive efficiencies and prepare for market opening. This has allowed us to become an intelligent and efficient business with clear relationships across the wastewater production line and with third party service providers. Our operational planning tool; Regional Sludge Operational Management (RSOM) includes a central control hub with improved remote monitoring and control capability. This allows us to measure sludge at the boundary and at the point of arrival from another company. We manage sewage sludge as a regionally integrated system, moving sludge between wastewater treatment works and sludge treatment centres to treat and dispose of it in the most efficient way. At a strategic level, the Regional Integrated Asset Plan (RIAP) modelling tool builds upon RSOM and our wholesale risk and asset planning approach. It is central to our asset investment strategy over the next 25 years as it has increased our understanding of assets, costs and market opportunities so that we can ensure that the service we are delivering for customers is at the most efficient cost and a tolerable level of risk. To support this, we are actively exploring innovations in bioresources treatment including opportunities in resource recovery and recycling.

During AMP6 we have: • Demonstrated a proven track record of 100% satisfactory sludge disposal • Actively supported the development of markets for bioresources by direct external engagement with the

water and other organic waste sectors • Prepared for market opening, having established a separate Bioresources business unit, implemented

commercial arrangements with Wastewater Network Plus whilst operating as an integrated production line

In AMP7 we will:

• Deliver a totex plan of £372m providing customer value and delivering more sludge transport, treatment and disposal services for a greater quantity of sludge than AMP6

• Move away from day to day operations of incineration with the aim of recycling 100% of biosolids to agriculture, as the lowest cost and most sustainable disposal route

• Improve throughput, reliability, availability and maintainability of our facilities, whilst leveraging innovation with third parties to enable the closure of high cost facilities

• Benefit customers from our value sharing mechanism from non-appointed business activities and our performance commitments to deliver:

o 100% Biosolids Assurance Scheme conformance and Satisfactory Sludge Use and Disposal o Fewer tonnes of Nitrous Oxide per unit of renewable energy generated



These transformations have enabled us to develop an efficient totex programme of £372m for 2020-2025 that delivers more sludge transport, treatment and disposal to a greater volume of raw sludge from Wastewater Network Plus than in AMP6. Our plan is aligned to manage sludge growth from Wastewater Network Plus using a mix of our own facilities more innovatively, supplemented with markets where cost effective, to manage the risk of volume variation and minimise the risk of asset stranding in future. We continue to drive efficiency in operations with a focus on optimising total expenditure. We have set ourselves stretching efficiency targets, whilst remaining fully compliant with regulations. We have reduced our cost base between AMP5 and AMP7, helping to keep customer bills low. Our plan manages risks in satisfactory sludge disposal, Mersey Valley sludge pipeline and process safety by building resilience through our maintenance activity. During the current business plan period we have been working to improve the resilience of our asset base through a T-RAM (Throughput, Reliability, Availability and Maintainability) initiative. This will provide greater sludge treatment resilience and maximise capacity from existing assets. We are therefore not planning to build any additional capacity in AMP7. We have no significant regulatory quality drivers to improve our facilities in the next business planning period. Historical enhancement expenditure has led to an increased maintenance programme focused on delivering best value at the lowest efficient cost, extending current resilience initiatives to improve treatment capacity and reliability. Facilities with poor asset health where the costs of refurbishment or replacement are too high are being closed and the sludge diverted to more efficient facilities. We are also exploring opportunities to work with others in the water and waste sectors where they are able to deliver more efficient service or repurpose our assets which are no longer required for sewage sludge. During AMP6 we have implemented the Biosolids Assurance Scheme (BAS) across our operations to increase our ability to access the available agricultural landbank whilst maintaining our track record of 100% satisfactory sludge disposal performance. Our improved nutrient advice service to farmers and our commitment to the Biosolids Assurance Scheme is aimed at reassuring agricultural and food retail stakeholders that the treatment and recycling of our biosolids (treated sewage sludge) is safe, environmentally sustainable, resilient and efficient. For Bioresources our research has shown that customers have indicated preferences for:

• Investing in cleaner technologies during wastewater treatment to reduce emissions further • Recycling (rather than disposing of) wastewater by-products • Recovering nutrients for use in high quality fertiliser • Bringing in and treating other types of waste • Investing in technology to reduce the number of road journeys made

We will balance risk and deliver the outcome ‘the natural environment is protected and improved in the way we deliver our services’ through challenging AMP7 performance commitments. These incentivise us to focus on areas that matter most to customers, including:

• Recycling Biosolids; delivering great end to end service in the transport, treatment and disposal of biosolids • Better Air Quality; improving public health by delivering better air quality through a reduction in nitrous oxides

released per unit of renewable energy produced; and • Enhancing Natural Capital Value for Customers; enhancing natural capital value, through integrated and

innovative solutions across water and wastewater

In response to customer and stakeholder feedback, we will make a significant move away from incineration with the aim of recycling 100% of biosolids to agriculture, conforming to the Biosolids Assurance Scheme, as the lowest cost and most sustainable disposal route. We will retain incineration capability as this enables us to efficiently manage the risk of significant periods of insufficient agricultural land availability.

This plan will prepare us beyond 2025 when we expect the understanding of the bioresources market to have developed significantly. Bioresources could operate independently from the wastewater business and be in full competition with the wider waste market. We will continue to support the development of markets through data and information sharing, participation in trading platforms and encouraging third parties to deliver services.



2 Bioresources business context This section sets out the environment in which Bioresources operates. It mainly provides new information not covered elsewhere in the price review submission but also summarises text from Voice of the customer: our approach to engagement - ref Chapter 2, Great service to customers - ref Chapter 5, Use of markets and innovation - ref Chapter 6 and Securing efficient cost - ref Chapter 7.

2.1 Bioresources activities Figure 1 Map of the North West and neighbouring water companies with Sludge Treatment Centres

The Bioresources business primarily provides a service to United Utilities Wastewater Network Plus in the North West as an integrated end to end wastewater production line. We deliver our service from co-located and standalone sludge treatment centres across the region. Our service comprises sludge transport, treatment and disposal. We continue to work with neighbouring water companies to identify opportunities around our borders as shown in Figure 1.

Further details of the Bioresources business are available on our website; https://www.unitedutilities.com/corporate/about-us/what-we-do/bioresources/


https://www.unitedutilities.com/corporate/about-us/what-we-do/bioresources/


2.1.1 Engagement with Wastewater Network Plus In preparation for 2020 we have worked closely with Wastewater Network Plus to define ways of working to ensure we maintain an efficient and effective end to end production line with a clear commercial interface, through a new Client Services function. This will focus on ensuring Wastewater Network Plus has the appropriate capability in order to fully define its requirements and drive Bioresources to be a client focused service provider and delivering efficient service. End to end production line thinking allows both business units to work efficiently, account for regulatory changes, benchmark against best practice and exploit opportunities in an integrated way. This will include areas such as resource recovery, catchment solutions and delivery against the Enhancing Natural Capital Value for Customers performance commitment. We have set the boundary between the two business units based on RAG 4 and have trialled ways of operating commercially. This included a strategic pilot with a non-regulated Bioresources business and the development of service level agreements between Bioresources and Wastewater Network Plus. Both have been successful and allowed us to develop effective levels of service to drive the right outcome for customers. Service level agreements were deployed in 2018 and will be fully embedded by 2020. They include liquor treatment charging to Bioresources using trade effluent consenting (see section 6.7.8 in Using markets and innovation - ref Chapter 6), energy charging to Wastewater Network Plus using power purchase agreements, sludge quality and quantity and sludge removal transactions at the boundary and Bioresources tenancy of Wastewater Network Plus’ land and facilities. Costs for Bioresources to treat sludge will vary by sludge treatment centre and by the quality and quantity of sludge produced. The development of site specific charges will be explored during the next business planning period in preparation for full market opening. Transfer pricing between Wastewater Network Plus and Bioresources

We believe that our approach to transfer pricing supports the development of bioresources markets and is in line with the appropriate regulatory accounting guidelines (RAG 5). We will ensure that there is no cross-subsidy between price controls. Costs and revenues crossing the price control boundary will be reported in our annual regulatory accounting data. Transfer prices are set to include, as a minimum, incremental costs and

an appropriate share of the margin. In setting our prices, the extent to which incremental costs need to take account of the potential cost of increasing capacity will depend on the length of the commitment. The general principle we will apply is that transfer prices will be based on market prices, where possible. This will apply to energy flows and liquor treatment charges. When sludge liquors are returned to a wastewater treatment works, the activity of treating the liquors is a Wastewater Network Plus activity but the cost of treating liquors should be paid for by Bioresources. We believe that marginal costs are inappropriate for this charge as they would not be fully cost reflective. We are using a Mogden based formula as the calculation will be cost-reflective, transparent and provide a level playing field with third parties. As a result our liquor costs in the next business planning period are £47m or 13% of our £372m totex plan.

We have an efficient, integrated end to end production line across wastewater with clear commercial

interfaces between Wastewater Network Plus and Bioresources.

Our approach to transfer pricing supports the development of

markets and is in line with RAG 5.



2.1.2 Engagement with agriculture Agricultural use of biosolids is the lowest sustainable cost and the best environmental option for sludge disposal. Retaining recycling to agriculture is essential for the Bioresources sector. Nationally, three quarters of biosolids are recycled to agriculture. We have played a key role in the establishment of the Biosolids Assurance Scheme (BAS). This aims to reassure food chain stakeholders and consumers through increased provision of information, greater operational transparency and quality assurance through an independent audit. The scheme was created in response to stakeholder demands for greater assurance over the use of biosolids in agriculture. It incorporates regulatory requirements and best practice guidance for the treatment and disposal of biosolids to agriculture. Conformance with the scheme will be publically available ensuring transparency and building trust with stakeholders. The stakeholder network and interest in agriculture is complex and wide reaching and requires regional and national management. We are members of the Biosolids Assurance Scheme and the WaterUK Biosolids Network which co-ordinates expertise across the water industry for delivery of best practice in the recycling of biosolids to agricultural land. We are also supporting UK Water Industry Research (UKWIR) projects to understand emerging issues which could impact biosolids recycling in the future. The farming community is an important group for us to engage. We currently work with over 1,200 farmers across 120,000 Hectares of landbank. Our Agricultural Services team have Fertiliser Advisers Certification and Training Scheme (FACTS) qualifications so are also able to provide agronomical knowledge and data records around nutrient content of soils. This service to farmers builds strong relationships and confidence in the biosolids products we provide. We have worked in a partnership with the National Farmers Union (NFU) to co-deliver a survey to their members to discuss their views on the use of biosolids. This survey is detailed in NFU Bioresources - ref T1118. Although respondents were incentivised to complete the survey, uptake was not substantial. We received a range of responses but they have not been statistically significant to draw a consensus. However, from the results we have collated, we know that the farmers surveyed responded with fairly balanced answers regarding whether they had heard of biosolids before and whether they would consider using the product on their land. Two in five respondents said that they would be interested in using biosolids in the future and further still, 77% said that they would look for BAS certified biosolids for future use. This has emphasised the importance of achieving conformance with BAS. Interestingly, 83% of the farmers that we surveyed agreed to some extent that the use of biosolids for agricultural purposes is a sustainable thing to do. However, only 13% of farmers we spoke with said that they would consider paying for such a product. As we progress discussions we are understanding more about agricultural customers and how they prefer to engage and will be testing various options including more direct face to face communication. This will ensure that we have an engaged customer base that can participate in more meaningful discussions.

BAS We have played a key role in the

development of the Biosolids Assurance Scheme to provide

stakeholder confidence in recycling biosolids to agriculture

as the lowest sustainable cost and best environmental option.



2.2 Overview of Bioresources operations This section provides an overview of our operations and how they have evolved over time. Since privatisation, the market for biosolids has seen several significant changes due to environmental regulation, changes in sludge quantities and market changes including the demand for biosolids products. The current disposal options include recycling to agriculture, use in land restoration projects, forestry, incineration and landfill. The lowest cost and most sustainable option is to recycle biosolids to agriculture, where there is sufficient agricultural land available in close proximity to the site of production. If there is not sufficient available landbank, as is the case for us, alternative outlets at a higher cost can be used. The landbank in the North West is constrained with only 50% of agricultural landbank being available for recycling. Of the agricultural land available, only 16% is arable, which under the Safe Sludge Matrix, is the most flexible in the type of biosolids which can be recycled. The quantity of material to be recycled is a critical cost driver. Of all water companies, we have the highest quantity (tonnes of dry solids) / arable land (Hectare) ratio; 3.35TDS/Ha.

Figure 2 shows the national map indicating available agricultural landbank. Over time there has been a moderate increase in available landbank in the North West but the region remains constrained compared to other regions.

Figure 2 National map showing the available agricultural land in 2015.

The landbank in the North West is constrained with only 50% of

agricultural land being available for recycling biosolids.

Only 16% of this is arable, the most flexible in the type of

biosolids which can be recycled.



The availability of landbank in the North West has historically driven both our treatment and disposal strategies. The history of our treatment and disposal processes are detailed below and illustrated in Figure 3. In 1998 there was a need to find disposal routes for material that had previously been disposed at sea, which was banned by the Urban Wastewater Directive. The Directive also introduced improvements to sewage treatment standards, leading to an increase in sludge production. The available agricultural landbank in the North West was dominated by grassland and the market for biosolids was not able to efficiently receive all of this material. The most efficient investment at that time was to use an existing sludge pipeline running from Manchester to Liverpool and centralise a digested sludge incineration process. This enabled us to deliver a balanced outlet approach between recycling to agriculture and disposal through incineration. We were also early adopters of advanced anaerobic digestion to reduce the regional quantity of biosolids recycled to agriculture, enable recycling to grassland and increased renewable energy generation. We have continued to secure the agricultural outlet by increasing advanced anaerobic digestion. During AMP5 liming facilities were closed and the sludge moved to be treated centrally at Manchester Bioresources Centre in an advanced anaerobic digestion plant. We have also enhanced our agricultural service provision to provide more to the farming community, as discussed in section 2.1.2 of this document. In parallel we minimised the cost of incineration with a new, more efficient, autothermic incineration technology in 2011. The current market for biosolids is underpinned by the implementation of the Biosolids Assurance Scheme (BAS). This is a voluntary quality assurance scheme developed by the Water Industry for the management of sewage sludge, to reassure stakeholders over the use of biosolids in agriculture. Our analysis suggests that recycling all of the biosolids produced in the North West is possible and would be the lowest cost for AMP7. However, it will be a significant challenge to secure sufficient additional sustainable agricultural land, to support the recycling of 40% more biosolids than we have ever recycled before. Figure 3 How our sludge treatment and outlets have developed over time

The nature of the landbank in the North West means we have to drive further to recycle to agricultural land than the average company. This and compliance with Industrial Emissions Directive environmental permits, to enable a timely destruction of biosolids should the landbank become unavailable, are the basis of a botex cost adjustment claim. The claim is outlined in section 7.7 of Securing efficient cost - ref Chapter 7. The detailed cost adjustment claim is explained in Distance to landbank – ref UUW_Bio1_M_Distance_to_landbank_Sept_2018_UUW_IAP6_V1.

2.3 Current and future drivers Our future investments and operations are driven by changes in regulation, the industrial base in the North West and population growth. These are summarised below. 2.3.1 Regulatory requirements Regulations across sludge transport, treatment and disposal influence our operations. We are also impacted by changes in regulation in Wastewater Network Plus. The main regulations which impact our future plans are summarised in Figure 4.



Figure 4 Summary of regulations impacting Bioresources operations Regulatory Driver Primary price

control Impact to Bioresources operations

Industrial Emissions Directive

Bioresources The dominant factor on whether an Industrial Emissions Directive installation permit is required, is the use of a disposal outlet rather than solely the recovery of the sludge for environmental benefit. The use of the incinerator, even only as a contingency, triggers the need for a greater number of the most onerous and prescriptive permits at a large number of our intermediate thickening sites and sludge treatment centres. As a result, similar intermediate thickening sites and sludge treatment centres are regulated differently depending on where the sludge could go once it leaves site. 68% of North West sludge is currently treated through an intermediate thickening site or sludge treatment centre with an Industrial Emissions Directive installation permit. This has resulted in a total of 22 Industrial Emissions Directive installation permits. This forms the basis of a cost adjustment claim along with above average distance which we are required to travel to reach suitable agricultural outlets.

Medium Combustion Plant Directive

Bioresources We currently comply with local permitting requirements relating to air quality and the Industrial Emissions Directive for our digested sludge incinerator which requires us to reduce Nitrous Oxide (NOx) emissions to air. The Medium Combustion Plant Directive (MCPD) 2018, will further reduce air pollution by introducing emission controls for combustion plants that will affect all our combined heat and power (CHP) engines associated with anaerobic digestion. We have legal obligations under the Medium Combustion Plant Directive to control our NOx emissions, which requires a change to existing combined heat and power technology to remove it from combustion gases. This regulation is the basis of our AMP7 Air Quality performance commitment.

Sludge Use in Agriculture

Bioresources Our current and future performance commitments (AMP6; Satisfactory Sludge Disposal, AMP7; Recycling Biosolids) align to the Environment Agency satisfactory sludge use and disposal definition: - ‘Compliance with the Sludge (Use in Agriculture) Regulations, Environmental Permitting Regulations in so far as they apply to the recycling and or disposal of sewage sludge containing products and residual wastes, and compliance with the Safe Sludge Matrix.’

Environmental Permitting Regulations

Bioresources

Safe Sludge Matrix Bioresources

Biosolids Assurance Scheme

Bioresources The Biosolids Assurance Scheme incorporates regulatory requirements and best practice guidance for the treatment and disposal of biosolids to agriculture. Conformance with the scheme will be publically available ensuring transparency and building trust with stakeholders. In AMP7 this is included in the Recycling Biosolids performance commitment.

Microplastics and other emerging issues

Bioresources Microplastics and other emerging issues which may impact sludge treatment and disposal in the future have been the basis of an industry research project during the current business planning period. (Biosolids to market; a strategic proposal to explore the threats to biosolids to land now and in the future). Emerging issues will continue to be an area of research focus during the next business planning period.

Water Industry National Environment Programme (WINEP)

Wastewater Network Plus

Sludge production from Wastewater Network Plus is the start of the Bioresources business. Environmental requirements from the WINEP, delivered by Wastewater Network Plus will change the volume and quality of sewage sludge requiring treatment and disposal. The level of phosphorus removal (62% of the WINEP schemes), technology chosen and date of delivery will all impact the volume of sludge produced.



2.3.2 Sludge production forecast By 2040, the annual total quantity of sewage sludge produced in the North West is forecast to increase by around 16% from the 2018 level. This is due to population growth, the industrial base and changing wastewater treatment technologies driven by environmental improvement programmes. The production forecast in 2020-2025 is aligned to the current Water Industry National Environment Programme and the catchment and technology solutions proposed to meet cleaner effluent standards. Our sludge production forecast is shown in Figure 5 and is also described in Bio1 - Wholesale wastewater sludge (explanatory variables) data table commentary. Figure 5 Sludge production forecasting

We have tested a number of scenarios to conclude the most likely sludge production forecast. However, there is a lack of scientific evidence in the quantity of sludge produced from new technologies required to achieve low phosphorus standards. Currently we forecast there will be a sludge production relating to phosphorus schemes of c74tTDS/year by 2025.

As data becomes available we will improve our forecasting methodologies. Our plan is aligned to manage this growth in the most efficient way using a mix of our own facilities more innovatively, supplemented with markets to manage the risk of volume variation and minimise the risk of asset stranding in future. We will regularly review the capacity that will be required and engage the market to deliver the most cost beneficial solutions.

34.9% of total sludge production will result from phosphorus

schemes in 2025.



3 Strategic overview This section sets out our AMP6 performance and investments which have been the starting point of our longer term strategy to respond to our external environment. It mainly provides new information not covered elsewhere in the submission but also summarises text from Using markets and innovation - ref Chapter 6.

3.1 Current performance Since the start of AMP6 we have made significant changes to the way we manage and operate the Bioresources business; separating our sludge transport, treatment and disposal service from Wastewater Network Plus ensuring that it is set up as a separate business unit whilst maintaining an integrated end to end production line. In parallel we have actively supported the development of markets for bioresources by direct external engagement with the water and other organic waste sectors. During the current business planning period we have had one performance commitment within Bioresources; Satisfactory Sludge Disposal. We have a proven track record of 100% satisfactory sludge disposal since the start of AMP6 as shown in Figure 6 and Figure 7. We have also been measured against the Biosolids Assurance Scheme since audits began in FY17. Our performance against these two factors are shown in the graph in Figure 6. Figure 6 Summary of historic Satisfactory Sludge Disposal and Biosolids Assurance Scheme performance

During the current business planning period Bioresources can influence three Wastewater Network Plus performance commitments:

• Maintaining Wastewater Treatment Works • Wastewater Pollution Incidents (Cat 1 and 2) and • Wastewater Pollution Incidents (Cat 3).

The performance against these measures is shown in Figure 7.

During AMP6 we contribute to one Bioresources performance

commitment and three Wastewater Network Plus

performance commitments.



Figure 7 Actual and forecast performance of the Bioresources performance commitments and a projected view of financial performance at the end of AMP6

Performance Commitment

Incentive Type

Actual* Forecast* Projected AMP6 Performance

2015/16 2016/17 Current financial position

2017/18 2018/19 2019/20

Satisfactory Sludge Disposal

(Bioresources measure Financial Year)

Penalty only

£0m £0m £0m £0m £0m £0m £0m

Maintaining our wastewater treatment

works (Wastewater Network Plus

measure Calendar Year)

Penalty only

£0m £0m £0m £0m £0m £-4.4m £-4.4m

Wastewater Pollution Incidents (Cat 1 and 2)* (Wastewater Network Plus

measure Calendar Year)

Penalty only

£0m £0m £0m £0m £0m £0m £0m

Wastewater Pollution Incidents (Cat 3)*

(Wastewater Network Plus measure Calendar Year)

Reward and

penalty

£3.3m £3.3m £3.3m £3.3m £3.3m £3.3m £16.4m

Bioresources Net: 2015/16-2016/17 (excludes Wastewater Network Plus measures)

£0m Bioresources Net AMP6 (excludes Wastewater Network Plus

measures)

£0m

*no Category 1 and 2 sludge main pollution incidents to date in AMP6. Category 3 sludge main pollution have a reducing trend over AMP6 with no incidents to date in 2018. Our investment programme during the current AMP has supported this performance (Figure 8).

Figure 8 AMP6 Investments

Note 1: only direct costs included in the table. These are aligned to the AMP7 performance commitments.

AMP Investment Activity Totex (£m)

AMP6 (2015-2020)

Incineration of digested sludge and alignment to the Biosolids Assurance Scheme for recycling biosolids to agriculture

Recycling Biosolids 233.47

Rationalisation of asset base to move sludge to more efficient facilities

Maintenance programme to deliver resilience in treatment activities. Focused on; throughput, reliability, availability and maintainability.

Reduced reliance on liming in Cumbria, increasing our regional use of digestion

Resilience initiatives to improve treatment capacity

Digester cleans and refurbishments

Mersey Valley sludge pipeline section replacement

Gas to grid plant and CHP maintenance and replacement Better Air Quality

57.85 Process safety improvements



We will build on our performance and investment during AMP6 to deliver our strategy over the next business planning period and beyond.

3.2 Our strategy for AMP7 and beyond Over the next five years our Bioresources focus is to deliver optimised and efficient service to our Wastewater Network Plus business and be their supplier of choice. We will increase the performance and efficiency of our existing sludge treatment capacity and close higher cost facilities, by optimising asset throughput in the end to end production line, exploring innovative approaches and using markets where they are more efficient. We have established an agile business structure and work processes in a separate Bioresources business unit and implemented a commercial relationship with Wastewater Network Plus. We measure sludge at the boundary and provide transparent costs which are reflective of the service provision and provide a level playing field with third parties. Innovating and improving the way we work commercially will drive greater efficiency and resilience. This will be supplemented by our use of markets where it can deliver service that offers greater value to customers. Beyond 2025, we expect the understanding of the bioresources market to have developed significantly. The Bioresources business could operate independently from the wastewater business and be in full competition with the wider waste market. We will continue to support the development of markets through data and information sharing, participation in trading platforms and encouraging third parties to deliver services. We expect the market to mature and sludge treatment services to increase over time, beginning with small volume short term trades and co-ordination of planned maintenance outages of sludge treatment centres across company boundaries. This enables us to work as one integrated system between water companies. As sludge production increases and assets reach the end of their useful life, there will be greater opportunities for the market to provide sludge treatment or joint capacity through commercial arrangements. There are still challenges facing the development of the bioresources market with environmental regulation and government energy incentive policy being the most significant. These positions drive significant economic barriers into establishing a harmonised bioresources market. We are proactively working with the market, other water companies at national forums and regulators to promote a level playing field that can realise its potential for the benefit of customers, stakeholders, investors and the environment. To address these challenges we are actively exploring innovations in bioresources treatment, including opportunities for resource recovery and recycling. These cover all aspects of our innovation model including data management and collaboration. We are working with both academic and start-up communities to deliver novel, cost beneficial solutions. These will be tested through our innovation process and strategic planning tool. The maintenance focus in 2020-25 will target investment on sustaining and then improving existing asset performance in order to meet the demand from Wastewater Network Plus, improve productivity and mitigate key risks with regard to process safety, compliance and service resilience, all at an efficient price. Figure 9 summarises our forecast for sludge production and treatment capacity to 2040. This shows that in the short term we will have more capacity than the volume of sludge forecast to be produced. We will seek opportunities to use our additional capacity to provide resilience to our service or use markets for the benefit of customers. Over time, as markets grow, we expect that we will need to have less reliance on our own treatment capacity and can make use of third parties and other water companies to treat sludge.

We are well prepared for market opening, having established a

separate Bioresources business unit and implemented commercial

arrangements with Wastewater Network Plus.



Figure 9 Forecast changes in sludge production and treatment capacity.

Note 1: The capacity line represents the treatment design capacity minus planned shutdown time. Our focus is delivering our service at the most efficient cost. We will continue to use a mix of digestion technologies, reducing liming in Cumbria and generating energy from more sludge. We will increase the value from our existing assets, most notably, Manchester Bioresource Centre. This is our largest site with opportunities to increase energy revenue from electricity and gas markets and the possibility of repurposing some assets to use for co-located waste digestion. Where sites are less efficient, sludge will be diverted to alternative facilities whilst we explore market opportunities to generate value from the assets. This could be through undertaking co-digestion, asset sales or rental to third parties. In response to customer and stakeholder feedback we have set stretching performance commitments and will make a significant move toward 100% recycling of biosolids to agriculture, conforming to the Biosolids Assurance Scheme, as the lowest cost and most sustainable disposal route. This will allow us to suspend day to day incineration operations. We will retain incineration capability as this enables us to manage the risk of significant periods of insufficient agricultural land availability.

3.3 Use of markets We have used the current business plan period to learn about the size and nature of markets for sludge and other organic waste across and outside the North West. To support the development of markets we were the first company to publish a comprehensive information platform in October 2017 on our external website. The information that companies have published about sludge production and sludge treatment centres has enabled detailed analysis and engagement with neighbouring companies and potential new entrants. We have identified opportunities for third parties to deliver our service

and explored areas of non-appointed activity where we can work with others to generate benefit for customers. Neighbouring water companies have limited capacity at present. We continue to hold discussions with various third parties to deliver bioresources services from 2020 to 2025 but to date have not secured any contracts. Our plan therefore is to only treat North West sludge. We are actively discussing a 5-10tTDS per year trade to a neighbouring water company which will unlock capacity at Manchester Bioresource Centre enabling in bound sludge trading opportunities. We are continuing to engage with other companies for trades in and out of region, for both transport, treatment and recycling. To facilitate this engagement we have developed an industry leading comprehensive model, in line with RAG 5, to allow us to accurately price both long and short term trading opportunities. Alongside this, we are working with neighbouring companies to explore opportunities to realise sludge transport efficiencies, investment in common assets where appropriate, aligning maintenance outage programmes and sharing spare capacity data. This enables us to work as one integrated system between water companies. We have mapped the location of sludge treatment and waste facilities adjacent to our borders to identify potential opportunities.

We have learnt about the size and nature of markets, identified where we can work with us and were the

first company to publish an information platform in October

2017.


https://www.unitedutilities.com/corporate/about-us/what-we-do/bioresources/


We are exploring the following key opportunities to extend our regional system: • in discussion with neighbouring water companies for trading sludge out to make more capacity available for

trading sludge in from other companies; • reuse of facilities by third parties which are no longer being operated for regulated sludge treatment – at one

test site we are negotiating terms for a design, build, finance, operate contract for raw sludge dewatering and cake export. We are also in discussions for reuse of digesters by the waste industry;

• exploring environmental, regulatory and economic barriers to co-digestion at our sludge treatment centres • we continue to review the acquisition of other organic waste anaerobic digestion facilities which has not been

pursued to date as it is not cost effective; • Veolia has introduced a waste trading platform and we are working with them to test the process and the market

interest for waste operators to accept sludge as a feedstock; • we have a long term operation and maintenance contract for an other organic waste anaerobic digestion plant

in Scotland. This is enabling us to gain crucial commercial knowledge around bidding, contract management, client relationships and exploration of other feedstock markets. We will apply this to our longer term strategy as the market develops;

• initial discussions with Brampton & Beyond Energy, who are investigating the development of a farm anaerobic digester plant in Cumbria that could use sludge within its feedstock, increase our digestion capability in Cumbria and supply electricity to our facilities;

• exploring potential use of biogas as a fuel for our tanker fleet, to reduce totex, and improve air quality emissions. This links into our wider green fleet strategy.

The map in Figure 10 illustrates these potential opportunities.



Figure 10 Market opportunities around the North West



4 AMP7 delivery plan This section describes how we have determined our plan with input from customers and stakeholders. It explains our understanding of key risks and how we will manage these to improve resilience. It sets out our activities to deliver outcomes and performance which customers want to see at an efficient cost using innovation and markets. This section summarises information covered in Great service to customers - ref Chapter 5, Securing long term resilience - ref Chapter 4, Using markets and innovation - ref Chapter 6 and Securing efficient cost - ref Chapter 7. It also provides greater detail on customer views and delivery at an outcome and performance commitment level. Our activities can impact the surrounding environment. We have therefore committed to support the delivery of ‘the natural environment is protected and improved in the way we deliver our service’ outcome by improving our performance in recycling biosolids and air quality. Figure 11 shows how totex will be spent at a price control, outcome and performance commitment level.

Figure 11 AMP7 totex

Totex has been allocated to performance commitments based on the activities planned in AMP7. This is described in detail in 4.1.4 of this document. The cost to deliver the Better Air Quality measure includes all the capital and operational expenditure related to refurbishment, replacement and maintenance of combined heat and power engines and the gas to grid plant. It also includes capital expenditure for process safety investment in gas system assets, such as gas holders. The Recycling Biosolids measure includes all costs required to transport, treat and dispose of sludge except the direct cost to operate the combined heat and power engines and gas to grid plant which are assigned to the Better Air Quality measure. The Enhancing Natural Capital Value for Customers performance commitment does not have any totex associated with it. We will seek opportunities to deliver this performance commitment within the current totex plan. The expenditure for these measures total at the outcome level with the addition of other costs which were not able to be attributed to a specific performance commitment such as Environment Agency fees and Business Rates. The detailed delivery plan is described in the following sections.



4.1 The natural environment is protected and improved in the way we deliver our service

Figure 12 illustrates the performance commitments which are delivered under the outcome ‘natural environment is protected and improved in the way we deliver our service’. Only the Bioresources performance commitments are shown. Figure 12 AMP7 Outcome and Performance Commitments



4.1.1 Developing the plan with customer views As an emerging price control, we have sought to engage customers on the topic of bioresources across a number of research activities in order to ensure that customers are active participants in shaping the future of the service but also explain the subject to a wider audience. We have achieved this through bioresources specific research engagements as well as indirect Wholesale research. Collectively all of bioresources direct and indirect engagement has reached 5,327 customers. Key research pieces include:

• Bioresources customer panel and follow up questions about the Biosolids Assurance Scheme. Detail is provided in the following supplementary documents; Customer preferences for recycling - ref T1078, Bioresources conforming to the BAS scheme (willingness to pay) research - ref T1079

• Land and waste management customer panel. Detail is provided in the supplementary document; Managing land and waste research – ref T1073

• Immersive Willingness to Pay study Detail is provided in the supplementary document; Managing the River Irwell water environment – immersive research – ref T1068)

• River Petteril Customer and Stakeholder Research Detail is provided in the supplementary document; Report - The Petteril river catchment – co-creating solutions with customers, farmers and other stakeholders report – ref T1111)

These research activities are summarised below. Valuations to support performance commitments from Bioresources and Land & Waste Management customer panels A significant research piece was our Bioresources customer panel that sought to identify customer preferences associated with five key areas of the service:

• Recycling versus disposal of wastewater by-products • Investing in cleaner technologies during wastewater treatment • Nutrient recovery from wastewater by-products • Investing in technology to reduce the number of road journeys made • Bringing in and treating other types of waste in treatment works

This research has been used to support the valuations of our AMP7 performance commitments. The Bioresources customer panel started by asking which topic customers most wanted a say in. From asking this question, we know that recycling and disposal of waste products is an important matter for customers, with 82% expressing that they wanted a say in this area. This opinion was consistent across all of the North West regions but was of notable importance to the 18-34 demographic with 53% ranking this topic their most important. However, in order to gain a deeper insight into customer’s thoughts, we then asked participants to rank the topics that were most important to them without knowing a bill impact. Investing in cleaner technologies during the sludge treatment process is the topic that customers prioritised the greatest above all other topics. After we established these priorities, customers were then presented with a bill impact of investing in the topic areas and were then asked to reassess whether they supported investing in that area to see if this affected their decision making. Generally we found that support towards topics increased after knowing the bill impact, and looking specifically to investing in cleaner technologies to improve air quality, we found that 81% of customers would be willing to invest 83 pence per year. Outside these panels we undertook a further piece of research to understand customer’s broader service priorities. Through the use of our ‘Customer Priorities’ research (see YourChoices, customer priorities – ref T1013) we have been able to contextualise customer support towards improved air quality. For instance, this research found that reducing greenhouse gas emissions was a lesser priority than other service areas, being ranked twentieth out of twenty six services. That said we also have drivers from both national and local government who support an improvement in air quality, with the government estimating that air quality damage per tonne of nitrous oxides from industry is approximately £13,131[1]. Overall, we have sought to balance the varied views and priorities that customers and

[1]https://www.gov.uk/guidance/air-quality-economic-analysis


https://www.gov.uk/guidance/air-quality-economic-analysis%20%0d2015


stakeholders place on us reducing air emissions and developed a plan designed to meet these expectations. We have developed the ‘Better Air Quality’ performance commitment which will bring a focus to this activity whilst still balancing the relative importance customers placed on it. In total, 90% of customers that we spoke with during our Bioresources customer panel were in favour of us recovering nutrients from waste to use in high quality fertiliser. In other conversations, customers have also told us more broadly that they would like us to invest in turning waste in to products that can be sold and would prefer investment where it didn’t increase bills. This was most preferable in our more rural regions including Cumbria and Cheshire. Overall customers were largely in favour of us investing in technology that reduced the number of road journeys with 84% agreeing that we should invest in this area. This was particularly supported in Greater Manchester and Cumbria. Across all topics discussed in the customer panel, having an opinion on bringing in other types of waste to treat with sewage sludge was the least important to customers with only 11% ranking it as their top priority. This was also notably less of a concern for the 18–34 demographic group. Although we recognise that levels of understanding around treating other wastes with sewage sludge were lower in comparison to other discussion points. When asking customers specifically how much of our waste should be recycled, the option that was chosen most (47% of customers) was to recycle 100% of wastewater by-products. 23% of customers elected to recycle 75% and dispose of 25% and 24% said that they wanted to recycle 50% of wastewater by-products and dispose of 50%. Comments generated during these discussions included: “Anything you can do to improve our environment and our quality of life will serve you in good stead. Be a leader and innovator. Make us proud of you.” These findings are supported by complementary research we carried out with our WaterTalk panel discussing land and waste management. In this research, 97% stated that it is important to them that we manage our waste in a sustainable way. In light of the wealth of information that we received from engaging with the customer panel, we wanted to ensure that we continued discussions as we have evolved our plans. Therefore more recently we conducted subsequent research with a customer panel to understand customer support towards greater involvement in the Biosolids Assurance Scheme, and their thoughts towards performance targets being linked to bills. From this research we found that 86% of customers would like us to increase the amount of waste that conforms to the Biosolids Assurance Scheme. This was particularly notable among customers in Cheshire. The customers we engaged with were presented with two options which included potential bill impacts. This engagement demonstrated that customers supported a performance commitment in this area and that the majority saw the benefit of this having an incentive associated with it. Immersive willingness to pay study In addition to our customer panels we have carried out innovative, immersive research that placed 100 customers in interactive scenarios with high quality aids and materials in order to generate rich discussions regarding their willingness to pay for certain services. Part of this research incorporated conversations regarding the use of biosolids and overall, many found the use of biosolids to be positive and saw how the use could potentially improve river quality. Overall, customers supported the use of biosolids, as long as there were no increase in bills and comments from the session included: “it’s a good idea, it’s recycling, what else do we do with that [sludge]?” River Petteril Customer and Stakeholder Research We have also conducted targeted research in the Cumbrian River Petteril catchment, running workshops with local customers and stakeholders to discuss a number of topics, including the use of biosolids. The emerging themes from these conversations were comparable with those of the immersive research. Customers supported the use of biosolids and welcomed the opportunity to recycle waste products. However some customers did raise questions regarding potential odours and also noted that they believed support from farmers was important. Within this research stakeholders noted some practical challenges such as biosolids not being appropriate to all farm types but did also note that there was some misconception around biosolids and that additional education is potentially required to articulate the benefits. Following customer consultation we have adapted our business plan for 2020-2025 and our strategy over the longer term by setting stretching performance commitments and making a significant move toward 100% recycling of biosolids to agriculture, conforming to the Biosolids Assurance Scheme, as the lowest cost and most sustainable disposal route.



4.1.2 What stakeholders have told us We used several approaches to engage external stakeholders in bioresources, including engaging with agriculture (detailed in section 2.1.2 of this document). This engagement was used to develop our future plans and performance measures for the next business planning period. During summer 2017 five workshops were held in each North West county to collate stakeholder views to inform the draft business plan and to gather feedback on proposed future priorities. Attendees represented a range of organisations and interests, including local authorities, tourism, environmental regulators, public health, charitable organisations, environmental groups, housing trusts, industry and commercial organisations. Five follow up workshops were held across the North West in November 2017 to provide feedback on how their views had been addressed. Around 120 attended the November sessions, building on the 75 that first contributed in the summer.

A survey was conducted for bioresources, setting out brief explanations of activities and options for service improvements that require investment which could impact on customer bills. The survey showed that stakeholders supported service improvements across bioresources activities. We asked the same questions as the Bioresources customer panel, which included more detail on the bill impacts of service improvements (detailed above). Stakeholder responses are summarised in Figure 13. Figure 13 Feedback from stakeholder workshops

Stakeholder feedback has supported all aspects of potential improvements across bioresources. In the round, recycling to agriculture and improving air quality were the most important aspects to address in our business plan. We used this to inform the development of performance commitments and our plan to deliver the service that stakeholders and customers want. More detail is provided in section 4.1.4 of this document.



4.1.3 Risk and resilience Bioresources delivers the transport, treatment and disposal of sludge and manage risks to safety and the environment. There are interdependencies with other price controls, particularly with Wastewater Network Plus. Our plan is focused on delivering the outcomes customers want at the most efficient cost. In doing this we expect risk to remain largely stable. Risk management In developing our plans we have identified that the key risks that Bioresources must be resilient to are:

• Satisfactory sludge disposal – This is a requirement under the Environment Agency’s Environmental Performance Assessment. In AMP7 we will expand our biosolids to agriculture operation to secure more agricultural hectares at greater distance from our sludge treatment centres, to allow us to move towards 100% recycling of biosolids to agriculture. This is facilitated by an improvement in landbank availability, improved product quality and co-delivery of the service with farmers. We will retain incineration capability as this enables us to efficiently manage the risk of significant periods of insufficient agricultural land availability.

• Mersey Valley sludge pipeline – this c.85km pressurised pipeline was built before privatisation and bursts could cause pollution and higher operational costs. Analysis shows there currently no known hot spots for significant investment, so we continue our operational plan to manage the risks through a combination of preventative and reactive management.

• Process safety – Since bioresources involves gas in high pressure systems, in 2016 we established a unified process safety programme, taking best practice from the oil and gas sectors. In AMP7 we will evolve and further embed a process safety culture within our layers of protection, ensuring that process safety is living and breathing in all that we do. We will focus on assets that are identified as high risk to manage them appropriately, including enhancing our capabilities to operate and maintain.

The three risk are explained below:

Satisfactory Sludge Disposal there is a risk that we may not comply with satisfactory sludge disposal requirements. Compliance with Satisfactory Sludge Disposal is impacted by two key elements:

• Sludge treatment capacity and technologies o Sludge produced by Wastewater Network Plus is treated in sludge treatment centres to produce

biosolids for recycling. A reduction in sludge treatment capacity will put pressure on compliance, for example through decreased reliability and availability of assets

o Changes in sludge treatment technologies can either reduce or increase the risk depending upon the quality of the biosolids produced and available markets.

• Sludge Disposal Outlet Availability o The availability of markets for the recycling or disposal of biosolids.

The consequences of not complying could impact:

• Land and water pollution • Odour • Transport movement • Health • Financial

More detail is provided in Operational resilience - ref S4005.



Resilience within our plan These risks are managed by building resilience through our maintenance activity. During the current business plan period we have been working to improve the resilience of our asset base through a T-RAM (Throughput, Reliability, Availability and Maintainability) initiative. This provides greater sludge treatment resilience and improves efficiency. The resilience initiative began with studies across the Bioresources asset base to understand the key areas of concern. The outputs built a programme that delivered increased throughput, improved the reliability, ensured effective maintenance is carried out to maximise availability and to provide sufficient access and equipment to maintain the assets in line with our maintenance strategy. As well as a specific resilience programme we have embedded the resilience themes of resistance, reliability, redundancy, response and recovery in our day to day maintenance operations. The combination of the T-RAM programme and day to

Mersey Valley sludge pipeline the Mersey Valley sludge pipeline (MVSP) is a key strategic asset for Bioresources. The pressurised pipeline is c.85km in length and currently transports c.55tTDS(thousand tonnes of dry solids per annum) of treated sludge from sludge treatment centres to our dewatering and incineration facility in Widnes (Shell Green). The pipeline comprises three legs each with pumping stations and downstream storage tanks. The risks associated with the MVSP are principally pipeline bursts that may lead to pollution incidents and operational disruption caused by erosion and degradation of the pipeline. The consequences of a burst could impact:

• Land and water pollution • Health • Odour • Financial • Operational


Process safety Bioresources sludge to energy process attracts a number of different process safety risks to its operations. The process safety initiative has concentrated on the overarching system (end to end) causes and consequences. The risks across the production line largely relate to gas pressure systems and gas leaks that may lead to various levels of risks and impacts to sludge treatment capacity, for example:

Gas leaks • There is a potential for gas leaks on digestion assets, e.g. digester roofs leaking leading to a loss of gas for use

in combined heat and power (CHP) installations on site and an increased risk of explosion.

Process Safety: • The potential deterioration in the mechanical condition of gas holders, flare stacks and inadequate control

systems could lead to the potential for such assets to fail The consequences from these risk events include;

• pollution incidents • potential explosion • damage / loss to assets • injury or loss of life • disruption to process and reduced treatment capacity • prosecution with associated fines and negative publicity




day resilience will allow our maintenance only programme in next AMP to unlock treatment capacity at existing facilities and reduce the redundancy associated with headroom capacity, enabling us to provide an efficient service to Wastewater Network Plus and customers. This will provide greater sludge treatment resilience and increase capacity from existing assets. We are therefore not planning to build any additional capacity in AMP7. This is illustrated in Figure 14. Figure 14 Resilience within our plan

Asset health Understanding the health of our assets is a key part of managing our business. The health of our assets underpins their ability to deliver our services to customers and the environment and understanding this helps us to focus our maintenance appropriately. Many of our assets need more intensive operational maintenance as they get older and worn, needing periodic replacement of components and more frequent inspections to help manage the risk of unexpected failures. We have assessed the health of our assets in developing this plan. More detail is provided in Asset health - ref S4001. Our programme for the next business planning period, therefore, strikes an appropriate balance of cost, service resilience and residual risk. The activities and costs to deliver the natural environment outcome are set out in the following section.



4.1.4 Activities and costs We have used customer and stakeholder insight to set our plan for the next five years in the context of their service expectations and our longer term ambitions. Our investment and activities over AMP7 are summarised in Figure 15. Figure 15 AMP7 investments

AMP Activity Associated Performance Commitment Totex (£m)

AMP7 (2020-2025)

Suspend day to day operation of sewage sludge incineration and move towards 100% recycling of biosolids to agriculture.

Recycling Biosolids 229.76

Closure of facilities with poor asset health where the costs of refurbishment or replacement are too high and the sludge can be diverted to more efficient facilities

Maintenance programme to deliver resilience in our treatment service. Focused on; throughput, reliability, availability and maintainability

Investment in sludge mains, in particular Mersey Valley sludge pipeline

Fleet, telemetry and property maintenance

Upgrade energy generation assets to comply with the Medium Combustion Plant Directive and increase value generation from our gas to grid plant. Better Air Quality

41.77 Process safety improvements and gas holder replacement

Note 1: only direct costs included in the table. Our totex programme of £372m for 2020-2025 will deliver more sludge transport, treatment and disposal to a greater volume of raw sludge from Wastewater Network Plus than in AMP6. We have no significant regulatory quality drivers to improve our facilities in the next business planning period. However, historic enhancement expenditure has led to an increased maintenance programme focused on delivering best value at the lowest efficient cost, extending current resilience initiatives to improve treatment capacity and reliability. Our AMP7 maintenance programme is across our asset base (Figure 16). This shows that we will build upon our resilience focus from AMP6 by making investments in line with our corporate risks, closing facilities where the costs of replacement or refurbishment are too high and divert sludge to more efficient facilities. We will make a significant move toward 100% recycling of biosolids to agriculture, allowing us to suspend day-to-day incineration operations whilst keeping the system resilient. We will retain incineration capability as this enables us to efficiently manage the risk of significant periods of insufficient agricultural availability in the longer term and deliver a resilient service as we transition in the longer term to a full recycling approach. We will be required to retain and meet the requirements of Industrial Emissions Directive permits which allow the legitimate operation of our incineration site, and associated sludge treatment and intermediate thickening sites. To meet statutory requirements and to ensure critical equipment will be capable of being returned to service without excessive time and cost, essential and on-going operating and maintenance costs of £85k a year (excluding Environment Agency permitting subsistence costs) is included within our business plan. If we are unable to secure cost effective agricultural outlets through to 2025, we will reinstate the operation of incineration. The cost to reinstate and operate incineration will be for the company to manage. High level engineering estimates suggest that capital costs to reinstate are currently estimated to be £0.5m after six months, £4m after 2 years and £7m after 10 years as assets degrade over time. Our efficient investment plan enables us to focus on the outcomes customers want, manage risk and build resilience across our facilities.

Our £372m programme will deliver more sludge transport, treatment

and disposal to a greater volume of sludge from Wastewater Network

Plus than in AMP6.



Figure 16 AMP7 investment across the Bioresources asset base.

Efficiencies in our plan We understand the need to deliver an efficient plan for customers that underpins the affordability of our services. The details of which are set out in Securing efficient cost - ref Chapter 7. In recent years, we have made significant progress in delivering a step change in our cost base. This step change has been achieved through our ability to embrace innovation, our improved engagement with markets to procure services in a more intelligent manner and our capability to robustly challenge our cost and requirements. Our cost proposals are designed to continue to deliver bioresources services safely, reliably and efficiently. We have set ourselves stretching efficiency targets with a Bioresources plan of £372m, whilst remaining fully compliant with the sewage sludge regulations. We have reduced our cost base between AMP5 and AMP7, helping to keep customer bills low. Although this reduction is partly attributable to having no enhancement expenditure in AMP7, we have also made significant progress in reducing our opex since AMP5. We are committed to improving our engagement with markets in procuring services. This includes comprehensive market testing of our costs via our Market Engagement Methodology (MEM) detailed in Using markets and innovation -ref Chapter 6, Market Engagement Methodology supplementary - ref S5002 and Securing efficient cost - ref Chapter 7. Robust cost challenge contribution We have challenged extensively both our cost base and the scope of work needed to be completed in AMP7. A large portion of our savings from our cost challenge stem from the fact we do not need to undertake an enhancement programme across the 2020-25 period. However, we have also challenged our base costs to identify additional savings. Our ability to robustly challenge costs within the programme has resulted in us being able to deliver more sludge transport, treatment and disposal capability to a greater volume of raw sludge from Wastewater Network Plus. This reduction in unit rate (39%) is shown in Figure 17.

Figure 17 Delivering more for less – a greater volume of sludge for a lower unit rate

AMP5* AMP6* AMP7

Total AMP Sludge Produced (TDS) 896,680 916,799 999,396

AMP totex (£m) £544m £434m £372m

Unit Rate (£/TDS) £607 £473 £372 *AMP5 and AMP6 have been restated to reflect the impact of principal use and sludge liquor treatment recharges introduced in AMP7. This allows a consistent comparison across AMP periods for each price control. It does not impact the overall Wholesale total. This efficient level of service has been possible due to our innovations and embracing new ways of working.



Figure 18 Bioresources innovations

Innovation within our plan Figure 18 summarises the innovations made within the Bioresources business plan where we are contributing to the wider innovation strategy. More detail can be found in Using markets and innovation - ref Chapter 6 and Innovation in action - ref S5001. Strategic and operational planning Historically, sludge treatment operations were managed at a local scale in a typically reactive manner, with little or no data supporting decisions, no regional view and little room for optimisation. This has often led to operational bottlenecks and sub-optimal production planning decisions which created inefficiency and adverse impacts on our service. Since 2012 we have invested in our systems, processes, people and technologies to drive efficiencies and prepare for market opening. This has allowed us to become an intelligent and efficient business with clear relationships across the wastewater production line and with third party service providers. We have developed our capability in systems thinking, enabled by our transformation activities across the production line. We are now able to use data from our treatment facilities and the environment to better understand the end to end system and use this insight to effectively plan both operationally and strategically. Figure 19 shows how our operational and strategic planning tools work together to provide integrated short and long term planning. Figure 19 Integrated planning tools

Our business transformation in the current business planning period has been driven by a desire to operate more commercially and efficiently with Wastewater Network Plus in readiness for full market opening. This was facilitated by

Systems Thinking; an understanding of the whole, end to end regionally integrated Bioresources system, which may be broader than the organisation.

Client Service; Wastewater Network Plus own demand and Bioresources set the treatment location to optimise service.

Working as one integrated production line with commercial relationships between Wastewater Network Plus and Bioresources.

Regional Integrated Asset Planning to review sludge forecast, treatment capacity and confirm the most efficient service by us or third parties.

Regional operational planning including optimising capability, inventory tool and outage planning.

Resilience initiatives to improve throughput, reliability, availability and maintainability of our facilities.

Mobile, Asset and Resource Scheduling improving the way we manage our assets, plan work and schedule our people across the production line.

A new role in Bioresources, Production Engineers, focusing on optimising the production line.

Focus on energy optimisation and innovative technology including analytics used to support scheduling, allow remote monitoring and control and deliver efficiencies.



the early development of a target operating model between price controls and strategic and operational planning tools to change how we manage our assets day to day to drive efficiency. Underpinning the improvements in our operational performance is our drive to operate as one production line across wastewater which is a central part of our plan and wider ambition to manage our business regionally. During the current business planning period (2015-2020) we have developed an operating model across the end to end production line. Our Regional System Operational Management (RSOM) has enabled a step change in operational performance. Critical to its success was behavioural change across the organisation to value sludge as a resource and not as a waste for disposal. During AMP6 we have established a regional operational management plan, co-ordinated by a regional sewage sludge production planning team in the Integrated Control Centre which drives short term decision making and systems thinking to optimise service. Existing and new instrumentation allows us to measure sludge at the boundary, at the point of arrival from another company and manage sewage sludge as a regionally integrated system moving sludge between wastewater treatment works and sludge treatment centres to treat and dispose of it in the most efficient way. It provides data to support an optimiser tool which informs decision making determined by cost analysis. This will provide full measurement at the boundary with Wastewater Network Plus by 2020. Improved monitoring of performance trends has lowered risks on sludge compliance and sludge quality for digestion and biogas yield are both considered key requirements across the production line. The provision of real time data has enhanced logistics, improved planning, centralised scheduling, reduced costs and enabled optimisation of the Bioresources production line. This was a significant shift, breaking new ground for delivering efficient and effective regional operational sludge management. Operational capability has also been enhanced across water and wastewater through a Mobile, Asset and Resource Scheduling programme to improve the way we manage our assets, plan work and schedule our people. We have developed new roles, with increased technical capability, to specifically focus on Bioresources assets to safely drive efficiency and maximise the value from energy.

RSOM Enables us to manage sewage

sludge as a regionally integrated system in the most efficient way.

Forecast to deliver savings of £8.11m in AMP6 rising to £12.24m

in AMP7.



Figure 20 Summary of strategic planning tool inputs, outputs and benefits At a strategic level, the Regional Integrated Asset Plan (RIAP) modelling tool builds upon RSOM and our wholesale risk and asset planning approach (detail is provided in Corporate resilience – ref S4003). It is central to our asset investment strategy over the next 25 years as it has increased our understanding of assets, costs and market opportunities so that we can evaluate the service the Bioresources business is delivering for customers at the most efficient cost and a tolerable level of risk. We have modelled over a hundred scenarios to test a range of regional capacities, the impact of including and excluding digested sludge incineration, the opportunities of using different innovative technologies across the production line and the delivery of services by other market participants. This modelling capability, summarised in Figure 20, allows our plans to be adapted to continually identify and exploit opportunities as well as address the challenges the business faces in the most efficient way. The use of our operational and strategic planning tools have enabled us to develop a totex programme of £372m for 2020-2025 that delivers more sludge transport, treatment and disposal capability to a greater volume of raw sludge from Wastewater Network Plus than in AMP6. 4.1.5 Performance commitments Our performance commitments address customer priorities and have stretching targets. The Outcome Delivery Incentives (ODIs) associated with these commitments are derived from valuations which are based on a wide range of customer research (summarised in section 4.1.1 of this document) and provide the right incentives to deliver our targets, and outperform where this is valued by customers. The Bioresources price control has three performance commitments;

• Recycling Biosolids • Better Air Quality • Enhancing Natural Capital Value for Customers

All of these performance commitments contribute to delivering the outcome ‘The natural environment is protected and improved in the way we deliver our services’. They are summarised on the next pages.



RECYCLING BIOSOLIDS Outcome:

The natural environment is protected and improved in the

way we deliver our services

Current Performance Since 2015 we have been 100% compliant with satisfactory sludge disposal. Most of our biosolids have been recycled to agriculture but a significant quantity was disposed by incineration. The Biosolids Assurance Scheme had not been developed or implemented until 2015. Our first annual independent Biosolids Assurance Scheme audit was conducted in 2016/17. Upon its introduction we have been less than 2% lower than 100% and aim to be performing at the maximum attainable level by 2019.

Innovation Regional System Operational Management

(RSOM) tool to allow more accurate monitoring and management of biosolids.

Regional Integrated Asset Plan (RIAP) for strategic asset investment decisions.

Use of markets.

Customer Views Engaged with 1,765 customers 100% Recycle chosen by 47%

75% Recycle 25% Dispose chosen by 23%. 86% want us to increase the amount of

waste that conforms to BAS. Business plan adapted following

customer feedback to move towards 100% recycling to agriculture.

Efficiency Moving towards 100% biosolids to

Agriculture as the lowest cost, sustainable outlet. The nature of our

landbank means we need to drive further than the average company and

comply with additional IED permits. This forms the basis of our cost

adjustment claim.

Risk and Resilience Changes to BAS requirements.

Different reporting periods for Environment Agency and Ofwat.

Third party risk to delivery.

!

Summary This measure assesses the successful use and disposal of treated material containing sewage sludge, known as biosolids. All biosolids will be compliant with regulatory requirements that apply to each end use in line with the water industry and Environment Agency agreed definition of satisfactory sludge use and disposal. As a further requirement, biosolids that are recycled to agriculture must also conform to the Biosolids Assurance Scheme (BAS), a voluntary scheme under the governance of WaterUK. The scheme incorporates best practice guidance and is independently audited. The total quantity of not compliant biosolids is divided by the total quantity of sludge which required treatment and disposal and subtracted from a hundred percent.

C09-BR Recycling Biosolids in Great service to customers – ref Chapter 5 and Performance commitments technical document – ref S3001

End of AMP Future Targets

£229.8m Totex (£142.3m Capex, £87.5m Opex) Expenditure required to deliver this

performance commitment.

The dip in performance shown in FY17 and FY18 is due to the addition of Biosolids Assurance Scheme conformance following our first audit in FY17. Prior to that performance only represents compliance with Satisfactory Sludge Use and Disposal.


http://flow/Asset/MA/Regulatory/_vti_history/27/Shared%20Documents/AMP7%20ODIs%20-%20docs%20for%20Silver/Long%20version%20documents/Draft%20Silver/C09-BR%20Recycling%20biosolids%20-%20draft%20Silver%20version.docx


BETTER AIR QUALITY Outcome:

The natural environment is protected and improved in the

way we deliver our services

£41.8m Totex (£25.3m Capex, £16.5m Opex)

Expenditure required to deliver this performance commitment by replacing combined heat and power engines at the end of their asset

life and maintaining existing engines at a compliant level.

Current Performance Our performance has improved over time, the introduction of the Medium Combustion Plant Directive (MCPD) will stretch us beyond our historic performance. We have seen a 12.34% improvement since the start of the current business plan period with our current performance at 1.55 tonnes NOx/GWh.

Innovation Supports future innovative technologies –

fuel cells and gas to vehicles. We will engage markets and implement the most

favourable solutions.

Customer Views Engaged with 1,765 customers.

77% prepared to invest to reduce emissions.

Increased to 81% when presented with 83p bill impact.

Efficiency Supports the delivery of totex solutions by changing how we manage our energy

generation to improve air emissions. Sludge trading and co-digestion enables

us to deliver the best value from electricity and gas revenue streams.

Risk and Resilience Uncertainty as to how to apply for new

MCPD and Generator Control Regulations permits.

High variability in emission measurements.

!

Summary This is a new measure aligned to customer ambition for us to improve air quality. It is focused on reducing the nitrous oxide (NOx) emissions per unit of renewable electricity generated from bioresources. Sewage sludge from wastewater treatment is treated through digestion processes to a standard suitable for use in agriculture. This also produces biogas which is burned to generate renewable energy in combined heat and power engines. When the fuel is burned, waste gases including NOx are emitted. The measure includes emissions from combined heat and power engines and sewage sludge incineration. If biogas is supplied to the national gas grid, the electricity that could have been generated by burning it is included in the measure.

C10-BR Better Air Quality in Great service to customers – ref Chapter 5 and Performance commitments technical document – ref S3001

End of AMP Future Targets


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4.1.6 Business plan summary This plan will prepare us beyond 2025 when we expect the understanding of the bioresources market to have developed significantly. Bioresources could, at this time, operate independently from Wastewater Network Plus and be in full competition with the wider waste market. We will continue to support the development of markets through data and information sharing, participation in trading platforms and encouraging third parties to deliver services. Our plan over the next five years and the performance commitments we have made stretch us to deliver the performance required to meet the outcomes customers want.

ENHANCING NATURAL CAPITAL VALUE FOR CUSTOMERS

Outcome: The natural environment is

protected and improved in the way we deliver our services

£0m Bioresources Totex Seek opportunities to deliver this

performance commitment within current investment plan.

Summary This measure assesses the added natural capital value that we will deliver in the period 2020-2025 through our integrated catchment strategy and innovative ways of working. This builds on our long-term vision of establishing a resilient systems operation approach to catchment planning and establishing a baseline natural capital account for our operational area. We will work in collaboration with landowners, environmental organisations, community groups and other stakeholders to deliver enhanced environmental outcomes and add value beyond our statutory requirements.

Innovation Increased capability to coordinate and

calculate the added value. New industry wide approach.

Customer Views The majority of customers said they would be prepared to pay to support

natural capital initiatives. 78% felt it was important to have a say in

how the catchment land is managed. In Manchester 62% of customers

prioritised creation of green spaces.

Efficiency Committed to exploring

opportunities to deliver added value in the Bioresources price control, building on the principles of our integrated catchment strategy.

Risk and Resilience Working with third parties to help delivery. Greener – soft-engineered solutions tend

to be more dynamic which could be a regulatory compliance risk.

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C08-CF Enhancing Natural Capital Value for Customers in Great service to customers – ref Chapter 5 and Performance commitments technical document – ref S3001

Price Control Allocation

Water Resources

10%

Water Network Plus 5%

Wastewater Network Plus

80%

Bioresources 5%


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