After decades of capital upgrades, the water industry is focusing increasingly on driving down its lifetime operating costs, finds Michelle Knott.
The focus of the UK water industry is shifting from upgrading its assets to driving down the lifetime costs (or so-called Totex) associated with its investments.
Companies are looking to tackle inefficiencies in ongoing activities such as maintenance, and consumables such as energy and chemicals.
“There is now a fundamental shift towards Totex,” says Greg Bradley, partner, utilities sector, with asset management firm EC Harris.
“In our experience many organisations are using a traditional asset-centric approach to Totex – namely preparing whole life cost models on an individual asset or system basis. Our view is that a business-centric approach is required, where all capital and operational expenditure across the business, both direct and indirect costs, should be used when trying to optimise Totex expenditure. This is key to delivering the intended outcome, which is sustainable lower costs for customers.”
The pressure to control ongoing costs started to ramp up with the arrival of the current five-year Asset Management Plan period, AMP5, which runs from 2010-2015, and looks set to continue into AMP6, which starts next year.
This shift towards operational asset management has seen [operational] spend increase through successive AMP periods,” says Bradley.
“In the current AMP5 period, outlay is estimated to be around £19 billion compared to a [capital] spend of £24 billion. With early projections suggesting this figure will increase during the AMP6 cycle, it comes as little surprise that water companies are increasingly exploring how they can minimise costs and remove any wasteful processes.”
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