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Investing in Water Services 2006 - 2014

5 INVESTING IN THE ENVIRONMENT

Introduction

5.1 Investment in environmental objectives is likely to be one of the largest cost components of Quality and Standards III. Decisions on the appropriate levels of investment must therefore balance what is affordable, practical and sustainable over time, with the necessary progress towards meeting existing mandatory standards and a natural desire to go beyond them. With that balance in mind, a specialist working group was established involving the Scottish Environment Protection Agency. This group is producing a comprehensive analysis of environment-related investment needs. A total of 30 individual ‘cost drivers’ were examined for their impact upon investment requirements for the water industry (Annex B). All the cost drivers refer to legislation that imposes duties and responsibilities to protect and improve environmental quality. Scottish Water, through its operations, has a major role to play in helping to meet these requirements.

Why do we need to invest in the environment?

5.2 Great improvements are being delivered by the current Quality and Standards II investment programme. However, more needs to be done to correct the historic legacy of under-investment that has characterised the water industry until relatively recently. It is essential that the treatment and disposal of sewage is carried out in a manner which protects human health and the environment. In addition, we need to ensure that the largely healthy and diverse aquatic environment of Scotland is maintained and protected, our bathing water are clean and safe, and where problems exist, they are tackled as sustainable and effectively as possible.

5.3 It is the duty of SEPA, as environmental regulator, to safeguard the quality of the environment. For the water environment, SEPA achieve this through setting and enforcing conditions on the quality and quantity of water (termed the "consent standard") discharged from Scottish Water assets. These consent standards are established from the requirements of a range of legislation, both domestic and European, outlined in Annex B. In time much but not all of this legislation will be consolidated under the Water Framework Directive, enacted in Scotland as the Water Environment and Water Services Act 2003.

5.4 The principal objective of the Water Framework Directive (WFD) is to protect and enhance our water environment. For example, current and potential future drinking water sources must be protected and bathing water sites must be afforded special attention. Considerable investment will be required over time to achieve these objectives, although there is scope within the requirements of the WFD to set less stringent objectives for certain water bodies if the costs are disproportionate to the benefits. Given the overlap between existing requirements and the future needs of the WFD, some of the requirements of the WFD will be met within this investment cycle while others will fall to future cycles.

5.5 Many environmental drivers set deadlines for the delivery of required improvements. However, certain environmental drivers have both "mandatory" and more stringent "guideline" standards. While mandatory standards impose clear compliance deadlines, guideline standards require that we demonstrate there are plans and actions in place that ensure progress is made towards achieving guideline standards. Some flexibility therefore exists regarding the rate at which progress is made towards guideline standards, and this flexibility is likely to be a key factor in deciding on the level and pace of investment in Quality and Standards III.

What investment is happening at present?

5.6 In the current investment programme, Quality and Standards II, a total of around £480m (£120m each year) is targeted at improving our sewer systems and wastewater treatment works in line with mandatory quality standards, along with other environment-related projects. This investment will result in upgrading and building wastewater treatment works and the replacement of 439 unsatisfactory sewage outflows¹⁴. In addition to bringing about improvements in environmental quality, this investment will also help to reduce instances of flooding and provide better standards of service for Scottish Water customers. Significant investment in wastewater treatment works contributed in 2003 to the best ever results for our bathing waters.

5.7 However, while significant progress has been made by Scottish Water in meeting environmental standards, more work is needed to allow us to continue to comply with current legislation and to meet more stringent standards as they emerge.

How were the investment requirements for Quality and Standards III derived?

5.8 The working group identified a total of 30 individual legislative drivers of environment-related investment in the water industry, of which 19 derive from EU Directives (see Annex B). The major drivers target improvements in standards of wastewater treatment, protecting and improving the bacterial quality of bathing and shellfish waters, as well as protecting the needs of fish populations within rivers. The majority set standards for the quality of waters receiving discharges from Scottish Water assets. Using their expertise on the water environment of Scotland, SEPA undertook the first stage of the assessment of investment needs for Quality and Standards III. This assessment identified what investment by Scottish Water may be required to maintain or upgrade the quality of our water bodies.

5.9 SEPA has used this information to identify the measures which Scottish Water should take to deliver the required level of environmental protection. In defining these requirements, assumptions have been made about other actions required to reduce diffuse pollution from urban areas, agriculture and forestry; as well as point sources of pollution such as sewage and industrial discharges, and abandoned mines.

5.10 Using the outputs derived from the above processes, Scottish Water undertook a large scale costing exercise to identify likely investment needs. That process has generated a series of costings based on the major types of works that Scottish Water undertake on behalf of customers, including:

• sewer systems;
• waste water treatment plants; and
• other non-water issues arising — including sludge disposal, air quality and waste.

What further investment is required in the environment?

Improving bathing waters and shellfish waters

5.11 Normal secondary sewage treatment does not remove bacteria and viruses. These are discharged with the treated effluent. If correctly designed, such sewage treatment works will protect the environment but will not protect the health of water users downstream (for example, bathing, paddling, fishing and canoeing). Disinfection can be added to sewage treatment works in order to protect downstream water users. Such protection is required under the European Bathing and Shellfish Waters Directives. The protection of waters used for recreation is undertaken as part of SEPA’s obligation to promote the cleanliness of freshwater and tidal waters.

5.12 SEPA has identified the need for:

• improvements for up to 88 km² of designated Bathing Waters; and
• improvements for up to 100 km² of designated Shellfish Waters.

5.13 Such actions would help to protect the amenity and tourist value of Scotland’s water environment.

Protecting ecology

5.14 The Freshwater Fish Directive sets standards to protect fish populations. Potential improvements have been identified which would support the development of fish populations in over 90 km of rivers. These improvements are also expected to help deliver compliance with the Water Framework Directive.

5.15 The Urban Waste Water Directive and the Water Framework Directive require the protection of inland and tidal waters from the effects of excessive nutrients. Excessive nutrients result in large growths of unsightly algae in rivers which can damage fish populations and impede fishing. In standing waters, excess nutrients can lead to the development of blue-green algal blooms. When algal blooms occur, local authority Environmental Health Departments place warning signs indicating that people should avoid contact with the water. Potential improvements have been identified for 645 km of rivers and lochs.

5.16 The runoff of rainwater from roads takes with it oils and metals which if discharged untreated to rivers cause serious environmental harm. Such discharges are the second most common cause of pollution in the most seriously polluted rivers (poor or seriously polluted). Controls over the discharge of such toxic substances is required under the Dangerous Substances Directive and the Water Framework Directive. A good example of this type of impact is caused by the runoff from Cumbernauld which renders 6 km of the Red Burn virtually fishless and has a detectable effect over 8km through the Bonny Water and the River Carron. Potential improvements involving the provision of treatment for surface waters have been identified covering 60 km of rivers.

Reducing contamination from sewage solids

5.17 The system of pipes which collects sewage, industrial wastewater and rainwater from streets is fitted with overflows. Such combined sewer overflows (CSO) are necessary to avoid flooding during periods of heavy rain. However, these overflows are expected to meet standards that ensure they do not operate outside periods of wet weather. Malfunctions can occur for a number of reasons and may lead to water quality problems and public health risk. Such overflows are often a cause of public complaint.

5.18 Overflows which become overloaded can have very serious environmental impacts. The result can be failure to achieve quality standards resulting in impacts upon fish and wildlife. The inflow of crude sewage poses a health risk and leads to deposits of unsightly sewage debris along the banks. Potential improvements have been identified in over 500 km of rivers, coasts and estuaries.

How will these improvements be delivered?

Sewage collection systems

5.19 The most expensive type of environmental investment identified in the Quality and Standards III process is the upgrading of our sewage collection systems, including improvements to address water quality issues associated with unsatisfactory surface water outfalls. There is a considerable historical backload of investment required to upgrade all sewerage networks but it would be impossible to deliver all desired improvements over the period of Quality and Standards III. As well as delivering the requirements of environmental legislation, investment will contribute to removing development constraints which in some areas are restricting economic development. The costs of improvements to the worst affected water-courses is likely to be substantial — around £1,500 million.

Wastewater treatment plants

5.20 The upgrading of waste-water treatment plans is vital to deliver the environmental, health and economic benefits in the investment programme. The proposed work is primarily focused upon the provision of disinfection and nutrient removal. Included in the Scottish Water’s asset base are 45 waste water treatment works which, while serviceable, are not capable of meeting the new standards expected. It is estimated that between £800 million and £1,100 million may be needed to deliver the mandatory and progress towards guideline improvements.

Other issues (air, land, waste and sludge)

5.21 The by-products of waste water treatment plants, as well as other aspects the operations of Scottish Water are also regulated by environmental legislation. Standards relating to emissions, effective and safe disposal of sewage sludge as well as agreements on issues such as the removal and safe disposal of asbestos were also considered by the Working Group. The estimated minimum costs for addressing these issues are £250m.

5.22 In addition to the requirements outlined above, there are other investment needs that the Working Group viewed as important investment issues for the industry. The largest identified cost includes provision for first time sewerage schemes that also address water quality issues, and whose costs are considered in Chapter 4. Consideration as to whether these additional requirements could or should be included in the investment programme have to be balanced against a number of issues, including the impact upon the scale of charges water customer should have to pay. It is however desirable from both financial and environmental viewpoints that the Quality and Standards III process contains affordable investment strategies that will assist in achievement of those objectives.

What are the total costs associated with these drivers?

5.23 On the basis of the work undertaken so far by the Working Group, the total cost of environmental improvement is very substantial indeed. A good deal of further work, not least on priorities, will be required to bring the total of this requirement within the bounds of an affordable and deliverable programme for Quality and Standards 3. The work completed to date suggests that meeting mandatory requirements could cost in the region of £2,500 million. Furthermore, the requirement to not only meet mandatory standards but also show improvement towards guideline standards could bring the total cost to something in the region of £3,000 million. What is certain, is that substantial expenditure on improvement of the water environment will be required for very many years to come, for Quality and Standards III and beyond.

How the decision will be taken on the investment programme

5.24 Investment in water quality and environmental objectives is likely to be one of the largest single components in the proposed Quality and Standards III programme. Bringing about the benefits set out above would require a very substantial increase in expenditure over that made in the preceding Quality and Standards programmes. The Quality and Standards process has become increasingly sophisticated since it began in 2000. The increase in expenditure on environmental matters reflects this more detailed approach, as well as the growth over time in the number of environmental drivers associated with Scottish Water operations. This level of detail will allow the Working Group to consider how to phase the investment in the water industry so as to deliver maximum benefits to Scotland’s environment whilst reducing the costs within Quality and Standards III. It will also allow an opportunity to examine in detail options for alternative actions that may also deliver environmental benefit without capital expenditure being incurred by the water charge payer.

5.25 It is important that the required programme of works is carried out at reasonable cost to customers, whilst balancing those needs with our obligations under legislative drivers. The choices made should also reflect a sustainable approach to the environment. This will require us to take some challenging decisions as regards our priorities for the environment over the next 8-year period. Much of this investment will be determined by European obligations to deliver mandatory standards, however, where flexibility exists the consultation feedback will help to inform decisions between environmental priorities.

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