Really pleased to have our thoughts on Environmental Incentives featured in the IoW’s autumn edition. The full article is presented below.
Environmental incentives: how developers are offsetting new water charges
The cost of connecting sites to the water network has become a headache for property developers. And with regional water company charges set to rise annually over the next few years, and new industry-wide legislation implemented this year by Ofwat, developers are increasingly looking to environmental incentives to make savings. Matthew Ling, Director of Sales at Leep Utilities, looks at how property developers can optimise their projects for the maximum water connection savings.
Over the last few years we’ve seen a dramatic increase in the water connection costs being charged by water companies. For a property in the Thames Water region, for example, developers will have to pay £1,475 to connect a property this year, an increase of £590 on last year.
This is a knock-on effect from the rise in the licence fees water companies are being charged by Ofwat, the water services regulation authority. In 2023, Ofwat received Treasury approval to raise licence fees by nearly 20% on the previous year, increasing its revenues from £40bn to £52bn. Then in 2024, Ofwat completed its five-year Pricing Review of its spending plans, for 2025-2030. This includes a quadrupling of new investment over the next five years, designated for water companies to improve performance, ensure water supplies, and make rivers and seas cleaner.
While these are worthy aims, for developers it all means a continued and massive uplift in costs over the next few years, particularly for larger developments, or phased building work. Water charges are generally payable when work is finished, meaning actual water costs are significantly more than the estimates made years before. It can lead to the corporate equivalent of bill shock, which can derail projects and cause delays to completions.
Environmental discounts to combat fee rises
In challenging operating conditions, the ability to claim discounts on new environmental charges is one way to significantly reduce the costs of water connections in new developments. But as the charges have only recently been introduced, there is still confusion about how this works, and what discounts can be claimed. It means many developers are missing out on the opportunity to reduce building costs.
In April 2025, Ofwat removed the ability for water companies to offer the income offset allowance, a discount for developers which recognised that the water company would be benefitting long term from water charges at the plot.
In its place, we’ve seen the introduction of a new additional per-household charge called the environmental component. This is designed specifically to encourage developers to deliver properties that are more sustainable and environmentally friendly, with water companies expected to reward developers who build water efficiency and sustainable drainage into their projects.
This is usually in the form of discounts or credits against water supply and sewerage infrastructure charges, which are often worth significantly more than the environmental charge levied. As a result, these environmental incentives can significantly reduce a property’s water connection costs, making it important for developers to ensure they’re getting the maximum discounts they can.
Promoting sustainable water systems
Many of the environmental incentives available to developers are tiered, depending on how water-efficient the property is, or how wastewater is managed.
In terms of water usage, for example, if a property you have built uses less than 100 litres of water per person per day, you can get a significant credit on your connection charges. You can then build on this to access a second tier of incentives if you meet more stringent requirements, such as showing water use of less than 90 litres per person. A third tier opens up if you can, for example, provide rainwater or greywater for toilet supply.
For all tiers, you need to be able to show your development meets the standards. At a basic level you need to prove you’re using water-efficient taps, toilets and showers, and that any dishwashers and washing machines installed meet reduced water consumption levels.
Sustainable drainage and wastewater solutions can also deliver reductions to your project’s water costs. If your wastewater systems don’t discharge to the public surface water system – or do so through a sustainable drainage system (SuDS) that reduces surface water flow into the water company network – you can achieve a discount of between £500 and £1,000 per property.
Think ahead for maximum discounts
While claiming environmental discounts on water charges is an increasingly important part of managing development costs, it can be a complex process. You need to detail all the fixtures and fittings being used, down to make and model, so the water company can check efficiency ratings. You also need to provide the technical specifications of elements such as wastewater and surface water features to prove they meet requirements.
And while all water companies are obliged to offer environmental incentives, the process varies considerably by region. It’s critical that you submit your environmental incentive applications with all the right details, and at the right time. Some companies require discount applications to be made as part of the property’s point of connection application, while others require you to apply after connection, but within a certain number of weeks.
Increasingly, it’s only really possible to maximise the value of environmental incentives by designing a property for sustainability from the early stages. For example it’s very difficult to retrofit a soakaway or SuDS management train to an existing site or plan – these are things that fundamentally affect the design of the site and plots.
As water continues to grow as an environmental concern, the water infrastructure we design and deliver becomes an even more important part of every development project. Yet by seeking early access to water industry expertise, you can meet today’s needs, in your timescales, with the maximum of discounts available to you, across every water region.
www.leeputilities.co.uk/water/
Link to the article: MYEBOOK – Autumn 2025