Assessing energy efficiency and its dynamic changes in the water sector integrating heterogeneity and carbon emissions

Abstract

Enhancing the energy performance of water utilities is a critical step towards achieving a net-zero carbon industry. Traditional energy performance assessments in the water industry often overlook heterogeneity among water companies and fail to account for changes in energy efficiency (EE) over time. To address these shortcomings, this research employs Stochastic Frontier Analysis (SFA) techniques to assess energy performance of two types of water companies such as Water and Sewerage Companies (WaSCs) and Water-only Companies (WoCs) within a single energy frontier model. Empirical analysis of water companies in England and Wales reveals an average EE score of 0.940 over the 2010–2020 period, suggesting a 6% energy-saving potential. English and Welsh water industry exhibited an overall 0.3% annual improvement in energy productivity change (EPC). This improvement was primarily attributed to efficiency changes (average 1.005), which offset the negative shift in technology change (average 0.998), while the scale effect remained negligible (average 1.000). WaSCs experienced a slight increase in EPC, with an average value of 1.018, indicating an improvement in energy productivity. In contrast, WoCs exhibited a decrease in EPC, with an average value of 0.989, suggesting a decline in energy productivity. These disparities were due to opposite shifts in the efficient production frontier; WaSCs had a positive shift (average 1.012), while WoCs had a negative shift (average 0.984). The study also highlights the impact of regulatory policies on energy performance. The 2009 price review involved modest improvements (average EPC = 1.013), while the 2014 price review yielded unfavorable results (average EPC = 0.993), emphasizing the need for long-term policies to facilitate sector-wide transformation towards carbon neutrality.