ARE DEVELOPERS MISSING AN OPPORTUNITY WITH NAVS?

Managing director Lisa Kerford believes some homebuilders are missing an opportunity to reduce the connection costs for their developments by failing to taking advantage of the NAVs alternative.

New appointments and variations (NAVs) are limited companies that provide a water and/or sewerage service to customers in an area which was previously provided by an incumbent monopoly provider. Although this option has been available for several years, uptake among developers is still relatively low.

Talking to various people in the industry, it seems the commercial benefits of NAVs are still poorly understood. This is a missed opportunity. Developers who opt to go down the NAVS route experience little difference in the way the water and sewerage network is operated but stand to gain commercially from the arrangement.

Background

The NAVs initiative was introduced by OFWAT in 2018 to remove market monopolisation by the major water companies. The intention was to create the kind of competition that already exists in the gas and electricity supply sectors.

NAVs are limited companies that supply water and/or sewerage to customers in a specific area, after having been granted a licence. The areas covered can range in size from small developments of residential properties to big mixed-use schemes.

Once granted a licence, a NAVs can receive water supplies and services from the incumbent utility and re-sell them to the purchaser of the property, in much the same way as gas and electricity supply markets have been sub-divided in recent years.

Developers are currently faced with two options:

– use the existing water company that serves the regional area in question (United Utilities, Yorkshire Water, etc)

or

– opt for a NAVs company that can supply the same service as the incumbent but with a more attractive commercial offering

In my view, NAVs companies have two distinct advantages:

– they are generally more competitive in their pricing model

and

– they provide an enhanced service that comes from being a smaller, independent company.

At Aptus, we realised the commercial benefits to our clients quite early on. More recently, following much education and communication with them, we have seen an increase in the uptake of the NAVs option.

There are only a few NAVs providers in the market due to the high investment cost and the stringent application process involved in gaining operator licences. Each development is currently covered by a separate NAVs licences, so the administration process is cumbersome and the time taken for OFWAT to process a NAVs application is 85 days.

This is a barrier to achieving increased competition and OFWAT is being lobbied for a reduction in this timescale.

The same bureaucratic obstacle was initially experienced in the gas sector until the regulators changed the application process. It was decided that licences should be awarded to companies operating across all geographies rather than weighing up the merits of individual developments.

Aptus is in a strong position to assist developers who wish to explore the NAVs option. At a time when there is more pressure than ever to provide affordable or competitively priced housing, being able to offset the cost of the water connection groundworks gives developers a distinct advantage.

As I see it, OFWAT’s worthy initial intention of providing a more competitive water connection market can be a real ‘gift-horse’ opportunity for developers and I anticipate continuing strong interest from the industry’s more astute Financial Directors.

Published on 17th November 2021