Ofwat's innovation fund incentivises and rewards collaborative innovation in the water sector that meet key objectives for the industry around one (or more) of Ofwat’s four innovation themes:
• adapting to climate change and achieving net zero emissions;
• protecting and enhancing the environment;
• delivering long-term operational resilience;
• and improving the delivery of services for customers and society.

In its first year, the fund awarded £63m to projects, including those using open data sources to protect customers in financial difficulty. For example, Water4All is a consortium including data solutions experts, Sagacity; consumer credit report agency, Equifax; and leading provider of service to people in financial difficulty, Auriga. The project was awarded £616k to identify vulnerable customers, use the consortiums knowledge and data to seek and serve those who need help most, allowing water companies to provide support.

Just as the fintech sector has used its skills and expertise to challenge and transform the highly regulated retail and business banking sectors in the UK, Ofwat is encouraging future entries to build customer value through innovation to provide better services, including for vulnerable customers.

Ofwat has unveiled how the innovation fund will evolve to meet customer, environmental and industry priorities in the years ahead: a £38 million competition to open in autumn 2022, the first £4m open access competition to open in early 2023 - and continuing the fund to 2030. It follows a consultation by the regulator on the future direction of the fund - and work to review the fund and innovation in the water sector.

John Russell, Senior Director, Strategy, Finance and Infrastructure at Ofwat said:
“We need greater innovation in the water sector to tackle the significant challenges it faces. The Innovation Fund has inspired multiple collaborations between companies in and outside of the water sector. The ambition of the winning entries to date demonstrates the sector’s commitment to build a resilient water system that benefits the environment and customers. Over the next three years we will distribute approximately £120m to more innovative initiatives. I’m pleased to announce the return of the Water Breakthrough Challenge this autumn, plus an entirely new competition open to innovators from any sector with ideas capable of positive transformation for the water industry to follow early in 2023. We're also currently consulting on continuing the fund to 2030. ”

THE WATER BREAKTHROUGH CHALLENGE RETURNS AUTUMN 2022
The Water Breakthrough Challenge 3 will launch on 3 October 2022 - with an £8m Catalyst stream and a £30m Transform stream - and will run annually. Entrants to the Catalyst stream can bid for between £500k and £2m, while entrants to the Transform stream can bid for between £2m and £10m.

NEW OPEN ACCESS COMPETITION COMING 2023
Launching in early 2023, the open access competition element of the fund will be a new initiative launched in response to the post-pilot consultation. Unlike the Water Breakthrough Challenge, there will be no requirement for organisations to partner or receive sponsorship from a water company to enter the competition.

It will primarily target early-stage innovation, allocating approximately £4 million in funding annually, with up to £500,000 available for individual entries.

As with other entrants to the Innovation Fund, entries to the new open access competition will need to align with one or more of Ofwat’s four innovation themes.

INNOVATION TO 2025 AND BEYOND
Ofwat is proposing to continue the innovation fund until at least March 2030. This is subject to the regulator's consultation on its draft methodology for the 2024 price review. Over the coming months Ofwat will work with the water sector and other innovators to look at how the fund could continue to stimulate innovation up to 2030.

FULL CONSULTATION REPORT IN AUTUMN
Ofwat expects to publish a full consultation decision companion document in autumn 2022, which will set out further information on the headline decisions. It will include more detail on the new open access competition, which will be developed in further consultation with the water sector in the coming months.