New Welsh water regulator proposed as Green Paper sets out governance reforms
The Welsh Government has published a Green Paper, Shaping the Future of Water Governance in Wales, setting out proposals for a new stand-alone economic regulator for the water sector in Wales, alongside a national system planning function. The package signals a long-term shift in how water services could be regulated, planned and overseen, with clear long-term implications for operators, supply chains and investors working in and across Wales.
While the proposals are formally subject to consultation, the Green Paper sets out a defined direction of travel and frames the changes as a response to structural, environmental and governance challenges identified by the Independent Water Commission.
A distinct approach to economic regulation
At the centre of the proposals is the creation of a Welsh economic water regulator, designed “from first principles” rather than as a direct replica of existing England-and-Wales arrangements. The Welsh Government argues that the current economic regulation framework, created before devolution, was not designed to accommodate diverging national policy priorities.
The proposed regulator would be responsible for the economic regulation of water companies and relevant licensees operating in Wales, including those with cross-border operations. The Green Paper recognises the need for any new framework to function effectively across shared catchments and operational footprints.
In the interim, Ofwat (or any successor body) would continue to carry out economic regulation in Wales while new arrangements are developed and implemented.
The Welsh context: ownership, finance and regulation
The case for a more tailored regulatory model is closely linked to Wales’ distinctive sector structure. Dŵr Cymru Welsh Water, which serves most of the Welsh population, operates as a not-for-profit company limited by guarantee. It has no shareholders, pays no equity dividends and reinvests financial surpluses in services, infrastructure or customer support.
This differs from the investor-owned company model that dominates the English water sector, where regulation is explicitly designed around delivering returns to equity alongside service and environmental performance. Welsh Water raises finance entirely through debt markets, supported by its regulated revenues.
The Welsh Government and the Independent Water Commission have both noted that a regulatory framework largely shaped around investor-owned companies may not always align neatly with a not-for-profit, debt-financed model. While the Green Paper does not propose company-specific regulation, it signals scope for a Welsh regulator to adopt approaches better aligned with Wales’ sector structure and policy objectives.
System planning, monitoring and sludge regulation
Alongside economic regulation, the Green Paper proposes establishing a National System Planning Function to coordinate water management across Wales, spanning water supply, wastewater, environmental capacity, system resilience and the prioritisation of investment. Views are sought on whether this function should sit within the proposed regulator or elsewhere, but system planning is positioned as a key tool for aligning regulatory decisions with wider Welsh objectives.
The document also places strong emphasis on how regulation would operate in practice, including greater use of digital monitoring, improved data quality and clearer environmental transparency. Proposals include minimum transparency standards and publicly accessible dashboards bringing together information on discharges, river health and enforcement activity.
A significant section of the Green Paper focuses on sludge, biosolids and organic materials. The Welsh Government signals support for strengthening oversight of sludge activities, including options to bring sludge and biosolids more fully within Environmental Permitting regimes, with particular attention to traceability, resilience and cross-border movements. In parallel, a specific call for evidence is launched on digestate, recognising that existing regulatory arrangements may not adequately reflect increasing volumes associated with anaerobic digestion and that controls may need to evolve.
In addition, the Green Paper considers whether the legislative framework governing water in Wales remains fit for purpose. This includes examining the scope of existing regulatory powers, the use of stronger enforcement mechanisms such as civil sanctions, and whether current legal arrangements provide sufficient clarity to support more effective regulation.
Timeline and what industry should watch
The Green Paper makes clear that reform will be phased and long term, rather than immediate. Indicative timelines point to development and transition through the late 2020s, with the ambition for new regulatory arrangements to be fully operational by PR34 — the price review that will set water company revenues and performance requirements for the 2034–2039 period.
PR34 is used as a practical milestone, reflecting the need for any new Welsh regulator to be in place in time to shape a full price control period, rather than inheriting one set under the current England-and-Wales framework.
For industry professionals, the key signals to watch are the scope and powers of a future Welsh economic regulator, the role of national system planning in shaping investment priorities, and the direction of travel on sludge and digestate regulation. While formal institutional change remains some years away, the Green Paper underlines an intention to move toward a more distinct, integrated and outcomes-focused approach to water governance in Wales.