Scottish Water invested a record £886m in the last year, but warned that climate change and ageing water infrastructure means the publicly-owned utility will need to invest even more to maintain services.
Douglas Millican, the former chief executive - who stood down on 31 May after more than two decades at the group - said that despite investment levels increasing significantly in the last two years, it was currently investing around only 40% of the necessary long-term replacement rate.
Writing in Scottish Water’s annual report, covering the 2022/23 financial year, he said: “We owe it to our customers to be honest with them about the cost of delivering the services they rely on and expect, and will continue to expect, and keep transitioning towards a more sustainable future.
“There is not a stand-still option, assets are ageing and need replacing, our climate is changing and we must adapt.
“As with all our investment programme, we need to decide which areas are the greatest priority for investment with the resources we have - and people across Scotland will have differing opinions on what they should be.
“We will continue to work with communities to listen to their views and work with partners, including local authorities, to introduce sustainable infrastructure. “
In 2022/23 Scottish Water worked with 400 suppliers to deliver its investment programme. Three quarters of its suppliers were small to medium-sized enterprises - and 90% of the annual spend was on organisations located in Scotland.
As for the financials, group revenue rose from £1.73bn in 2022 to £1.83bn at the end of March 2023.
Unlike other privatised water companies elsewhere in the country, Scottish Water reported a surplus of £40.5m at 31 March, although this was down from £67.2m the same time last year.
The report also highlighted how Scottish Water delivered sustained levels of drinking water quality and environmental performance, despite a number of serious challenges caused by extreme weather patterns.
Millican said an area of growing concern was the use of Combined Sewer Overflows (CSOs), which are designed to spill at times of very heavy rainfall.
“CSOs are very much in the spotlight just now with considerable media coverage, and in turn public attention, on the issue of CSO spills and river health, “ he stated.
“We are committed to building on the improvements already made and doing more to further protect the water environment where we are making progress with implementing our Improving Urban Waters Routemap.
“This will see us invest up to £500m in the waste water system, including treatment works and CSOs, to improve the quality of waste water discharges and protect rivers and coastal environments.”
The report noted that 87% of Scotland's waterways achieved 'good' or better condition for water quality, but Scottish Water has still started to install monitors on CSOs to provide better data on spill events and aims to have 1,000 of them in place at high priority sites across the country by the end of next year.
Technology will also be fitted upstream in some areas to reduce the risk of overflow spills.
The report also revealed the utility had delivered cumulative emissions reduction in the last two years of 15,681 CO2 equivalent, despite a number of challenges, including global supply chain issues and third party issues regarding access to peatland restoration area needed to reduce carbon loss.
Millican said: “We remain focused on achieving the long-term targets in our Net Zero Routemap, our ambitious plan to reach net zero carbon emissions by 2040.”
Scottish Water employs more than 4,400 people, with a further 2,000 employed within partner organisations.
Alex Plant moved from Anglian Water to take over from Millican earlier this month.
He commented: “I am excited to have joined such a highly-regarded organisation to work to continue to deliver great service, great value to our customers.
“I have only been in post a short while, but am already struck by the commitment and drive within the organisation to do what’s best for Scotland, for the people we are here to serve and for the environment we seek to protect and enhance.”
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