Scottish Water has invested a record £886 million in its water and waste water network in the last year, its latest annual report has highlighted.

But the changing climate and aging water and waste water assets means the publicly-owned utility will need higher investment levels in future to maintain vital services.

Douglas Millican, the former Chief Executive of the publicly-owned organisation – who stood down on May 31 after more than two decades at the utility – said that despite investment levels increasing significantly in the last two years the utility was currently investing around only 40% of the necessary long-term replacement rate.

Writing in Scottish Water's Annual Performance and Prospects report, which covers the 2022/23 financial year and is published today, 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, as with most things, 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".

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.

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Mr 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. He said the utility was committed to doing more to better protect Scotland's rivers and coasts.

"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.

"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 £500 million in the waste water system, including treatment works and CSOs, to improve the quality of waste water discharges and protect rivers and coastal environments."

He highlighted how Scotland already has one of the best quality water environments in Europe with 87% of waterways achieving "good or better condition" for water quality but said it was vital more was done to protect water bodies.

The report highlighted how Scottish Water has 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 new report also revealed the utility had delivered cumulative emissions reduction in the last two years of 15,681 tCO2 e - equivalent to 34,000 return journeys from Land's End to John O'Groats in an average diesel car - 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.

Mr 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. In the last year we have delivered more energy efficiency projects and several renewable energy projects."

In his final statement he praised the utility's workforce and told how customers remained at the heart of all they do. Scottish Water is major employer across Scotland, employing in excess of 4,400 people with a further 2,000 employed within partner organisations who help deliver investment and improve service.

Alex Plant moved from Anglian Water to take over from Mr Millican earlier this month. He has vowed to continue to lead the pioneering – and vital – service that Scottish Water delivers.

Mr Plant said: "I am excited to have joined such a highly-regarded organisation to work to continue to deliver great service, great value to our customers. As well as the vital work we deliver around-the-clock I know we face some difficult issues, with climate change one of the most pressing.

"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."

In 2022/23 Scottish Water worked with 400 suppliers to deliver its investment programme. Three quarters of its suppliers were Small Medium Enterprises (SMEs) - and 90% of the annual spend was on organisations located in Scotland.