Water firms’ investment plans under scrutiny

Water companies have bid for £27.4 billion in capital investment in their business plans for 2010-15. Over £1 billion of investment is in limbo due to the delay in UK climate projections.

Water industry financial regulator Ofwat has reviewed the capital expenditure programs which companies have submitted in their draft business plans for the 2009 price review (PR09).1 The document reveals some interesting details of the scale and priorities of environmental investment for the sector in 2010-15.

The total capital investment forecast in the plans was £27.4 billion. Just over half represents sewerage investment, with the remainder for water supply. The sum will undoubtedly be reduced as Ofwat challenges companies’ investment assumptions.

One of the single largest items is Thames Water’s £1.13 billion for the Thames tideway tunnels project to prevent storm sewage overflows to the river in London (ENDS Report 401, p 23 ). This represents a substantial slab of the total investment in the project, which was budgeted at almost £2 billion and is due for completion in 2020.

A further £1.16 billion is for investments in water resources justified on the basis of climate change predictions. Ofwat recently announced it will not consider such schemes until the latest batch of climate change projections are produced by the UK Climate Impacts Programme (ENDS Report 407, p 6 ). These were due last year but have been delayed until this spring, meaning that all this investment remains in limbo.

One item to be delayed is a major proportion of Thames Water’s mains replacement programme, intended to tackle London’s high leakage rates. Ofwat acknowledges that working up new proposals on the basis of the delayed scenarios "may take longer than the PR09 timetable allows". It says it may make an interim allowance for extra funding if firms show significant investment needs.

Companies are also planning to boost renewable energy generation by more than 40%, Ofwat reveals. Most of the increase will come from sludge biogas and combined heat and power plants. Hydro schemes are also proposed, but other options such as wind generation do not fall within the scope of regulated water business. If they wish to develop these, firms must do so as private, non-regulated business ventures.

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