Water companies in England and Wales will require around £272 billion for enhancement expenditure in 2025-50 to advance services and improve performance, according to an estimate from Moody's Investors Services based on the companies' own forecasts.
The warning comes in one of two newly-released sector in-depth reports by Moody’s on the UK regulated water utilities - Enhancement expenditure set to rise materially over the next 25 years and Bad reputation is not wholly deserved.
"The figure is almost three times the industry's existing regulatory capital value, which stood at £94 billion at March 2023 – and significant new debt and equity funding will be needed if the plans are to be delivered," said Stefanie Voelz, Vice President and Senior Credit Officer at Moody's.
"Companies are responding to tighter environmental regulations and pressure on water resources from climate change and population growth."
Public perception that UK water companies perform poorly on leakage and pollution is contributing to demands for higher investment, but Moody's has found that the industry's performance is similar to international peers.
"In our opinion, leakage is not high by international standards, treatment of wastewater is good, and surface water quality is in line with comparable countries," said Graham Taylor, Senior Vice President at Moody's. "Water charges are also in line with peers, although this may change as higher investment feeds through to customer bills."
Key takeaways from the reports include:
- For the next five-year regulatory period (AMP8), from 1 April 2025 to 31 March 2030, English and Welsh water companies have proposed around £40 billion enhancement expenditure, more than three times their allowance over the previous five years.
- Planned investments, driven by changing government policies and targets set by regulator Ofwat, will improve performance in areas where customers believe water companies are falling short.
- Polls show low and falling public confidence that wastewater is adequately treated, and the sector faces media criticism for both pollution and leakage of clean water. However, Moody's analysis shows that leakage is similar to peers, and that the industry performs well on many environmental measures.
- Companies' business plans forecast average household bills will rise by more than 30% above inflation in AMP8, and further increases are likely in subsequent periods.
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