Ofwat has invited water companies to submit proposals for additional enhancement investment in AMP8 linked to demand growth, saying that ensuring sufficient treatment and network capacity to connect new housing and businesses is critical.

Daniel Mitchell, Interim Director of Cost Assessment, wrote to the Regulatory Directors of the water companies on 22^nd August inviting them to submit proposals for additional enhancement investment linked to demand growth.

He introduced his letter by saying:

“We want the sector to be well-positioned to support economic growth. Ensuring sufficient treatment and network capacity to connect new housing and businesses is critical. Since PR24 business plan submissions, new demand has emerged, such as from data centres, and the Government announced in 2024 a target to build 1.5 million new homes over five years.”

In March 2025 then CEO David Black wrote to the companies about enabling economic growth through major projects, including accelerating delivery and removing barriers. In response, water companies highlighted the need for funding mechanisms to support additional investment linked to demand growth.

Daniel Mitchell wrrites that “following careful consideration” Ofwat will allow companies to submit proposals for additional enhancement allowances to support investment linked to demand growth.

This will be through the PR24 cost change process submission window between March and May 2027, with any allowances applied through the PR24 end-of-period reconciliation. Waiting until 2027 allows us enough time to assess if companies are on track to deliver AMP8 commitments. We see this process as akin to the AMP7 green recovery programme, which enabled targeted investment to support environmental and economic outcomes during 2020–25.

Ofwat has invited companies to submit proposals for:

• Additional AMP8 investment to support higher-than-expected population, household, or business demand growth during 2025–30; or
• Accelerated AMP9 investment to support long-term demand growth that can be delivered more efficiently and effectively in AMP8.

The proposals must relate to enhancement investment in the following areas:

• Growth at sewage treatment works
• Network reinforcement
• Demand- and supply-side water resource options (eg smart metering, water treatment capacity increases).

To be allowed the additional investment, the water companies must provide robust evidence that for all proposals:

• They are on track to deliver AMP8 commitments, with reference to delivery plans and historical delivery records.
• The proposed investment is material and deliverable.
• There is sufficient internal and/or supply chain capacity to deliver the additional workload.
• The investment is not to regain compliance with existing permit levels.

The proposal must include:

• A robust cost-benefit analysis and options appraisal.
• Evidence that cost estimates are efficient and well-justified.
• Price control deliverables to protect customers from under-delivery.
• Expected impact on performance commitments (eg leakage).
• Customer consultation and affordability considerations, including bill impact modelling and mitigation strategies.

For AMP8 growth-rated investment, the companies must demonstrate that forecast or outturn demand growth exceeds that assumed in their PR24 draft determination representations and that there is insufficient headroom to accommodate the additional demand

For accelerated AMP9 investment to support long-term demand growth, they must show that it is efficient and effective to bring forward the investment and that it can be delivered alongside existing AMP8 commitments

New enhancements investment will be through the PR24 cost change process submission window between March and May 2027, on the basis that waiting until 2027 will allow Ofwat enough time to assess if companies are on track to deliver AMP8 commitments.

“We see this process as akin to the AMP7 green recovery programme, which enabled targeted investment to support environmental and economic outcomes during 2020–25,” Daniel Mitchell writes.

Next steps

Ofwat will publish detailed assessment criteria in early 2026 which will be based on the PR24 enhancement deep dive driteria. In the meantime, the regulator is encouraging companies to begin identifying potential proposals and engaging internally to assess deliverability, value for money, and customer protection mechanisms.

The letter concludes:

“We recognise that this additional flexibility introduces some regulatory flexibility and delivery risk. However, we berlieve the benefits of enabling timely and targeted investment to support growth outweigh these challenges, provided proposals are well-evidenced and deliverable.”