UK water remains the highest-risk regulated asset in Barclays’ investor survey, which has just been updated from April.
The report said: “A vast and still growing majority of investors see the regulatory framework as unhelpful, hampering their investment appetite for the UK water sector.” It warned Ofwat that its preference for using market-asset ratios and share price performance may be distorting its view of investor sentiment, not least because the listed companies are the best performers. It also pointed out that the model of winners and losers might restrict the availability of the £30bn of equity needed across the sector.
Along with many other commentators, Barclays considered that Ofwat’s allowed cost of equity is not only lower than Ofgem’s assumptions for regulated energy networks, but also provides too low an equity wedge above the allowed return on debt, given the actual cost of recent debt issuance across the sector.
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