Covid hit on returns estimated at -0.35% to -0.97%

The industry-wide impact of Covid-19 on the water sector over AMP7 is estimated to range from -0.35% to -0.97% when measured as the change in the return on regulated equity. That is according to a collaborative project Water UK and Ofwat commissioned from Frontier Economics, with support from Atkins and the Behavioural Insights Team.

The report of the findings, published last week, projected the impact of low inflation on the real cost of embedded debt and bad debt to have the most significant impacts. The researchers stressed the numbers reflected average estimates not company specific impacts, and should be treated as a first look rather than definitive findings.

The project team used three consolidated scenarios to assess the impacts of Covid-19: ‘prevalent’, ‘controlled’ and ‘diminished’. It identified material, industry-wide impacts which included from macroeconomic scenarios, social distancing rules and shifting consumption patterns towards the home. The latter included increased household consumption and revenue; decreased non-household consumption and revenue; increased NHH voids; increased per capita consumption and Outcome Delivery Incentive penalties; and increased water production costs.

The report also noted opportunities arising from the pandemic, including from new ways of working and new technologies.