At £40bn, the AMP8 enhancement expenditure proposed by water companies is triple the amount allowed in AMP7 – but only the beginning, given £272bn will be needed between 2025 and 2050, Moody’s has estimated.
The agency used companies’ long-term forecasts in calculating the number, and pointed out in a note issued last week, Enhancement expenditure set to rise materially over the next 25 years, that the figure is almost three times the industry’s existing regulatory capital value of £94bn at March 2023.
Moody’s said around 70% of the investment will be linked to wastewater enhancement, including £70bn for storm overflows. £82bn will be used to bolster water resources to improve drought resilience, with half of that spending concentrated in the South East.
The enhancement requirement was a key issue debated last week at Moody’s sold-out water conference – together with the significant new debt and equity required to support the investment and investor appetite to provide it.
Vice president and senior credit officer at Moody’s,Stefanie Voelz, pointed out: “Companies are responding to tighter environmental regulations and pressure on water resources from climate change and population growth.” The agency also noted the role of public perceptions that water firms are performing poorly on leakage and pollutions in contributing to demands for higher investment. However, in a separate paper published last week, Bad reputation is not wholly deserved, Moody’s found English and Welsh companies to be doing at least as well as international comparators.
“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 senior vice president at Moody’s, Graham Taylor. He added: "Water charges are also in line with peers, although this may change as higher investment feeds through to customer bills.”
More detailed coverage of the Moody’s papers and conference will be in November’s The Water Report.
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