Ofwat invites proposals for growth enhancement

(by Karma Loveday)

Ofwat has written to water company regulatory directors inviting them to submit proposals for additional enhancement allowances to support investment linked to demand growth – notably relating to data centres and housing targets.

This followed company responses to a March 2025 Ofwat letter about enabling growth, in which the industry highlighted the need for funding mechanisms.

Ofwat will consider proposals through the PR24 cost change process submission window, which runs between March and May 2027. Any allowances granted will be applied through the PR24 end-of-period reconciliation. The regulator likened the process to the green recovery additional investment programme it ran in AMP7.

Firms can submit proposals for either more 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. Proposals must relate to enhancement investment in the following areas: 

• Growth at sewage treatment works

• Network reinforcement 

• Demand- and supply-side water resource options (such as smart metering or water treatment capacity increases).

In all cases, companies must demonstrate that: they are on track with existing AMP8 commitments (with reference to delivery plans and historical delivery records); 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; and the proposal has taken account of cost benefit analysis, options appraisal and affordability/bill impact. Proposals must also come with Price Control Deliverables to protect customers from under-delivery, and set out the expected impact on Performance Commitments (such as on leakage).

Ofwat said it would publish detailed assessment criteria in 2026, based on PR24 enhancement deep dive criteria. The letter noted: “We recognise that this additional flexibility introduces some regulatory complexity and delivery risk. However, we believe the benefits of enabling timely and targeted investment to support growth outweigh these challenges, provided proposals are well-evidence and deliverable.”