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Potable Water and Sewerage - UK - April 2017

“In 2015/16, the first year of the new five-year asset management period AMP6, gross capital expenditure across the water and sewerage industry was recorded at £4.45 billion. The figure is not directly comparable to previous years due to changes in reporting categories, but capital expenditure is still believed to have been lower than previous years. This largely reflects the completion of many EU legislation-driven capital projects, which dominated activity in recent spending periods, and a shift in focus from capital spending to totex.

For AMP6, Ofwat has introduced a move towards totex, combining capital and operational expenditure. Ofwat believes this will remove a bias toward capital programmes as capital expenditure has often been preferred over operational expenditure in delivery solutions due to the design of the regulatory framework.”

- Claudia Preedy -B2B Analyst

This Report answers the following key questions:

  • What are the implications of Brexit on the UK water and sewerage sector?
  • What recent developments are preparing the industry for the opening of the non-domestic retail market in 2017?
  • What does the shift towards total expenditure (Totex) and long-term outcomes in AMP6 mean for the industry?
  • What are the initial expectations of the regulatory framework for the Price Review and beyond? 

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Table of contents

  1. Executive Summary

      • The market
        • Capital expenditure growth slowed in 2014/15 as focus shifted towards preparing for work for the next five-year spending cycle AMP6 (2015-20)
          • Capital spending during AMP5 (2010-15) focused on networks and capital maintenance
            • Capital expenditure reaches £4.45 billion in 2015/16, the first year of AMP6
              • Figure 1: UK Capital Expenditure on Water and Sewerage Services, 2015/16
            • Maintaining the long-term capability of the assets noninfrastructure expenditure dominates capex
              • Figure 2: Analysis of sewerage capital expenditure in England and Wales, by water and sewerage companies, by type, 2015/16
              • Figure 3: Analysis of water capital expenditure in England and Wales, by water and sewerage companies, by type, 2015/16
            • Move towards total expenditure in AMP6 2015-20 should reduce bias towards capital programmes
              • Shift in industry focus towards asset management and maintenance
                • £4.2 billion Thames Tideway Tunnel to represent largest capital project over next decade
                  • Figure 4: Forecast capital expenditure for AMP6 in England & Wales, by water & sewerage company, 2015/16-2019/20
                • Market factors
                  • Environmental legislation
                    • Climate change
                      • Population and household growth
                        • Affordability
                          • Technological change
                            • Water retail market in England opens up to all business customers in 2017
                              • Companies
                                • What we think
                                • Key Insights

                                    • What are the implications of Brexit on the UK water and sewerage sector?
                                      • What recent developments are preparing the industry for the opening of the non-domestic retail market in 2017?
                                        • What does the shift towards total expenditure (Totex) and long-term outcomes in AMP6 mean for the industry?
                                          • What are the initial expectations of the regulatory framework for the Price Review and beyond?
                                          • Introduction

                                              • Definitions
                                                • Some other industry specific definitions:
                                                  • Methodology
                                                    • Abbreviations
                                                      • Market positioning
                                                      • UK Economy

                                                        • Overview
                                                          • Figure 5: UK GDP quarterly development, 2003-16
                                                          • Figure 6: UK GDP in economic downturns and recoveries since 1979
                                                        • Inflation
                                                          • Interest rates
                                                            • House prices
                                                              • Figure 7: UK House price changes, 2004-16
                                                            • Consumer spending
                                                              • Manufacturing
                                                                • Figure 8: UK manufacturing, 2014-16
                                                              • Business investment
                                                                • Figure 9: UK GFCF 2003-16
                                                              • Imports
                                                                • Exports
                                                                • Market Factors

                                                                  • Key points
                                                                    • Industry regulation
                                                                      • Legislative environment
                                                                        • European Water Framework Directive (WFD)
                                                                          • Urban Waste Water Treatment Directive (UWWTD)
                                                                            • The Drinking Water Directive
                                                                              • Revised Bathing Water Directive
                                                                                • Implications of Brexit on the UK water and sewerage sector
                                                                                  • Transfer of private sewers in England and Wales
                                                                                    • Figure 10: Capital expenditure on private sewers in England & Wales, by water and sewerage company, 2012-15
                                                                                  • The Flood and Water Management Act 2010
                                                                                    • Water and sewerage retail competition opens up for all business customers in England in April 2017
                                                                                      • No government decision yet to open up household retail market to competition
                                                                                      • Industry Structure

                                                                                        • Key points
                                                                                          • England & Wales
                                                                                              • Figure 11: Details of water and sewerage companies, as of March 2017
                                                                                              • Figure 12: Details of water-only companies, as of March 2017
                                                                                            • Households billed by water and sewerage companies
                                                                                              • Figure 13: Number of households billed by water and sewerage companies, 2015/16
                                                                                              • Figure 14: Households billed by water and sewerage companies, 2015/16
                                                                                            • Sewerage services
                                                                                              • Figure 15: Details of companies that supply sewerage services to water-only companies, as of March 2017
                                                                                            • Sewage treatment processes
                                                                                              • Sludge (biosolids) treatment
                                                                                                • Water services
                                                                                                  • Regulators
                                                                                                    • Performance
                                                                                                        • Figure 16: Internal sewer flooding indicators in England and Wales, by company, 2011/12-2014/15
                                                                                                      • Scotland
                                                                                                        • Northern Ireland
                                                                                                        • Capital Expenditure

                                                                                                          • Key points
                                                                                                            • Total capital expenditure
                                                                                                              • Figure 17: Total capital expenditure by water and sewerage companies in England & Wales, 2005-10 and 2010-15
                                                                                                              • Figure 18: Total capital expenditure by water-only companies in England & Wales, 2005-10 and 2010-15
                                                                                                            • Contracts for AMP5 tendered early to reduce boom and bust cycle
                                                                                                              • Figure 19: Actual UK capital expenditure on water and sewerage services, 2009/10-2014/15
                                                                                                              • Figure 20: UK capital expenditure on water and sewerage services, 2010/11-2014/15
                                                                                                              • Figure 21: UK capital expenditure on water and sewerage services, 2010/11-2014/15
                                                                                                              • Figure 22: UK capital expenditure on water and sewerage services, 2015/16
                                                                                                            • Sewerage-related capital expenditure
                                                                                                              • Figure 23: Analysis of sewerage-related capital expenditure in England and Wales, by company, 2010/11-2014/15
                                                                                                              • Figure 24: Analysis of sewerage-related capital expenditure, by water and sewerage companies in England and Wales, 2010/11-2014/15
                                                                                                              • Figure 25: Analysis of sewerage-related capital expenditure, by water and sewerage companies in England and Wales, 2015/16
                                                                                                              • Figure 26: Analysis of sewerage capital expenditure in England and Wales by water and sewerage companies, by type, 2011/122014/15
                                                                                                              • Figure 27: Analysis of sewerage capital expenditure in England and Wales by water and sewerage companies, by type, 2015/16
                                                                                                            • Water-related capital expenditure
                                                                                                              • Figure 28: Analysis of water related capital expenditure, by water and sewerage companies in England and Wales, 2010/11-2014/15
                                                                                                              • Figure 29: Analysis of water-related capital expenditure, by water and sewerage companies in England and Wales, 2010/11-2014/15
                                                                                                              • Figure 30: Analysis of water-related capital expenditure, by water and sewerage companies in England and Wales, 2015/16
                                                                                                              • Figure 31: Analysis of water capital expenditure in England and Wales, by water and sewerage companies, by type, 2011/12-2014/15
                                                                                                              • Figure 32: Analysis of water capital expenditure in England and Wales, by water-only companies, by type, 2011/12-2014/15
                                                                                                              • Figure 33: Analysis of water capital expenditure in England and Wales by water and sewerage companies, by type, 2015/16
                                                                                                              • Figure 34: Analysis of water capital expenditure in England and Wales, by water and sewerage companies, by type, 2015/16
                                                                                                              • Figure 35: Analysis of water capital expenditure in England and Wales by water only companies, by type, 2015/16
                                                                                                              • Figure 36: Analysis of water capital expenditure in England and Wales, by water-only companies, by type, 2015/16
                                                                                                            • Scottish Water capital expenditure
                                                                                                              • Figure 37: Analysis of Scottish Water capital expenditure on water and sewerage services, 2011/12-2015/16
                                                                                                              • Figure 38: Analysis of Scottish Water capital expenditure on water and sewerage services, 2011/12-2015/16
                                                                                                              • Figure 39: Progress of Scottish Water to date in the five year investment programme 2010/15
                                                                                                            • Northern Ireland capital expenditure
                                                                                                              • Figure 40: Analysis of Northern Ireland Water capital expenditure on water and sewerage services, 2011/12-2015/16
                                                                                                          • Company Analysis

                                                                                                            • Key points
                                                                                                            • Anglian Water Services

                                                                                                                • Anglian Water reduces the number of framework agreements for AMP6
                                                                                                                  • Non-household retail market
                                                                                                                    • Anglian Water Business teams up with NWG Business to create Wave - a new multi-utility retailer for the non-household retail market
                                                                                                                        • Figure 41: Financial analysis of Anglian Water Services, 2012-16
                                                                                                                        • Figure 42: Segmental revenue analysis of Anglian Water Services, 2015/16
                                                                                                                      • Capital expenditure in 2015/16
                                                                                                                        • Figure 43: Total capital expenditure of Anglian Water, 2015/16
                                                                                                                        • Figure 44: Analysis of sewerage capital expenditure by Anglian Water Services, by type, 2015/16
                                                                                                                        • Figure 45: Analysis of water capital expenditure by Anglian Water, by type, 2015-16
                                                                                                                    • United Utilities Water

                                                                                                                        • United Utilities and Severn Trent join forces to set up new company serving the non-household retail market
                                                                                                                          • Five delivery partners selected for £3.5 billion AMP6 programme
                                                                                                                              • Figure 46: Financial analysis of United Utilities Water, 2012-16
                                                                                                                              • Figure 47: Segmental revenue analysis of United Utilities, 2015/16
                                                                                                                            • Capital expenditure
                                                                                                                              • Figure 48: Total capital expenditure of United Utilities, 2015/16
                                                                                                                              • Figure 49: Analysis of sewerage capital expenditure by United Utilities, by type, 2015/16
                                                                                                                              • Figure 50: Analysis of water capital expenditure by United Utilities, by type, 2015/16
                                                                                                                          • Northumbrian Water

                                                                                                                              • Northumbrian Water framework partnership contracts for AMP6
                                                                                                                                • Company adopts new operating model for supply chain interactions to delivery investment programme more efficiently
                                                                                                                                  • NWG Business teams up with Anglian Water to create a multi-utility retailer for the non-household market
                                                                                                                                    • Northumbrian Water only wastewater company to use 100% of the sludge remaining after sewage treatment to produce renewable energy
                                                                                                                                      • Figure 51: Financial analysis of Northumbrian Water, 2012-16
                                                                                                                                      • Figure 52: Segmental revenue analysis of Northumbrian Water, 2015/16
                                                                                                                                      • Figure 53: Total capital expenditure of Northumbrian Water, 2015/16
                                                                                                                                      • Figure 54: Analysis of sewerage capital expenditure by Northumbrian Water, by type, 2015/16
                                                                                                                                      • Figure 55: Analysis of water capital expenditure by Northumbrian Water, by type, 2015/16
                                                                                                                                  • Severn Trent Water

                                                                                                                                      • Severn Trent reappoints seven contractors for AMP6
                                                                                                                                        • Severn Trent and United Utilities join forces to set up new company serving the non-household retail market
                                                                                                                                          • Figure 56: Financial analysis of Severn Trent Water, 2012-16
                                                                                                                                          • Figure 57: Segmental revenue analysis of Severn Trent Water, 2015/16
                                                                                                                                        • Capital expenditure
                                                                                                                                          • Figure 58: Total capital expenditure of Severn Trent Water, 2015-16
                                                                                                                                          • Figure 59: Analysis of sewerage capital expenditure by Severn Trent Water, by type, 2015/16
                                                                                                                                          • Figure 60: Analysis of water capital expenditure by Severn Trent Water, by type, 2015/16
                                                                                                                                      • South West Water

                                                                                                                                          • South West Water accelerates AMP6 work after early receipt of draft determinations in 2014
                                                                                                                                            • Pennon acquires Bournemouth Water in 2015
                                                                                                                                              • Non-household retail market
                                                                                                                                                • Figure 61: Financial analysis of South West Water, 2012-16
                                                                                                                                                • Figure 62: Segmental revenue analysis of South West Water, 2015/16
                                                                                                                                              • Capital expenditure
                                                                                                                                                  • Figure 63: Total capital expenditure of South West Water, 2015/16
                                                                                                                                                  • Figure 64: Analysis of sewerage capital expenditure by South West Water, by type, 2015/16
                                                                                                                                                  • Figure 65: Analysis of water capital expenditure by South West Water, by type, 2015/16
                                                                                                                                              • Southern Water Services

                                                                                                                                                  • Southern Water brings project design back in-house for AMP6
                                                                                                                                                    • Southern Water sells non-household retail business to Business Stream
                                                                                                                                                      • Figure 66: Financial analysis of Southern Water Services, 2012-16
                                                                                                                                                      • Figure 67: Segmental revenue analysis of Southern Water, 2015/16
                                                                                                                                                    • Capital expenditure
                                                                                                                                                      • Figure 68: Total capital expenditure of Southern Water Services, 2015/16
                                                                                                                                                      • Figure 69: Analysis of sewerage capital expenditure by Southern Water Services, by type, 2015/16
                                                                                                                                                      • Figure 70: Analysis of water capital expenditure by Southern Water Services, by type, 2015/16
                                                                                                                                                  • Thames Water Utilities

                                                                                                                                                      • AMP5 investment programme
                                                                                                                                                        • Thames Tideway Tunnel
                                                                                                                                                          • Two alliances to deliver significant proportion of AMP6 programme, with Thames Water awarding the biggest contracts in water industry history
                                                                                                                                                            • Non-household retail market
                                                                                                                                                              • Thames Water hit by record fine
                                                                                                                                                                • Figure 71: Financial analysis of Thames Water Utilities, 2012-16
                                                                                                                                                                • Figure 72: Segmental revenue analysis of Thames Water Utilities, 2015/16
                                                                                                                                                              • Capital expenditure
                                                                                                                                                                  • Figure 73: Total capital expenditure of Thames Water Utilities, 2015/16
                                                                                                                                                                  • Figure 74: Analysis of sewerage capital expenditure by Thames Water Utilities, by type, 2015/16
                                                                                                                                                                  • Figure 75: Analysis of water capital expenditure by Thames Water Utilities, by Type, 2015/16
                                                                                                                                                              • D(r Cymru Cyfyngedig

                                                                                                                                                                  • Dwr Cymru Welsh Water selects three delivery partners for new Capital Delivery Alliance
                                                                                                                                                                    • Company outlook
                                                                                                                                                                      • Figure 76: Financial analysis of D(r Cymru Cyfyngedig, 2012-16
                                                                                                                                                                      • Figure 77: Segmental revenue analysis of D(r Cymru Cyfyngedig, 2015/16
                                                                                                                                                                      • Figure 78: Total capital expenditure of D(r Cymru Cyfyngedig, 2015/16
                                                                                                                                                                      • Figure 79: Analysis of sewerage capital expenditure by D(r Cymru Cyfyngedig, by type, 2015/16
                                                                                                                                                                      • Figure 80: Analysis of water capital expenditure by Dwr Cymru Cyfyngedig, by Type, 2015/16
                                                                                                                                                                  • Wessex Water

                                                                                                                                                                      • Wessex Water takes 51% stake in Albion Water
                                                                                                                                                                        • Non-household retail market
                                                                                                                                                                          • Figure 81: Financial analysis of Wessex Water, 2012-16
                                                                                                                                                                          • Figure 82: Segmental revenue analysis of Wessex Water, 2015/16
                                                                                                                                                                        • Capital expenditure
                                                                                                                                                                          • Figure 83: Total capital expenditure of Wessex Water, 2015/16
                                                                                                                                                                          • Figure 84: Analysis of sewerage capital expenditure by Wessex Water, by type, 2015/16
                                                                                                                                                                          • Figure 85: Analysis of water capital expenditure by Wessex Water, by type, 2015/16
                                                                                                                                                                      • Yorkshire Water Services

                                                                                                                                                                          • Non-household retail market
                                                                                                                                                                            • Figure 86: Financial analysis of Yorkshire Water Services, 2012-16
                                                                                                                                                                            • Figure 87: Segmental revenue analysis of Yorkshire Water, 2015/16
                                                                                                                                                                            • Figure 88: Total capital expenditure of Yorkshire Water Services, 2015/16
                                                                                                                                                                            • Figure 89: Analysis of sewerage capital expenditure by Yorkshire Water Services, by type, 2015/16
                                                                                                                                                                            • Figure 90: Analysis of water capital expenditure by Yorkshire Water Services, by type, 2015/16
                                                                                                                                                                        • Statutory Water Companies

                                                                                                                                                                            • Figure 91: Analysis of water capital expenditure in England and Wales, by water-only companies, by type, 2011/12-2014/15
                                                                                                                                                                            • Figure 92: Analysis of water capital expenditure in England and Wales by water only companies, by type, 2015/16
                                                                                                                                                                        • Scottish Water

                                                                                                                                                                              • Figure 93: Financial analysis of Scottish Water, 2011-16
                                                                                                                                                                          • Northern Ireland Water

                                                                                                                                                                                • Figure 94: Financial analysis of Northern Ireland Water, 2012-16
                                                                                                                                                                            • Market Forecast

                                                                                                                                                                              • Key points
                                                                                                                                                                                • Future challenges facing the water and sewerage sector
                                                                                                                                                                                    • Figure 95: UK population, by region, 2014-36
                                                                                                                                                                                  • Expectations of regulatory framework for price review 2019 and beyond
                                                                                                                                                                                    • Opening up of non-household retail market in England to provide new opportunities for water and sewerage companies
                                                                                                                                                                                      • Forecast capital expenditure
                                                                                                                                                                                        • England & Wales – AMP6 2015-20
                                                                                                                                                                                          • Figure 96: Average expected combined household bill, by water and sewerage companies, 2014/15 and 2019/20
                                                                                                                                                                                          • Figure 97: Average expected household water bill, by water-only companies, 2014/15 and 2019/20
                                                                                                                                                                                        • AMP6 expenditure allowances
                                                                                                                                                                                          • Move towards long-term alliances and frameworks across industry
                                                                                                                                                                                            • Figure 98: Total expenditure (Totex) allowance for AMP6 in England & Wales, by water & sewerage company, 2015/16-2019/20
                                                                                                                                                                                            • Figure 99: Total expenditure (Totex) allowance for AMP6 in England & Wales, by water & sewerage company, 2015/16-2019/20
                                                                                                                                                                                            • Figure 100: Forecast capital expenditure for AMP6 in England & Wales, by water & sewerage company, 2015/16-2019/20
                                                                                                                                                                                            • Figure 101: Forecast capital expenditure for AMP6 in England & Wales, by water only company, 2015/16-2019/20
                                                                                                                                                                                          • Thames Tideway Tunnel
                                                                                                                                                                                              • Figure 102: Estimated cost of Thames Tideway Tunnel, 2014/15-2021/22+
                                                                                                                                                                                            • Scotland Investment Programme 2015-2021
                                                                                                                                                                                              • Figure 103: Forecast capital Expenditure for Scottish Water, 2015/16-2020/21
                                                                                                                                                                                            • Northern Ireland Investment Programme 2015/16-2020/21
                                                                                                                                                                                            • Further Sources & Contacts

                                                                                                                                                                                              • Association for Consultancy and Engineers
                                                                                                                                                                                                • Alliance House
                                                                                                                                                                                                  • British Water
                                                                                                                                                                                                    • British Waterways Board
                                                                                                                                                                                                      • Chartered Institution of Water & Environmental Management
                                                                                                                                                                                                        • International Water Association
                                                                                                                                                                                                          • OFWAT
                                                                                                                                                                                                            • Society of British Water & Wastewater Industries
                                                                                                                                                                                                              • Trade magazines
                                                                                                                                                                                                                • Global Water Intelligence
                                                                                                                                                                                                                  • Modern Utility Management
                                                                                                                                                                                                                    • Utility Week
                                                                                                                                                                                                                      • Water & Environment Magazine
                                                                                                                                                                                                                        • Water Active
                                                                                                                                                                                                                          • Water & Sewerage Journal
                                                                                                                                                                                                                            • Water & Wastewater Treatment (Monthly)
                                                                                                                                                                                                                              • Water21
                                                                                                                                                                                                                                • Water, Energy & Environment Journal
                                                                                                                                                                                                                                  • Waterlines
                                                                                                                                                                                                                                    • WaterWorld
                                                                                                                                                                                                                                      • WET News
                                                                                                                                                                                                                                        • World Water & Environmental Engineering
                                                                                                                                                                                                                                          • Trade exhibitions
                                                                                                                                                                                                                                            • Utility Week Live incorporating IWEX 2017
                                                                                                                                                                                                                                              • edie live 2017

                                                                                                                                                                                                                                              Companies Covered

                                                                                                                                                                                                                                              To learn more about the companies covered in this report please contact us.

                                                                                                                                                                                                                                              Potable Water and Sewerage - UK - April 2017

                                                                                                                                                                                                                                              US $1,288.43 (Excl.Tax)