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Potable Water and Sewerage - UK - April 2018

“For the current asset management period AMP6, running from 2015 to 2020, Ofwat has introduced a move towards total expenditure (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. The focus on customers, outcomes, and totex under the new regulatory framework should encourage companies to deliver solutions as efficiently as possible and drive productivity gains in the sector.”
– Claudia Preedy, B2B Analyst

This Report looks at the following areas:

  • What are the key drivers for capital investment in the water and sewerage industry?
  • What does the shift towards total expenditure (totex) in AMP6 mean for the industry?
  • How do changes in the regulatory framework affect the industry’s approach to capital investment?
  • What are the key challenges facing the industry?

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Table of contents

  1. Executive Summary

      • The market
        • Capital expenditure rises by 16% in 2016/17
          • Figure 1: UK capital expenditure on water and sewerage services, 2015/16-16/17
        • Maintaining the long-term capability of the assets non-infrastructure expenditure dominates capex
          • Figure 2: Analysis of sewerage capital expenditure in England and Wales, by water and sewerage companies, by type, 2016/17
          • Figure 3: Analysis of water capital expenditure in England and Wales, by water and sewerage companies, by type, 2016/17
        • Move towards total expenditure in AMP6 2015-20 should reduce bias towards capital programmes
          • Shift in industry focus towards asset management and maintenance
            • The next price control period, covering 2020 to 2025, is set to be much more challenging for water and sewerage companies
              • Figure 4: Total expenditure (totex) allowance for AMP6 in England & Wales, by water & sewerage company, 2015/16-2019/20
            • Water retail market in England opened up to non-household customers in 2017
              • Market factors
                • Environmental legislation
                  • Climate change
                    • Population and household growth
                      • Affordability
                        • Technological change
                          • Companies
                            • What we think
                            • Key Insights

                                • What’s the progress in the newly opened non-domestic retail water market?
                                  • What are the expectations of the regulatory framework for the upcoming Price Review (PR19)?
                                    • What are the implications of Brexit on the UK water and sewerage sector?
                                    • Introduction

                                        • Definitions
                                          • Methodology
                                            • Abbreviations
                                              • Market positioning
                                              • UK Economy

                                                • Overview
                                                  • Figure 5: Forecast GDP development 2016-22
                                                  • Figure 6: Output components percentage contribution to UK GDP growth, quarter-on-quarter, 2016-17
                                                • Inflation
                                                  • Interest rates
                                                    • House prices
                                                      • Figure 7: UK house price changes, 2007-17
                                                    • Consumer spending
                                                      • Manufacturing
                                                        • Figure 8: UK manufacturing, 2015-18
                                                      • Business investment
                                                        • Figure 9: UK GFCF, chained volume measures, seasonally adjusted, 2004-17
                                                      • 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
                                                                            • 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 10: Details of water and sewerage companies, as of March 2018
                                                                                        • Figure 11: Details of water-only companies, as of March 2018
                                                                                      • Households billed by water and sewerage companies
                                                                                        • Figure 12: Number of households billed by water and sewerage companies, 2016/17
                                                                                        • Figure 13: Households billed by water and sewerage companies, 2016/17
                                                                                      • Sewerage services
                                                                                        • Figure 14: Details of companies that supply sewerage services to water-only companies, as of March 2018
                                                                                      • Sewage treatment processes
                                                                                        • Water services
                                                                                          • Regulators
                                                                                            • Performance
                                                                                              • Overall sectoral performance
                                                                                                • Internal sewer flooding
                                                                                                  • Figure 15: Number of properties flooded internally in England and Wales, by company, 2014/15-2016/17
                                                                                                • Leakage
                                                                                                    • Figure 16: Water leakage performance by individual water companies, 2016/17
                                                                                                  • Pollution incidents
                                                                                                    • Scotland
                                                                                                      • Northern Ireland
                                                                                                      • Capital Expenditure

                                                                                                        • Key points
                                                                                                          • Total capital expenditure
                                                                                                            • Figure 17: UK capital expenditure on water and sewerage services, 2010/11-2014/15
                                                                                                            • Figure 18: UK capital expenditure on water and sewerage services, 2015/16-2016/17
                                                                                                          • Sewerage-related capital expenditure
                                                                                                            • Figure 19: Analysis of sewerage-related capital expenditure, by water and sewerage companies in England and Wales, 2010/11-2014/15
                                                                                                            • Figure 20: Analysis of sewerage-related capital expenditure, by water and sewerage companies in England and Wales, 2015/16-2016/17
                                                                                                            • Figure 21: Analysis of sewerage capital expenditure in England and Wales by water and sewerage companies, by type, 2015/16-2016/17
                                                                                                          • Water-related capital expenditure
                                                                                                            • Figure 22: Analysis of water-related capital expenditure, by water and sewerage companies in England and Wales, 2010/11-2014/15
                                                                                                            • Figure 23: Analysis of water-related capital expenditure, by water and sewerage companies in England and Wales, 2015/16-2016/17
                                                                                                            • Figure 24: Analysis of water capital expenditure in England and Wales by water and sewerage companies, by type, 2015/16-2016/17
                                                                                                            • Figure 25: Analysis of water capital expenditure in England and Wales by water only companies, by type, 2015/16-2016/17
                                                                                                          • Scottish water capital expenditure
                                                                                                            • Figure 26: Analysis of Scottish Water capital expenditure on water and sewerage services, 2012/13-2016/17
                                                                                                          • Northern Ireland capital expenditure
                                                                                                            • Figure 27: Analysis of Northern Ireland Water capital expenditure on water and sewerage services, 2012/13-2016/17
                                                                                                        • Company Analysis

                                                                                                          • Key points
                                                                                                          • Anglian Water Services

                                                                                                              • Anglian Water reduces the number of framework agreements for AMP6
                                                                                                                • Anglian Water is first water company to announce a raft of commitments in response to recent challenges from Ofwat and the government
                                                                                                                    • Figure 28: Financial analysis of Anglian Water Services, 2013-17
                                                                                                                    • Figure 29: Segmental revenue analysis of Anglian Water Services, 2016/17
                                                                                                                  • Capital expenditure in 2016/17
                                                                                                                    • Figure 30: Total capital expenditure of Anglian Water, 2016/17
                                                                                                                    • Figure 31: Analysis of sewerage capital expenditure by Anglian Water Services, by type, 2016/17
                                                                                                                    • Figure 32: Analysis of water capital expenditure by Anglian Water, by type, 2016/17
                                                                                                                • 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 33: Financial analysis of United Utilities Water, 2013-17
                                                                                                                          • Figure 34: Segmental revenue analysis of United Utilities, 2016/17
                                                                                                                        • Capital expenditure
                                                                                                                          • Figure 35: Total capital expenditure of United Utilities, 2016/17
                                                                                                                          • Figure 36: Analysis of sewerage capital expenditure by United Utilities, by type, 2016/17
                                                                                                                          • Figure 37: Analysis of water capital expenditure by United Utilities, by type, 2016/17
                                                                                                                      • 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 38: Financial analysis of Northumbrian Water, 2013-17
                                                                                                                                  • Figure 39: Segmental revenue analysis of Northumbrian Water, 2016/17
                                                                                                                                  • Figure 40: Total capital expenditure of Northumbrian Water, 2016/17
                                                                                                                                  • Figure 41: Analysis of sewerage capital expenditure by Northumbrian Water, by type, 2016/17
                                                                                                                                  • Figure 42: Analysis of water capital expenditure by Northumbrian Water, by type, 2016/17
                                                                                                                              • 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 43: Financial analysis of Severn Trent Water, 2013-17
                                                                                                                                      • Figure 44: Segmental revenue analysis of Severn Trent Water, 2016/17
                                                                                                                                    • Capital expenditure
                                                                                                                                      • Figure 45: Total capital expenditure of Severn Trent Water, 2016/17
                                                                                                                                      • Figure 46: Analysis of sewerage capital expenditure by Severn Trent Water, by type, 2016/17
                                                                                                                                      • Figure 47: Analysis of water capital expenditure by Severn Trent Water, by type, 2016/17
                                                                                                                                  • 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 48: Financial analysis of South West Water, 2013-17
                                                                                                                                            • Figure 49: Segmental revenue analysis of South West Water, 2016/17
                                                                                                                                          • Capital expenditure
                                                                                                                                              • Figure 50: Total capital expenditure of South West Water, 2016/17
                                                                                                                                              • Figure 51: Analysis of sewerage capital expenditure by South West Water, by type, 2016/17
                                                                                                                                              • Figure 52: Analysis of water capital expenditure by South West Water, by type, 2016/17
                                                                                                                                          • Southern Water Services

                                                                                                                                              • Southern Water brings project design back in-house for AMP6
                                                                                                                                                • Southern Water sells non-household retail business to Business Stream
                                                                                                                                                  • Figure 53: Financial analysis of Southern Water Services, 2013-17
                                                                                                                                                  • Figure 54: Segmental revenue analysis of Southern Water, 2016/17
                                                                                                                                                • Capital expenditure
                                                                                                                                                  • Figure 55: Total capital expenditure of Southern Water Services, 2016/17
                                                                                                                                                  • Figure 56: Analysis of sewerage capital expenditure by Southern Water Services, by type, 2016/17
                                                                                                                                                  • Figure 57: Analysis of water capital expenditure by Southern Water Services, by type, 2016/17
                                                                                                                                              • Thames Water Utilities

                                                                                                                                                  • 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 58: Financial analysis of Thames Water Utilities, 2013-17
                                                                                                                                                          • Figure 59: Segmental revenue analysis of Thames Water Utilities, 2016/17
                                                                                                                                                        • Capital expenditure
                                                                                                                                                            • Figure 60: Total capital expenditure of Thames Water Utilities, 2016/17
                                                                                                                                                            • Figure 61: Analysis of sewerage capital expenditure by Thames Water Utilities, by type, 2016/17
                                                                                                                                                            • Figure 62: Analysis of water capital expenditure by Thames Water Utilities, by Type, 2016/17
                                                                                                                                                        • Dŵr Cymru Cyfyngedig

                                                                                                                                                            • Dŵr Cymru Welsh Water selects three delivery partners for new Capital Delivery Alliance
                                                                                                                                                              • Company outlook
                                                                                                                                                                • Figure 63: Financial analysis of Dŵr Cymru Cyfyngedig, 2013-17
                                                                                                                                                                • Figure 64: Segmental revenue analysis of Dŵr Cymru Cyfyngedig, 2016/17
                                                                                                                                                                • Figure 65: Total capital expenditure of Dŵr Cymru Cyfyngedig, 2016/17
                                                                                                                                                                • Figure 66: Analysis of sewerage capital expenditure by Dŵr Cymru Cyfyngedig, by type, 2016/17
                                                                                                                                                                • Figure 67: Analysis of water capital expenditure by Dŵr Cymru Cyfyngedig, by type, 2016/17
                                                                                                                                                            • Wessex Water

                                                                                                                                                                • Wessex Water takes 51% stake in Albion Water
                                                                                                                                                                  • Non-household retail market
                                                                                                                                                                    • Figure 68: Financial analysis of Wessex Water, 2013-17
                                                                                                                                                                    • Figure 69: Segmental revenue analysis of Wessex Water, 2016/17
                                                                                                                                                                  • Capital expenditure
                                                                                                                                                                    • Figure 70: Total capital expenditure of Wessex Water, 2016/17
                                                                                                                                                                    • Figure 71: Analysis of sewerage capital expenditure by Wessex Water, by type, 2016/17
                                                                                                                                                                    • Figure 72: Analysis of water capital expenditure by Wessex Water, by type, 2016/17
                                                                                                                                                                • Yorkshire Water Services

                                                                                                                                                                    • Non-household retail market
                                                                                                                                                                      • Figure 73: Financial analysis of Yorkshire Water Services, 2013-17
                                                                                                                                                                      • Figure 74: Segmental revenue analysis of Yorkshire Water, 2016/17
                                                                                                                                                                      • Figure 75: Total capital expenditure of Yorkshire Water Services, 2016/17
                                                                                                                                                                      • Figure 76: Analysis of sewerage capital expenditure by Yorkshire Water Services, by type, 2016/17
                                                                                                                                                                      • Figure 77: Analysis of water capital expenditure by Yorkshire Water Services, by type, 2016/17
                                                                                                                                                                  • Scottish Water

                                                                                                                                                                        • Figure 78: Financial analysis of Scottish Water, 2013-17
                                                                                                                                                                    • Northern Ireland Water

                                                                                                                                                                          • Figure 79: Financial analysis of Northern Ireland Water, 2013-17
                                                                                                                                                                      • Market Forecast

                                                                                                                                                                        • Key points
                                                                                                                                                                          • Future challenges facing the water and sewerage sector
                                                                                                                                                                              • Figure 80: UK population, by region, 2014-36
                                                                                                                                                                            • Upcoming price control process (PR19) set to be substantially more challenging
                                                                                                                                                                              • Ofwat calls for renewed effort to strengthen trust and confidence in water sector
                                                                                                                                                                                • 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
                                                                                                                                                                                      • Move towards long-term alliances and frameworks across industry
                                                                                                                                                                                        • Total expenditure plans for AMP6
                                                                                                                                                                                          • Figure 81: Total expenditure (totex) allowance for AMP6 in England & Wales, by water & sewerage company, 2015/16-2019/20
                                                                                                                                                                                        • Thames Tideway Tunnel
                                                                                                                                                                                            • Figure 82: Estimated cost of Thames Tideway Tunnel, 2016/17-2021/22+
                                                                                                                                                                                          • Scotland Investment Programme 2015-21
                                                                                                                                                                                            • Figure 83: Forecast capital expenditure for Scottish Water, 2015/16-2020/21
                                                                                                                                                                                          • Northern Ireland Investment Programme 2015/16-2020/21
                                                                                                                                                                                          • Further Sources & Contacts

                                                                                                                                                                                            • Trade associations & regulatory bodies
                                                                                                                                                                                              • Association for Consultancy and Engineers
                                                                                                                                                                                                • British Water
                                                                                                                                                                                                  • Chartered Institution of Water & Environmental Management
                                                                                                                                                                                                    • International Water Association
                                                                                                                                                                                                      • OFWAT
                                                                                                                                                                                                        • Trade magazines
                                                                                                                                                                                                          • Global Water Intelligence
                                                                                                                                                                                                            • Utility Week
                                                                                                                                                                                                              • Water & Environment Journal
                                                                                                                                                                                                                • Water Active
                                                                                                                                                                                                                  • Water & Sewerage Journal
                                                                                                                                                                                                                    • Water & Wastewater Treatment
                                                                                                                                                                                                                      • Trade exhibitions
                                                                                                                                                                                                                        • Utility Week Live 2018
                                                                                                                                                                                                                          • edie live 2018

                                                                                                                                                                                                                          Potable Water and Sewerage - UK - April 2018

                                                                                                                                                                                                                          US $1,272.90 (Excl.Tax)