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- UK Utility Capital Expenditure Market Report 2023
“The utilities sector is set to see continued strong capital spending levels, with significant investment required to futureproof networks and help transition to Net Zero.
Operators are facing increased pressure to deliver investments at the lowest costs, which in light of current macro-economic conditions, presents challenges. The increased cost and efficiency pressures are set to be passed onto the supply chain. Building close relationships, collaboration, technology and innovation will play a key role in enabling utilities and their supply chain to deliver future capital projects in the most efficient way”.
– Claudia Preedy, Principal Analyst
Key issues covered in this Report
- The impact of COVID-19 on utility capital expenditure and how the sector has emerged from the disruption.
- Capital spending over the latest spending periods across the individual sectors.
- How utility network operators play a key role in the transition to Net Zero.
- Key drivers and challenges that are set to shape utility capital expenditure over the coming years.
Collapse All
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Overview
- Key issues covered in this Report
- Covered in this Report
- Water & sewerage
- Electricity transmission
- Electricity distribution
- Gas transmission
-
Executive Summary
- The five-year outlook for utility capital expenditure
- Figure 1: The five-year outlook for utility capital expenditure, 2023-27
- Capital expenditure in water and sewerage sector
- Water companies accelerate their AMP7 investment programmes in 2021/22
- Figure 2: UK capital expenditure on water and sewerage services, 2017-22
- Water companies to spend a record £51 billion in AMP7 (2020-25)
- Additional investment to deliver environmental improvements
- Capital expenditure in electricity distribution sector
- Capital spending levels recover in 2022 following COVID-19 disruption
- Figure 3: UK gross capital expenditure by electricity distribution network operators, 2018-22
- Ofgem greenlights £22.2 billion of investment for 2023-28 period
- Capital expenditure in gas transmission and distribution sector
- Capital spending levels off towards the end of spending period
- Figure 4: Total gas transmission and distribution capital expenditure, 2018-22
- Managing uncertainty in RIIO-2
- Companies and brands
- Utility operators are adopting a more collaborative approach and closer relationships with the supply chain
- But increased cost pressures are leading to strained relationships between utility companies and contractors
- The five-year outlook for utility capital expenditure
-
Issues and Insights
- Efforts to smooth investment cycles and supply chain challenges in the water sector
- Transition to low carbon electricity systems requires substantial investment in electricity transmission network
-
Water and Sewerage Industry Capital Expenditure
- Adoption of totex approach in AMP6 to remove bias towards capital projects investment
- Efforts to smooth investment cycles and supply chain challenges
- Trends in capital expenditure
- Recent trend
- Figure 5: UK capital expenditure on water and sewerage services, 2017-22
- Longer-term trend in capital expenditure
-
- Figure 6: Long-term trend in totex and capex in water and sewerage service, England and wales, 1996-21 (£billion at 2020/21 prices)
- Sewerage-related capital expenditure
- Figure 7: Analysis of sewerage-related capital expenditure, by water and sewerage companies in England and Wales, 2019-22
- Water-related capital expenditure
- Figure 8: Analysis of water-related capital expenditure in England and Wales, by water and sewerage companies, 2019-22
- Scottish Water capital expenditure
-
- Figure 9: Analysis of Scottish Water capital expenditure on water and sewerage services, 2018-22
- Northern Ireland capital expenditure
- Figure 10: Analysis of Northern Ireland Water capital expenditure on water and sewerage services, 2018-22
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Water and Sewerage Future Capital Investment
- Key challenges facing the water and sewerage sector to 2050
- Climate emergency
- Population growth
- Figure 11: Population projections for England, by region, 2018-41
- Asset health and skills
- Improving the environment
- Consumer and community expectations
- Water UK proposes regulatory reforms
- Thames Tideway Tunnel
-
- Figure 12: Estimated cost of Thames Tideway Tunnel, 2018-26
- Ofwat approves a record £51 billion of investment in the water sector in AMP7 (2020-25)
-
- Figure 13: Infrastructure investment pipeline by water and sewerage companies, 2022-25
- Water sector to invest £2.7 billion in environmental projects to help green recovery from COVID-19
- Environment Act 2021 creates significant drivers for capital investment
- Asset health and resilience are set to be key features in the 2024 Price Review
-
Water and Sewerage Industry Legislative and Regulatory Environment
- Industry regulation
- Legislative environment
- Environment Act 2021
- Implications of Brexit on the UK water and sewerage sector
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Electricity Distribution Capital Expenditure
- Introduction
- RIIO model adopted for current price control period (2015-23)
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- Figure 14: Total expenditure versus allowance, by DNO, 2016-21
-
- Figure 15: Total expenditure by electricity distribution network operators in Great Britain, by type, 2016-21 cumulative total
- Capital spending levels recover in 2022 following COVID-19 disruption
- Figure 16: UK gross capital expenditure by electricity distribution network operators, 2018-22
- Figure 17: UK gross capital expenditure by electricity distribution network operators, 2018-22
-
- Figure 18: UK gross capital expenditure by the electricity distribution network operators, by company, 2018-22
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Electricity Distribution Future Capital Expenditure
- Forecast total expenditure in RIIO-ED1 (2015-23)
- Figure 19: Total expenditure forecast for RIIO-ED1 in Great Britain, by company, 2015/16-2022/23
- DNOs bring forward investment to drive green recovery
- Impact of decarbonisation, decentralisation and digitisation on distribution networks to shape investment in the next price control period RIIO-ED2
- Ofgem greenlights £22.2 billion of investment over RIIO-ED2
-
- Figure 20: Breakdown of allowed totex for distribution network operators in Riio-ED2 (2023-28), (£million at 2022/21 prices)
- Forecast total expenditure in RIIO-ED1 (2015-23)
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Electricity Transmission Capital Expenditure
- Overview
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- Figure 21: Size of electricity transmission network in Great Britain, 2022
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- Figure 22: Capital expenditure by the electricity transmission industry in Great Britain, 2017-21
- Figure 23: Capital expenditure by the electricity transmission industry in Great Britain, 2018-22
- Capital spending during RIIO-T1 2013-21
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- Figure 24: NGET annual capital expenditure in RIIO-T1, 2014-21
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- Figure 25: SHET annual capital expenditure, 2014-21
- Figure 26: SPTL annual capital expenditure, 2014-21
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Electricity Transmission Future Capital Expenditure
- Enabling energy transition remains the key focus in current price control period (RIIO-T2 2021-26)
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- Figure 27: Summary of baseline totex for RIIO-ET2, by operator (£ million at 2018/19 prices)
- National Grid ESO adopts Holistic Network Design in a first step to enable offshore wind projects to connect faster
-
Gas Distribution and Transmission Capital Expenditure
- RIIO model adopted for last price control period
- Capital spending levels off during the latter part of the spending period
- Figure 28: Total gas transmission and distribution capital expenditure, 2018-22
- Transmission network expenditure
- Figure 29: Total gas transmission capital expenditure, 2018-22
- Distribution network expenditure
- Figure 30: Total gas distribution capital expenditure, 2018-22
-
- Figure 31: Annual capital expenditure, by GDN, 2014-22
- Iron Mains Replacement Programme dominates replacement expenditure
- Figure 32: Length of iron gas mains replaced, by distribution network operator, 2016-21
-
Gas Future Capital Expenditure
- Network operators face tougher price controls from 2021
-
- Figure 33: Summary of baseline totex for RIIO-GD2 and RIIO-GT2, by operator (£ million at 2018/19 prices)
- Managing uncertainty in RIIO-2
- Gas networks and the net zero challenge
-
Drivers for Investment in Electricity & Gas Distribution and Transmission Infrastructure
- UK government’s energy infrastructure delivery strategy
- Decarbonisation of UK energy system
- Figure 34: Low-carbon power generation capacity targets, 2022
- Ambition to achieve net zero emissions by 2050 will push up electricity demand
- Transition to low carbon electricity systems requires substantial investment in electricity transmission network
- Smart grid development to support low-carbon economy
- Ofgem-supported innovation schemes to drive smart grid development
- Renewable electricity capacity development pipeline
- Figure 35: Renewable energy projects in pipeline, by technology, 2022
- Energy storage to play key role in transition to clean electricity supply system
- Hydrogen has a central role in helping reach Net Zero by 2050
- Smart charging and vehicle-to-grid technology will play an important role in the future energy system
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Competitive Strategies
- Balfour Beatty’s Build to Last programme
- Laing O’Rourke’s Deliver 2025 mission
- Kier simplifies portfolio of business
- Costain adopts “leading edge” strategy to transition to higher margin services
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Company Profiles
- Industry structure
- Balfour Beatty
- Build to Last programme
- Balfour Beatty exits water and gas sectors
- Financial performance
- Figure 36: Financial analysis of Balfour Beatty, 2017-21
-
- Figure 37: Turnover analysis of Balfour Beatty, by segment, 2019-21
- Costain Group
- “Leading Edge” strategy
- Financial performance and outlook
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- Figure 38: Financial analysis of Costain Group, 2017-21
- Figure 39: Turnover analysis of Costain Group, by segment, 2019-21
- J Murphy & Sons
- Group strategy
- Financial performance
- Figure 40: Financial analysis of J Murphy & Sons, 2017-21
- Kier Group
- Strategic Review 2019
- Financial performance and outlook
- Figure 41: Financial analysis of Kier Group, 2018-22
- Laing O’Rourke
- Deliver 2025 mission
-
- Figure 42: Financial analysis of Laing O’Rourke, 2018-22
- Morrison Water Services and Morrison Energy Services (formerly Morrison Utility Services)
- Company performance
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- Figure 43: Financial analysis of Morrison Water Services, 2016-20
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Appendix – Data Sources, Abbreviations and Supporting Information
- Abbreviations
- Methodology
-
Further Sources and Contacts
- Trade associations and regulatory bodies
- Energy UK
- Energy Networks Association
- Energy Industries Council
- Office of Gas and Electricity Markets (Ofgem)
- Office of Gas and Electricity Markets – Scotland (Ofgem Scotland)
- Office of Gas and Electricity Markets – Wales (Ofgem Wales)
- Association of Consulting Engineers
- British Water
- Chartered Institution of Water & Environmental Management
- International Water Association
- Ofwat
- Street Works UK
- Trade magazines
- The Engineer
- European Process Engineer
- Plant and Works Engineering
- Utility Week
- Trade events
- Offshore Europe
- RWM Expo
- Utility Week Live 2023
- Wastewater Conference 2023
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