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Utility Capital Expenditure - UK - December 2018

“The approach to infrastructure investment is in transition across the utility industry. Whereas spending in the past was mainly output-driven, investment is now more centred on innovation, higher efficiencies and long-term outcomes. The rising pressure from industry regulators to reduce costs for consumers is another challenge utility operators face.
Network operators have also been warned by utility regulators that they will face tougher price control and performance targets in the upcoming spending periods. These cost and efficiency pressures are passed onto the supply chain. 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, B2B Analyst

This Report looks at the following areas:

  • English water companies plan to spend a record £50 billion+ in AMP7 (2020-25)
  • Innovative smart grid technologies will help enable the transition to a smarter and more flexible energy system

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Table of contents

  1. Overview

    • What you need to know
      • Covered in this Report
        • Water & sewerage
          • Electricity transmission
            • Electricity distribution
              • Gas distribution
                • Gas transmission
                • Executive Summary

                    • Capital expenditure in water and sewerage sector
                      • Capital investment across industry rose by 9% to £5.7 billion in 2017/18
                        • Figure 1: UK capital expenditure on water and sewerage services, 2015/16-17/18
                      • English water companies plan to spend a record £50 billion+ in AMP7 (2020-25)
                        • Capital expenditure in electricity transmission and distribution sector
                          • Capital investment in distribution networks expected to be lower in current price control
                            • Figure 2: UK gross capital expenditure by electricity distribution network operators, 2012/13-2017/18
                          • Change in energy mix is a key driver for investment in transmission network
                            • Capital expenditure in gas transmission and distribution sector
                              • Capital spending picks up as current price control period progresses
                                • Figure 3: Total gas transmission and distribution capital expenditure, 2013/14-2017/18
                              • Companies and brands
                                • Utility operators are adopting a more collaborative approach and closer relationships with the supply chain
                                  • What we think
                                  • Issues and Insights

                                    • English water companies plan to spend a record £50 billion+ in AMP7 (2020-25)
                                      • The facts
                                        • The implications
                                          • Innovative smart grid technologies will help enable the transition to a smarter and more flexible energy system
                                            • The facts
                                              • The implications
                                              • Water and Sewerage Sector – What You Need to Know

                                                • Focus on total expenditure (totex) in AMP6 (2015-20) set to reduce bias towards capital spending
                                                  • Move towards long-term alliances and frameworks across industry
                                                    • English water companies plan to spend a record £50 billion+ in AMP7 (2020-25)
                                                    • Water and Sewerage Industry Capital Expenditure

                                                      • Overview
                                                          • Figure 4: UK capital expenditure on water and sewerage services, 2015/16-17/18
                                                        • Sewerage-related capital expenditure
                                                          • Figure 5: Analysis of sewerage-related capital expenditure, by water and sewerage companies in England and Wales, 2015/16-2017/18
                                                          • Figure 6: Analysis of sewerage capital expenditure in England and Wales by water and sewerage companies, by type, 2015/16-2017/18
                                                        • Water-related capital expenditure
                                                          • Figure 7: Analysis of water-related capital expenditure in England and Wales by water and sewerage companies, by type, 2015/16-2017/18
                                                          • Figure 8: Analysis of water capital expenditure in England and Wales by water and sewerage companies, by type, 2015/16-2017/18
                                                          • Figure 9: Analysis of water capital expenditure in England and Wales by water only companies, by type, 2015/16-2017/18
                                                        • Scottish Water capital expenditure
                                                          • Figure 10: Analysis of Scottish Water capital expenditure on water and sewerage services, 2013/14-2017/18
                                                        • Northern Ireland capital expenditure
                                                            • Figure 11: Analysis of Northern Ireland Water capital expenditure on water and sewerage services, 2013/14-2017/18
                                                        • Water and Sewerage Future Capital Investment

                                                          • Future challenges facing the water and sewerage sector
                                                              • Figure 12: UK population, by region, 2014-36
                                                            • Move towards totex in AMP6 and beyond set to reduce bias towards capital spending
                                                              • Move towards long-term alliances and frameworks across industry
                                                                • Total expenditure plans for AMP6
                                                                  • Figure 13: Total expenditure (totex) allowance for AMP6 in England & Wales, by water & sewerage company, 2015/16-2019/20
                                                                • Thames Tideway Tunnel
                                                                    • Figure 14: Estimated cost of Thames Tideway Tunnel, 2016/17-2021/22+
                                                                  • Next price control process (PR19) to be substantially more challenging
                                                                    • English water companies plan to spend a record £50 billion+ in AMP7 (2020-25)
                                                                      • Opening up of non-household retail market in England to provide new opportunities for water and sewerage companies
                                                                      • Water and Sewerage Industry Legislative and Regulatory Environment

                                                                        • 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
                                                                                          • Electricity Distribution and Transmission – What You Need to Know

                                                                                            • New RIIO model for electricity network regulation sees shift in focus from capital expenditure to total expenditure
                                                                                              • Change in energy mix is a key driver for investment in transmission network
                                                                                              • Electricity Distribution Capital Expenditure

                                                                                                • Introduction
                                                                                                  • DNOs spent a record £4 billion on asset replacement in last five-year price control period DPCR5 (2010-15)
                                                                                                      • Figure 15: Breakdown of total expenditure by DNOs during DPCR5, by area, 2010-15
                                                                                                    • Current price control period RIIO-ED1 runs for eight years from April 2015 to March 2023
                                                                                                        • Figure 16: Total expenditure versus allowance, by DNO, 2015-16-2016/17
                                                                                                        • Figure 17: Total expenditure by electricity distribution network operators in Great Britain, by type, 2015/16 and 2016/17 cumulative total
                                                                                                      • Capital expenditure expected to be lower in current price control
                                                                                                        • Figure 18: UK gross capital expenditure by electricity distribution network operators, 2012/13-2017/18
                                                                                                        • Figure 19: UK gross capital expenditure by electricity distribution network operators, 2012/13-2017/18
                                                                                                        • Figure 20: UK gross capital expenditure by the electricity distribution network operators, by company, 2013/14-2017/18
                                                                                                    • Electricity Distribution Future Capital Expenditure

                                                                                                      • Forecast Total Expenditure in RIIO-ED1 (2015-23)
                                                                                                          • Figure 21: Actual total expenditure in 2015/16 and 2016/17, totex allowance and forecasts for RIIO-ED1, by company
                                                                                                        • Ofgem slashes £200 million from RIIO-ED1 DNO spending allowances in September 2017
                                                                                                          • Figure 22: Total expenditure forecast for RIIO-ED1 in Great Britain, by company, 2015/16-2022/23
                                                                                                      • Electricity Transmission Capital Expenditure

                                                                                                        • Overview
                                                                                                            • Figure 23: Size of electricity transmission network in great Britain, 2018
                                                                                                            • Figure 24: Capital expenditure by the electricity transmission industry in Great Britain, 2013/14-2017/18
                                                                                                            • Figure 25: Capital expenditure by the electricity transmission industry in Great Britain, 2013/14-2017/18
                                                                                                        • Electricity Transmission Future Capital Expenditure

                                                                                                          • New Price Control Period RIIO-T1 2013-21
                                                                                                              • Figure 26: NGET annual capital expenditure, Actual 2014-18 and Forecast 2019-21
                                                                                                              • Figure 27: SHET annual capital expenditure, Actual 2014-18 and Forecast 2019-21
                                                                                                              • Figure 28: SPTL annual capital expenditure, Actual 2014-18 and Forecast 2019-21
                                                                                                          • Drivers for Investment in Electricity Distribution and Transmission Infrastructure

                                                                                                            • Decarbonisation of UK energy system
                                                                                                              • Change in energy mix is a key driver for investment in transmission network
                                                                                                                • Smart grid development to support low-carbon economy and aid transition to a more flexible energy system
                                                                                                                  • Ofgem supported innovation schemes to drive smart grid market and transition to low carbon economy
                                                                                                                    • Growth in distributed generation
                                                                                                                        • Figure 29: Distributed generation connected to the distribution network during DPCR5, 2012-17
                                                                                                                        • Figure 30: Distributed generation connected to the distribution network, 2016/17, (MW)
                                                                                                                      • Renewables capacity development pipeline
                                                                                                                          • Figure 31: Renewable energy projects in pipeline, by technology, as of August 2018
                                                                                                                        • Growth in decentralised and renewable electricity generation will increase the complexity of operating a secure and cost-effective energy system
                                                                                                                          • Energy storage to play key role in transition to clean electricity supply system
                                                                                                                            • BEIS and Ofgem unveil plans for major upgrade of the UK’s energy systems, including the removal of barriers to storage
                                                                                                                              • Government unveils £246 million battery investment strategy in July 2017
                                                                                                                                • Electrification of transport creates new opportunities
                                                                                                                                  • Despite Brexit uncertainty, interconnector capacity between Britain and Europe is set to increase
                                                                                                                                      • Figure 32: Existing and planned interconnectors, as of November 2018
                                                                                                                                  • Gas Distribution and Transmission – What You Need to Know

                                                                                                                                    • Capital spending picks up as current price control period progresses
                                                                                                                                      • Gas network operators to face tougher price controls from 2021
                                                                                                                                      • Gas Capital Expenditure

                                                                                                                                        • Capital spending picks up as current price control period progresses
                                                                                                                                          • Figure 33: Total gas transmission and distribution capital expenditure, 2013/14-2017/18
                                                                                                                                          • Figure 34: Total gas transmission capital expenditure, 2013/14-2017/18
                                                                                                                                          • Figure 35: Total gas distribution capital expenditure, 2013/14-2017/18
                                                                                                                                          • Figure 36: Total gas transmission and distribution capital expenditure, 2013/14-2017/18
                                                                                                                                        • Replacement expenditure dominated by iron mains replacement programmes
                                                                                                                                            • Figure 37: Length of iron gas mains replaced, by distribution network operator, 2012-17
                                                                                                                                        • Gas Future Capital Expenditure

                                                                                                                                          • Ofgem has introduced new regulatory framework for current price control period 2013-21
                                                                                                                                              • Figure 38: Ofgem’s required expansion of the number of properties to alleviate fuel poverty, 2013-21
                                                                                                                                            • Innovation at centre of new price control model for gas distribution and transmission network
                                                                                                                                              • Gas network operators to face tougher price controls from 2021
                                                                                                                                                • Transmission network
                                                                                                                                                  • Figure 39: Annual capital expenditure plans by National Grid Gas Under RIIO-T1, by category, 2014-21
                                                                                                                                                • Distribution network
                                                                                                                                                  • Figure 40: Annual capex plans under RIIO-GD1, by GDN, 2014-2021
                                                                                                                                                  • Figure 41: Annual repex plans under RIIO-GD1, by GDN, 2014-21
                                                                                                                                                  • Figure 42: Forecast total capex and repex during RIIO-GD1, 2013/14-2020/21
                                                                                                                                              • Gas Industry Market Factors and Drivers

                                                                                                                                                • Social factors
                                                                                                                                                  • Economic factors
                                                                                                                                                    • The UK’s increased reliance on gas imports
                                                                                                                                                      • Government push for shale gas exploration to reduce reliance on imports
                                                                                                                                                        • Wholesale gas prices
                                                                                                                                                            • Figure 43: Average wholesale gas prices, 2006-18
                                                                                                                                                          • Environmental and legislative factors
                                                                                                                                                            • UK energy policy
                                                                                                                                                              • UK committed to reducing carbon emissions by 80% below 1990 levels by 2050
                                                                                                                                                                • UK currently on track to miss emission reduction targets between 2023 and 2032
                                                                                                                                                                  • Policies to decarbonise electricity
                                                                                                                                                                  • Companies and Brands – What You Need to Know

                                                                                                                                                                    • Kier acquires McNicholas Construction to strengthen their combined market positions and meet demand in the UK infrastructure sector
                                                                                                                                                                      • Balfour Beatty’s transformation programme is delivering results, with the group now focused on selected markets, winning new business on terms and conditions that balance risk and reward
                                                                                                                                                                        • Laing O’Rourke establishes a more focussed business structure
                                                                                                                                                                        • Industry Structure

                                                                                                                                                                          • Company Profiles

                                                                                                                                                                            • Balfour Beatty
                                                                                                                                                                              • Build to Last transformation programme launched in 2015
                                                                                                                                                                                  • Figure 44: Financial analysis of Balfour Beatty, 2013-17
                                                                                                                                                                                  • Figure 45: Turnover analysis of Balfour Beatty, by segment, 2015-17
                                                                                                                                                                                • The Costain Group
                                                                                                                                                                                  • Group strategy
                                                                                                                                                                                    • Company performance and outlook
                                                                                                                                                                                        • Figure 46: Financial analysis of Costain Group, 2013-17
                                                                                                                                                                                        • Figure 47: Turnover analysis of Costain Group, by segment, 2015-17
                                                                                                                                                                                      • Laing O’Rourke
                                                                                                                                                                                        • Following a Strategic Review in 2015-16 Laing O’Rourke has established a more focussed business structure
                                                                                                                                                                                          • Company performance and outlook
                                                                                                                                                                                            • Figure 48: Financial analysis of Laing O’Rourke, 2013-17
                                                                                                                                                                                          • Morrison Utility Services
                                                                                                                                                                                            • Company performance
                                                                                                                                                                                              • Figure 49: Financial analysis of Morrison Utility Services, 2013-17
                                                                                                                                                                                            • McNicholas Construction Holdings
                                                                                                                                                                                              • Kier acquires McNicholas Construction (Holdings)
                                                                                                                                                                                                • Company strategy performance
                                                                                                                                                                                                  • Figure 50: Financial Analysis of McNicholas Construction (Holdings), 2013-17
                                                                                                                                                                                              • 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
                                                                                                                                                                                                                                            • edie live 2019
                                                                                                                                                                                                                                              • Utility Week Live 2019

                                                                                                                                                                                                                                              Utility Capital Expenditure - UK - December 2018

                                                                                                                                                                                                                                              US $1,272.90 (Excl.Tax)