Thames Water has today submitted a record £18.7 billion AMP8 business plan to Ofwat setting out its investment proposals for 2025 to 2030.
Thames Water has today submitted a record £18.7 billion AMP8 business plan to Ofwat setting out its investment proposals for 2025 to 2030.
Interim Co-CEOs of Thames Water Cathryn Ross and Alastair Cochran said:
"Our ambitious plan delivers what our customers have told us are their top priorities. We plan £18.7 billion total expenditure - including a record £4.7bn investment in our network and other assets - to maintain safe high quality drinking water, to ensure security of water supplies across London and the Thames Valley now and in the future, and to deliver further environmental improvements.
“Our plan prioritises storm overflows, bathing water status and reducing leaks and pollutions. In parallel, we will do more than ever to support customers by introducing an improved social tariff for those who struggle to pay their bills."
Key highlights of the plan to deliver a reliable, secure and affordable service for customers include:
- Preserving a reliable supply of water, with minimal disruption
- Replacing 500km of ageing water mains
- Maintaining safe, high-quality drinking water by replacing 54,000 lead pipes
- Upgrading 150km of sewers to lower the risk of sewer collapses
- Reducing the number of times sewage floods into properties by 17% as well as all other external sewer floods by 14%
- Providing over 530,000 households meaningful support with their water bills
- Resolving more billing and operational issues within 24 hours by improving digital infrastructure, allowing customers to resolve more issues online
The plan also sets out measures which will further materially improve Thames Water’s environmental footprint by:
- Reducing storm overflows by 28%
- Reducing blockages caused by sewer misuse by 15%
- Reducing the total number of pollution incidents by 30%
- Opening the Thames Tideway Tunnel, London’s “super sewer”, the third phase of improvements that will increase the health of the river by reducing combined sewer overflows by c.95
- Investing to improve the bathing water quality at Wolvercote Mill Stream
- Spending over £2.5 billion to deliver a 22% reduction in leakage
- Reducing water use per person by 5.5%
- Continuing the roll out of 1 million smart meters to make it easier for customers to save money and find leaks
- Ensuring water security, including consulting and planning for a reservoir near Abingdon
- Replacing assets that come to the end of their life with carbon neutral alternatives
According to Thames, the plan is financeable by delivering an £18.7 billion totex programme to maintain safe high quality drinking water, ensure security of water supplies and deliver further environmental improvements. The water company said it also offers sufficient returns for further shareholder funding of £3.25 billion in AMP7 and AMP8, in addition to £0.5 billion already received in March 2023.
The company is proposing a Weighted Average Cost of Capital of 4.25% (real) and is aiming to reduce its average gearing to 71%. It also assumes that no dividends will be paid to its external shareholders during AMP8.
Investment will more than double current levels of investment
The Interim Co-CEOs continued:
“We and our shareholders are fully committed to deliver a step change in investment and performance. That is why, between 2025 and 2030, our plan proposes to invest a record £4.7bn in our network and other assets, which will improve water security for our customers in London and the Thames Valley and deliver environmental improvements. “
"This investment is critical to building greater resilience in the face of an ageing asset base, climate change and population growth. In doing so, we will more than double current levels of investment."
“For over three decades Thames Water’s bills have been below the industry average, despite us having the oldest network. And they are no higher today than a decade ago. To deliver water security and environmental improvements, our bills will need to rise but also be affordable.”
The Thames chiefs say they are “all too aware that we are asking customers to pay more at a time when many are already facing financial pressure from household bills rising across the board.”
They suggest the water company also has choices about how the costs of providing life’s essential service are recovered over the 2025-30 investment period. If the utility adopts a ‘rise and flat’ bill profile during 2025-2030, the average monthly bill would rise by £14.55. Alternatively, lower bill increases could be introduced at the start of the next price control period, but this would mean steeper rises over time. “We are looking forward to discussing the right bill profile for our customers further in the coming months,” the CEOs said..
Thames Water said its shareholders are stepping up to support the much needed investment, underscoring their commitment to delivering Thames’ turnaround plan. Shareholders have already invested £500 million of new funds in 2023.
In addition, they have also agreed to provide a further £750 million in new equity funding across AMP7. The further funding is subject to satisfaction of certain conditions, including the preparation of a business plan that underpins a more focused turnaround that delivers targeted performance improvements for customers, the environment and other stakeholders over the next three years and is supported by appropriate regulatory arrangements.
Shareholders acknowledge need for additional equity investments indicatively in region of £2.5 billion in AMP8
Thames’ shareholders have also acknowledged the need for additional equity investments indicatively in the region of £2.5 billion in AMP8. In aggregate, this would equate to total equity investment of £3.75 billion, the largest equity support package ever proposed in the UK water sector.
In the coming months the water company will be hosting ‘Your water, your say’ meetings for customers and other stakeholder to gather feedback on the plan. However, Thames is emphasising that “we simply cannot deliver everything that our customers and stakeholders would like to see between now and 2030”, adding that the plan “reflects the difficult choices we have had to make.”
Thames Water also said the company had had “constructive discussions prior to submission” with its regulators on the scope of both the plan and the proposed regulatory arrangements, which include the scale of log-up to CPIH-real RCV for totex overspend in AMP7, allowed totex relative to actual spending in AMP8, and the maximum level of penalties that the company can incur under Ofwat’s Outcome Delivery Incentive regime.
The Co- CEOs’ statement concludes:
“We are looking forward to continuing these discussions - which could influence the scope of our plan, the bill impact and bill profile - and securing a price control that, in the round, allows us to both deliver record levels of investment for the benefit of the customers, communities and environment we serve, and offer investors an opportunity to earn the returns required to finance it.”
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