The cost of upgrading and future-proofing Thames Water’s ageing assets would be almost £20 billion, the company has revealed.
To tackle the most pressing issues, Thames has proposed spending £4.7 billion on its assets in the five years to 2030.
This includes replacing service reservoirs, upgrading rising mains, servicing gravity sewers and upgrading wastewater treatment sites.
The cost of carrying out the work will be recovered across “a number of years” to ease the burden on bills.
The figures are revealed within Thames’ PR24 business plan, which it made public today (5 October), three days later than Ofwat’s submission deadline. Utility Week understands an 11th-hour board meeting was held on Sunday evening, ahead of plans being put forward to the regulator.
In total, the company is proposing to spend £18.7 billion during the investment period.
The company said the asset deficit was the result of stretching the life of assets rather than replacing them. In total, it says this would take £19.3 billion to address all asset health issues.
“Questions may be asked as to why we have a substantial asset health deficit and about whether customers provided us with funds that we should have used to address the deficit in previous price control periods. We strongly believe this is not the case,” the business plan states.
For the current period, Ofwat highlighted the need for higher investment in its asset base within Thames’ final determination than the company had laid out. Its spending for AMP7 is forecast to be £1 billion over its final determination, taking the total spend to £11.5 billion.
The company’s submission to Ofwat for PR24 is focused around an updated, pared-down turnaround plan after change of management at the end of June. Thames was two years into an eight-year plan, which it revealed was behind the planned pace. This has been replaced with a three-year plan which the company described as “refocused” on fewer priorities.
It said changes to the turnaround plan would enable a “sustainable improvement in performance more quickly” in focus areas and build confidence that the AMP8 plan is deliverable.
Shareholder support to the tune of £2.5 billion is anticipated in new equity in AMP8 to add to the £750 million committed to in AMP7.
The company recognised it would not be able to deliver the full extent of the asset investment programmes or environmental obligations it originally wanted to in the period.
It said discussions with Ofwat around overspend in the current period and allowed Totex relative to actual spending in the next AMP as well as penalties relating to ODIs that it said would influence the scope of the new plan and how bills would be impacted.
Elsewhere within the business plan, Thames reveals that bills are set to rise 40% compared to 2024/25 to £611 annually, or a monthly increase of £14.55 by the end of the period. The company has proposed two approaches to how bills may rise over the five years to cushion against spikes.
Spending will include £6.6 billion to improve the environment, of which £885 million will be dedicated to lowering the risks of harm from CSOs as it targets a 30% drop in pollution incidents.
Its plan also commits to:
- Cut leakage by 22% compared to the start of AMP7
- Lower household PCC by 5.5% and business usage by 10%
- Rollout one million smart meters
- Replace 54,000 lead pipes
- Upgrade 500km of mains replacements with older assets or those prone to leaks prioritised
A revised affordability threshold will support an additional 290,000 financially struggling customers.
Thames proposed a rising block tariff would take 9% off of 75% of household bills, which Thames said it would rollout depending on the results of a trial. The tariff would in turn provide an extra £60 million funding for Thames’ social tariff – to a total of £155 million, which would be an equivalent cross subsidy of £37 per household.
“Overall, this is an ambitious but credible plan. We will reach new levels of operating performance, customer service and capital delivery,” the plan said. “With support from our customers, collaboration from our stakeholders, further equity from our shareholders, and the right regulatory framework, AMP8 will see us making significant progress towards our vision.”