Bills set to rise as water companies turn on the spending taps
England’s water companies will pledge to invest up to £90 billion in the water and sewerage network in plans that will push up bills, particularly in the southeast.
They will submit their investment plans for 2025-2030 to the regulator Ofwat, proposing a significant boost to spending on infrastructure to tackle sewage overflows, harmful nutrients in rivers and water shortages.
Ofwat indicated this could total £89 billion over five years, up from £51 billion in the current 2020-25 cycle, as water companies react to public and government pressure to upgrade the UK’s infrastructure. The regulator has a year to review and approve the plans.
The southeast may be harder hit than other regions because it is more “water-stressed”, with a hotter and drier climate requiring more investment in reservoirs and pipes to bring in water from wetter parts of the country.
This, coupled with the cost of tackling overflows, would be a “double whammy” for householders, said one industry source: “I would expect the southeast to be higher on the percentage rises because of the water scarcity issue alongside environmental improvement being proposed across the country.”
Companies are under pressure to minimise price rises while proving they can finance the work. On Friday, Severn Trent raised £1 billion from shareholders, half from the Qatar Investment Authority, to fund its plan, at a cost of £12.9 billion in spending and a 37 per cent increase in bills. The industry argues that even large increases would keep monthly bill rises below £10 over the decade.
“There is going to be more investment this time because climate change risks are more real and customers want more change,” said one executive. Companies have already announced £10 billion to tackle spills.
The Sunday Times
As under-fire water firms present their price proposals, who’ll be cleaning up?
Keen swimmers passing St Mary’s Bay in Kent could be forgiven for being tempted by a late September dip in its glistening waters. They would be wise to think twice, however. The beauty spot has earned the dubious honour of being named Britain’s most polluted beach, and in February the Environment Agency warned against swimming there for a year due to high levels of faecal matter. St Mary’s is now an emblem for a sewage-spewing water industry which has been repeatedly fined and justifiably vilified.
Against this backdrop, England and Wales’s 16 water suppliers will submit their business plans on Monday to the regulator, Ofwat, to cover 2025-30, or “asset management period 8” (AMP8). This twice-a-decade “price review” sees the regulator determine what costs companies can recover from customers to carry out investments such as repairing pipes and improving sewage plants, and also detail planned efforts to reduce water wastage and lay out hoped-for returns to investors. Ofwat is expected to publish a first update next spring, with a formal draft response in May or June and a final decision in December.
The review comes at a tense time given the spotlight on the companies, their well-paid bosses and dividend-hungry owners, and the under-fire regulators. In May, suppliers in England apologised to customers and announced £10bn in infrastructure upgrades to complete the biggest modernisation of sewers “since the Victorian era”.
The timeline for these upgrades, and how quickly consumer bills will rise to pay for them, will be key in assessing the business plans. RBC Europe analyst Alexander Wheeler said he expected a 75% uplift in combined future investment and day-to-day spending compared with previous price review periods.
In the next period, some customers could face increases in bills of almost 50%. “There is a view that customers are now more understanding of future bill rises. In assessing proposed bill rises, the regulator will look at whether companies have openly and meaningfully engaged with customers, while also assessing what customers are getting for the additional bill increase,” said Wheeler.
Before the next period begins, companies have been ordered to return £114m to customers through lower bills next year, but most people’s water bills will rise anyway because of high inflation.
The National Infrastructure Commission has calculated that more than £20bn of investment in new infrastructure alongside leak reduction is needed over the next 30 years. Even if water companies show a sudden desire to get on with upgrades, two of the biggest political stories of last month may give a clue to looming hurdles: the spiralling cost of HS2 and Rishi Sunak’s U-turn on green policies.
Colm Gibson, managing director at consultancy Berkeley Research Group, said companies would need to show their plans can be delivered amid competition for a small pool of skilled workers, such as engineers.
“Adding a significant programme to ameliorate storm overflows to the other investments, while the nation is also trying to deliver energy grid enhancements, renewable energy generation and major rail upgrades, would stretch the UK’s existing civil engineering supply chain significantly,” he said. Embattled Thames Water has already cited the need to prioritise certain projects amid these pressures.
Gibson added: “It will be interesting to see whether the government’s recent net zero announcement has had any impact on when companies are planning to convert their vehicle fleets to fully electric.” Companies will also set out their spending on everything from improving water quality to rolling out smart water meters.”
The Observer
Ministers predict that householders will need loans to fund costly heat pumps
Government plans for the 2035 ban on new gas boilers assume that many households will need to take out loans to fund heat pumps because they are so costly, the Telegraph can disclose.
Documents produced by the Department for Energy Security and Net Zero predict that “financing arrangements” will help to increase the number of “willing-and-able-to-pay heat pump consumers”.
An official assessment drawn up by the department states that companies may need to introduce subsidies to encourage the take-up of the electric heating systems that the Government is hoping will replace gas boilers, to “induce households to install them”.
The document adds that such help might not be necessary if consumers are “presented with affordable options for multi-year financing.”
“As with all technologies, businesses will develop options that work best for consumers, and heat pump financing may be part of that, if they find that that’s what some consumers want,” a spokesman said.
But senior Conservatives said officials appeared to be acknowledging that “many people cannot afford heat pumps” to replace their boilers, despite the Government encouraging households to buy the new systems, which can cost up to £15,000 to purchase and install.
Ten days ago, Rishi Sunak announced a watering down of the 2035 ban on the sale of gas boilers, declaring that the one fifth of households who would be hardest hit by the switch to heat pumps “will never have to switch at all”.
As part of his speech setting out a more “pragmatic, proportionate, and realistic approach” to net zero, the Prime Minister also said that he was increasing the cash grants given to households replacing their boilers by 50 per cent, to £7,500.
But, even with Mr Sunak’s increase in cash grants, many households will have to pay up to £7,500 to install an air source heat pump, compared to average gas boiler installation costs of between £1,000 and £3,000.
Officials, however, insist heat pump costs are now reducing, coming closer to the costs of installing boilers.
The assumption that people will take out loans to help fund the replacement of their gas boilers with electric alternatives is contained in the official impact assessment for the Government’s Clean Heat Mechanism, the policy that will see boiler manufacturers handed fines from next year if they fail to meet strict quotas stipulating the proportion of their sales that should become heat pumps, to help meet net zero targets.
It was drawn up in April, five months before Mr Sunak’s intervention. The official assessment states that evidence showed that those applying for cash grants were “willing to contribute, on average, around £8,000 for the total cost of the heat pump (and therefore over £5,000 on top of the cost of an average boiler).”
The document adds: “In future years one might expect the average willingness to pay to decrease as deployment increases; on the other hand, as the market develops, it is likely there will be increased consumer awareness as well as new financing arrangements that could combine to make it easier to find a greater number of willing-and-able-to-pay heat pump consumers.”
It goes on: “Costs to business could vary significantly. At the lower end of the range, they could amount only to the familiarisation and administrative costs estimated in the section above.
“However, the presence of market barriers and failures means that, in some cases, heat pumps may need to be subsidised to induce households to install them.”
The assessment adds: “Extra subsidies might not be needed as obligated parties may find sufficient consumers willing and able to pay for the full cost of the heat pumps, especially if presented with affordable options for multi-year financing.”
The Daily Telegraph
Winter warning as new energy price cap comes in
Charities are warning of a tough winter ahead for many people’s finances despite a drop in domestic energy prices for the next three months.
The annual bill for a typical household falls to £1,923 from Sunday (1 October) under regulator Ofgem’s price cap.
It is £577 lower than last winter, but some government support has been withdrawn and bills are forecast to rise again in January.
But cost-of-living payments for some may help cover part of the cost.
Average annual gas and electricity bills remain high by historical standards. In winter 2021, an energy bill for a typical household was £1,277.
Matthew Cole, head of Fuel Bank Foundation, a charity that provides financial support for those on prepayment energy meters – who now pay a very similar amount to those using direct debit – said for these people the cost of topping up would be around £250 a month.
He said it is likely to lead some to skip meals and showers to keep up.
“For prepaying customers, when the money on the meter runs out and there’s no means of topping up, so does the energy,” he said. “No money equals no heat, hot water or fuel to cook a hot meal.”
Ofgem’s price cap affects 29 million households in England, Wales and Scotland. It sets the maximum amount that suppliers can charge for each unit of gas and electricity but not the total bill. If you use more, you will pay more.
For a home using a typical amount of gas and electricity and paying by direct debit, the annual bill will be £1,923 between now and 31 December, down from £2,074 previously.
Last winter, bill rises would have been higher had it not been for the government’s Energy Price Guarantee limiting the typical bill to £2,500. Each household also received £400 of support over six months, but this year the government is yet to announce any equivalent scheme.
On Friday, analysts at energy consultancy Cornwall Insight said the typical annual bill was forecast to rise to £1,996 in January.
BBC News
Octopus Energy: the UK start-up outgrowing its roots
When Shell decided to call it quits on its fledgling UK and German home retail energy business earlier this year, one rival was waiting in the wings.
Octopus Energy is paying an undisclosed sum for Shell’s division in a deal due to complete this year, transforming the London-based company into Britain’s second-largest retail supplier, behind British Gas, with 6.5mn customers.
The move is the latest step in the rapid ascent of Octopus since it was founded in 2016, backed with financing from London-based Octopus Investments and a helpful tailwind in the shift towards cleaner energy.
Greg Jackson, the company’s founder and chief executive, described the group’s early days as being like “a street fight” as it raced to build a large customer base.
Those scrappy instincts and the company’s customer service platform, Kraken, have led some to liken Octopus Energy to a tech start-up rather than a traditional British utility.
But like many tech-start ups, the company is yet to make an annual profit, despite now operating in 17 countries and making revenues last year of £4.2bn, supplying gas and electricity to homes but also generating wind power, leasing electric cars and installing heat pumps and solar panels.
Asked if investors should expect a profit soon, Jackson, a serial entrepreneur, said he was still focused on growth. “We are on track for what really matters to us, which is building a global business in electrification.
“We’re going to be investing in growth for a long time to come,” he said. “It’s a choice for us when we choose to deliver a profit.”
Octopus’s credentials as a disrupter have helped win the backing of investors including Generation Investment Management, chaired by former US vice-president Al Gore, but it may need to refine the start-up mentality now it serves more than a fifth of British households.
Octopus has provided stiff competition and is so far the biggest winner of a push by UK regulator Ofgem to shake up the dominance of the so-called Big Six suppliers over the past decade.
The effort has proved controversial. Dozens of Octopus’s competitors imploded when the energy crisis started in 2021 and then deepened the following year, exposing a host of undercapitalised and shoddily run operators.
Octopus has emerged strongest from the wreckage, taking over Bulb Energy in a controversial process last year, adding 1.5mn customers, as well as Avro Energy, which supplied more than 580,000 households.
It is now part of a new “Big Six” dominating the market — legacy suppliers British Gas, EDF, E. ON and Scottish Power, along with another one-time challenger, Ovo. Their combined 91 per cent market share is a greater share than large suppliers have held since at least 2017, according to data from Cornwall Insight.
Are households better off under this new version of the regime? The energy crisis has stifled competition over the past two years, with tariffs bunched around the price cap set by Ofgem.
Jackson defended the company’s role in the market, claiming it performed ahead of others on customer service and brought innovation.
“Previously you might have had a whole load of companies but there was no differentiation,” he said. “It was like going down a souk — a whole load of people selling identical stuff, each shouting louder than the other.”
That innovation includes taking part in a new scheme, run by National Grid, in which households were paid last winter to cut electricity usage at peak times if the operator feared it was running short.
The so-called “demand flexibility scheme” was introduced by National Grid as a tool to cope with exceptional circumstances last winter, when output from France’s nuclear power fleet was curtailed and there were concerns over gas supplies following Russia’s invasion of Ukraine.
The scheme prompted pictures on social media of families sitting in candlelight as they took part, but Jackson argues those that did in effect ended up with “free electricity” for the day. Such schemes are expected to play a bigger role in an energy system dominated by renewables, with supporters arguing they cut the amount of new infrastructure needed.
“We spent years working with National Grid to help them see the benefit and the possibility,” said Jackson.
“If you get a bumper crop of green energy, you get cheap energy,” he said. “If we don’t have a bumper crop, then we can pay you to use less at the times it’s in short supply.”
Read the full interview here (subscription required)
The Financial Times
UK exporters face hefty EU carbon tax bill after Sunak weakens climate policies
Rishi Sunak’s weakening of UK climate targets has left British exporters facing hundreds of millions of pounds in EU carbon border taxes within the next decade — revenues that otherwise would have flowed to the Treasury.
The UK carbon market, which sets the price large manufacturers and energy companies must pay for every tonne of CO₂ released, has collapsed after the Conservative government weakened a number of green initiatives.
UK emissions prices have fallen to less than half the EU equivalent in recent months, having previously traded near parity.
The EU’s forthcoming carbon border tax regime will seek to penalise countries with substantially lower carbon costs than the bloc’s. As a result, the drop in UK emissions prices means that British exporters to the EU will become liable for the EU tax when it comes into force in 2026.
The lower emissions price also means that the UK Treasury will generate less revenue from carbon pricing; in effect the changes will divert a portion of companies’ carbon bills from Westminster to Brussels.
“UK industry will still be paying for emissions on exports to the EU, but instead of taxes going to the Treasury, they will be heading to Brussels, which has earmarked these revenues for further investment into renewable industries,” said Marcus Ferdinand, chief analytics officer at carbon consultancy Veyt.
From Sunday exporters to the EU will have to start recording carbon emissions embedded in their products as the early trial period for the EU’s carbon border adjustment mechanism, known as CBAM, begins.
Under the CBAM countries that want to export to the EU must from 2026 show that they have an equivalent carbon price in place or pay penalties to make up the difference. The aim is to protect EU industry from countries with less stringent emissions markets.
The mechanism will cover iron, steel, cement, aluminium, fertiliser, hydrogen and electricity generation. During the trial period exporters only have to report emissions without paying the levy.
Prices for the UK Emissions Trading System (UK ETS) fell to an all-time low of nearly £33 a tonne last week, the day after Sunak’s speech setting out weakened climate provisions such as delaying the phaseout of petrol and diesel cars. The UK ETS hit a peak of nearly £100 a tonne last year.
The EU equivalent, known as the EU ETS, is trading at €82 a tonne (£71.10).
“The total UK exporters would pay to the EU could easily rise into the hundreds of millions of pounds by early next decade, if the gap in carbon prices remains,” Ferdinand said.
The UK energy industry is warning that despite generating low emissions themselves, electricity exports from wind farms, solar and nuclear plants will also be subject to carbon import taxes.
With more than 40 per cent of UK electricity still generated by burning gas or coal, a similar portion of the CBAM levy will be applied to all UK electricity imports, as the EU cannot easily tell whether imported power came from clean or dirty sources, industry body Energy UK warned.
“It’s a really big problem as UK wind farms that had planned to send a lot of what they generate to the EU on very windy days could find themselves priced out of the market,” said Adam Berman, deputy director at Energy UK.
“For manufacturers, UK companies that are exporting to their largest market will have a very significant tax imposed on them that will go into the EU budget when it once would have gone to the exchequer.”
The Financial Times
Motorway service stations hiring staff to police surging levels of EV ‘charge rage’
Britain’s biggest motorway service station provider has brought in marshals to police “charge rage” among electric vehicle drivers battling for access to plug-in points.
Moto chief executive Ken McMeikan warned the UK’s motorway service stations are facing growing “public disorder” due to a lack of grid connections preventing him from installing enough car chargers to meet the surge in demand.
It means many motorists are facing long waits, with angry drivers confronting staff and each other over the lack of charging facilities.
Mr McMeikan said the delays made drivers “very angry and stressed” and warned of the growing risk of “charge rage” on Britain’s motorways.
He said: “People need to drive their EV cars around without range anxiety, without long queues and without public disorder but at peak seasonal times we are experiencing all this now.”
Moto, which runs 49 motorway services around the UK, has already introduced marshalls at Exeter, Rugby and Wetherby to manage EV queues and prevent conflicts during busy periods.
Mr McMeikan, 58, who drives an EV himself, said he had told the government of the problem and warned ministers that public disorder incidents would grow.
He told The Telegraph: “I’ve been saying to them that the grid does not have sufficient capacity right now to deliver the power we need at the time we need it.
“If we don’t get that amount of power guaranteed, then in coming years every Christmas, every Easter, every summer holiday and peak bank holiday will be the equivalent of when we have a fuel crisis on petrol and diesel.”
The Daily Telegraph
East Anglia campaigners gather to protest against pylon plans
Hundreds of people have gathered to protest against plans to build a 112 mile-long (180km) power line across East Anglia.
The network of pylons, from Norwich to Tilbury in Essex, would carry offshore windfarm-generated electricity.
Campaigners said the power should be carried undersea, far from homes as the huge pylons would be “horrible”.
National Grid, said it would boost “home-grown energy security and progress towards net zero”.
Developer ScottishPower plans to bring cables onshore near Aldeburgh.
The line would briefly run underground at the Dedham Vale area of outstanding natural beauty on the Essex-Suffolk border.
The firm has previously said running the entire route underground, or offshore, would cause greater disruption and bump the cost up from £793m to £2bn-£4bn.
About 250 campaigners met at Wortham Ling, Suffolk for a question and answer session.
BBC News
Utility Week’s weekend press round-up is a curation of articles in the national newspapers relating to the energy and water sector. The views expressed are not those of Utility Week or Faversham House.