Utility Week

UTILITY WEEK | 9TH - 15TH NOVEMBER 2018 | 15 This week Ofwat carrot and stick for Severn Trent Outperformance payments for wastewater wipe out underperformance penalty for water Severn Trent is expected to be rewarded for its outperformance in reducing sewer flooding and pollution but penalised for supply interruptions and leakage, Ofwat has warned. On 1 November the regulator began consulting on proposed outperformance and underperformance payments for four of the 17 water companies in England and Wales. Ofwat said that Severn Trent had made "major progress" in reducing sewer flooding and pollution levels. It wants Severn Trent to take £24.9 million of its outperformance payment for wastewater now, with the rest deferred until 2020. Severn Trent expects a net outperformance payment of £72 million in all, part of which it has chosen to take in subsequent years to keep future customer bills low. However, Severn Trent underperformed on supply interruptions, leakage and drinking water complaints. Ofwat wants it to make a net underperformance payment of £29.6 million for water services. Ofwat has proposed resetting Severn Trent's targets for sewer flooding and pollution to ensure that only improvements above and beyond those it has already made will count towards outperformance payments. Meanwhile South West Water faces a penalty of £270,000 for "continued underperformance" on pollution, and Hafren Dyfrdwy a proposed net underperformance payment of £62,000. Anglian Water is set for a proposed net outperformance payment of £4.6 million for reducing leakage levels. KP ENERGY Interconnectors 'undervalued' Interconnectors are undervalued in the capacity market because of overly pessimistic assumptions about reliability. Mark Duffield, the interconnectors regulation manager at National Grid, said the current method for calculating de-rating gives too much weight to their performance during periods when there is plenty of spare capacity in the system, costing consumers tens of millions of pounds each year in higher capacity market payments. Duffield said that during periods when supply margins in Great Britain are wide, interconnectors are more likely to be exporting to neighbouring markets with tighter margins. He said this gives a misleading impression of their likely reliability during stress events. WATER AND ENERGY Climate change risk hits credit ratings Freshwater scarcity, flooding and droughts triggered by climate change and the depletion of groundwater reserves are hitting credit ratings, according to an analysis by ratings agency S&P. As water-intensive industries, utilities and power are among the most exposed to such risks. Between July 2015 and August 2017, water factors were mentioned in 169 rating actions and were the main driver in 28. Around 70 per cent of these actions were negative and around half were downgrades. In the report, S&P explained that its decision to downgrade Thames Water's credit rating in July 2017 was due to "poor water management compared with peers related to leakage from below-ground water assets that resulted in financial penalties" at a time when the utility's operations to debt ratio gave it no headroom for a higher rating. ENERGY NTR snaps up nine UK solar sites Renewables investment fund NTR has acquired nine operational solar sites totalling 38.4MW from Plus Renewable Technologies in a €61.3 million (£54.6 million) deal. The fund is NTR's second sustainable infrastructure fund and invests in onshore wind and solar assets in Europe. NTR chief executive Rosheen McGuckian said the portfolio of ground-mounted solar assets will provide attractive, immediate and sustainable yields for its investors. NTR's first renewable energy infrastructure fund, launched in 2015, is now fully invested in onshore wind projects. Severn Trent has reduced flooding and pollution Finance & Investment Stock watch 2,200 2,100 2,000 1,900 1,800 1,700 SEVEN TRENT SHARE PRICE, ONE MONTH Oct 2017 Feb 2018 Jun 2018 SEVEN TRENT SHARE PRICE, FULL YEAR Severn Trent's shares were down 2 per cent on 2 November. Its shares stood at 1,906p on 1 November and fell to 1,887.5p by the next day before recovering by 5 November. On 1 November Ofwat announced the water company is facing a financial penalty for supply interruptions and leakage. The regulator proposed Severn Trent pay £29.6 million underperformance payment for water services. 1,920 1,900 1,880 1,860 1,840 1,820 15 Oct 22 Oct 29 Oct 5 Nov

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