Utility Week

Utility Week 14 03 14

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UTILITY WEEK | 14Th - 20Th March 2014 | 19 Finance & Investment This week Senior investor not put off by lower Wacc Water sector attractiveness unaffected by Ofwat's bid to lower the weighted average cost of capital A senior investment manager has said Ofwat's bid to lower the weighted average cost of capital (Wacc) will not undermine the water sector's attractiveness for investment. Addressing delegates at Water UK's annual City confer- ence last week, Hans Peter Port- ner, senior investment manager at Pictet Asset Management, said Ofwat's proposed Wacc of 3.85 per cent, down from 5.1 per cent in the current price review cycle, would not limit investment attractiveness if it led to the de-risking of assets. "The main task of the regulator is to de-risk the asset. So reducing Wacc is welcome, but for the right reasons; it is lower because assets have been de-risked. That is the message I would like to hear," he said. According to Portner, de-risking went "hand in hand with stable growth". "It also incentivises companies to outperform, which is a good signal," he added. Despite this, ratings agency Moody's last month downgraded Thames Water and Anglian Water, while Yorkshire Water was downgraded by Fitch Ratings due to concerns that returns could be significantly lower given the low cost of capital. On Monday, Ofwat announced that Affinity Water and South West Water had prequalified for enhanced status, on the condition that they accept the guidance on risk and reward, including the 3.85 per cent Wacc. CM Pan-UTILITY UK's share of foreign money 'in jeopardy' Europe risks losing out on a $1 trillion China-led bonanza in overseas investment in infra- structure because of a "weak pipeline of assets and regula- tory uncertainty", according to a report by law firm Linklaters. And the same legislative waver- ing is jeopardising the UK's possible $200 billion share of the "mountain" of foreign money, the report warned. Linklaters' infrastructure sector chief, Ian Andrews, said: "Decisions about future pricing regulation could have a signifi- cant impact on the UK's ability to secure private investment. Investors are wary of regulatory environments that are perceived to be hostile or unstable." The report described UK energy and water firms as coming under "political assaults" with "fierce political and regulatory pressure to cut prices". EnErgY Decarbonisation has investment shortfall Less than half of the investment required for the UK to meet its national and international emis- sions reduction targets is being provided, MPs have warned. The Environmental Audit Committee (EAC) said in a new report that less than half of the £200 billion investment needed in energy infrastructure by 2020 to ensure the UK meets its decarbonisation goals is being provided. The report urged the govern- ment to remove some of the risk associated with green finance by providing a "joined-up, stable and certain policy framework". The EAC also stated the government should "abandon its review of the fourth carbon budget" and set a 2030 decar- bonisation target and indicative funding levels under the Levy Control Framework until that date. EnErgY GIB invests in farms' biomass boilers The UK Green Investment Bank (GIB) and fund manager Equitix have agreed a £24.5 million investment to finance the instal- lation of biomass boilers at Bernard Matthews' turkey farms. The project will see 179 biomass boilers installed across 21 farms in Norfolk, Suffolk and Lincolnshire, creating up to 51 jobs and a further nine positions for the boilers' maintenance. The Equitix managed fund, Energy Saving Investments (ESI), in which GIB is the cornerstone investor, has invested £12 mil- lion into the project. This is cou- pled with £12.5 million of private sector capital from the Equitix Energy Efficiency Fund. Wacc will be welcome if assets are de-risked Shares in South West Water's parent company Pennon rose 3 per cent in early trading on Monday, following Ofwat's announcement that it had prequalified for enhanced status and a fast-tracked price review. Should the company accept Ofwat's risk and reward guidance for the next price cycle, including a lower rate of return on investment, it could benefit from a £17 million cash injection. 765 760 755 750 745 740 735 760 740 720 700 680 660 640 620 Stock watch Pennon share Price, 5 - 11 March 2014 Pennon share Price, March 2013 - March 2014 Mar 2013 5 Mar 6 Mar 7 Mar 10 Mar 11 Mar Sep 2013 Mar 2014

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