Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government
Issue link: https://fhpublishing.uberflip.com/i/374674
tol's water supply cost submission was way above Ofwat's projections, while Portsmouth was unique in being permitted to retain its average £92 water cost charge in real terms until March 2020. Two water-only companies also received a 0.15 per cent Wacc premium. Importantly, Ofwat has confirmed that its assumed Wacc could be adjusted prior to December's final determination, and it is looking for reasons to further reduce allowed returns. Ofwat has also proposed a "cap and col- lar" regime to prevent excessive or inad- equate returns on regulatory equity between 2015 and 2020. The water companies now have until 3 October to respond to these dra determi- nations. Many will broadly accept what is on offer, with minor tweaking. But for United Utilities and Thames, earnest discussions will continue – whether Ofwat will be moved sufficiently remains to be seen. Nigel Hawkins, director of investment and policy research firm Nigel Hawkins Associates UTILITY WEEK | 5TH - 11TH SEPTEMBER 2014 | 21 Finance & Investment I n a couple of months, the UK Green Investment Bank will be celebrating its second anniversary. In our short existence we have already become the most active investor in the UK's green economy. We have a double bottom line: our investments must be commercial and green. While the definition of a profit- able investment is commonly held and well understood, defining the 'green-ness' of a project is less clear cut. To close this gap we have built a green due diligence process that is every bit as robust as our financial pro- cesses. Every project we support must pass through our 'Assess, Monitor, Report' green investment model. Firstly, each project is assessed against our five green tests: the project must reduce greenhouse gas emissions; protect or enhance biodiversity; protect or enhance the natural environment; advance efficiency in the use of natural resources; or promote environmental sustain- ability. If it doesn't pass at least one of these tests, it doesn't proceed. And we attach specific green covenants and if a project fails to perform we will deal with it exactly as any investor would deal with financial under- performance. Secondly, we monitor each project continu- ally, including the requirement for each project owner to submit an annual independent green performance report. Lastly, we report on each project's green performance with market-leading transparency, covering both the performance for the reporting period in focus and the projected lifetime impact. Our job is not just to make an impact through our direct investments; we are also charged with creating a positive demonstration effect that will attract other investors. One example of this is the development of a system of 'green project ratings'. This rating system would see each project graded with a score of A+ to E for each of our five green tests. The logic of the approach mirrors the financial investment rating system. We have started to trial the approach internally and are speaking to other investors to get their perspective and hopefully, in time, their involvement. Our hope is that we can help shape emerging market practice. Gavin Templeton, head of sustainable finance, UK Green Investment Bank "Under our due diligence process, if a project doesn't pass at least one of our five green tests, it doesn't proceed." Investor view Gavin Templeton Projects would be graded A+ to E for each of our five green tests Some of the key figures from the determinations that made headlines in the national press. 5% Draft proposals would cut UK water and sewerage bills by 5 per cent £2k Approved investments out to 2020 equate to £2,000 per household £2bn Ofwat's PR14 challenge has resulted in a £2 billion reduction in planned financing cost out to 2020 £4.2bn The cost of the Thames Tideway Tunnel scheme THE STORY BY NUMBERS Mark Turner, water sector leader at Ernst & Young: "Agreeing on a busi- ness plan is only the start of the race. Water utilities must be quickly off the start line when the gun fires at the end of the year. Commitments have been made to deliver significant new capital and opex efficiencies, but how these will be achieved is not clear." @Waterwise tweeted: Is Thames Tun- nel the last roar of big infrastructure dinosaurs, @Ofwat proposals should lead to so engineering & partnerships Sky News's Guy Harding: @unitedutili- ties proposed costs nearly £1bn more than @Ofwat calculations for water and wastewater #fleeced #ofwat WATER AND SEWERAGE COMPANY: AVERAGE COMBINED HOUSEHOLD BILL 2010-15 SWT WSX WSH SRN ANH NES UU TMS YKY SVT 550 500 450 400 350 300 250 200 2015-20 Industry average AMP5 Industry average AMP6 Combined bills fall an average 5.3%