Utility Week

UTILITY Week 7th November 2014

Utility Week - authoritative, impartial and essential reading for senior people within utilities, regulators and government

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UTILITY WEEK | 7Th - 13Th NovEmbEr 2014 | 19 Finance & Investment This week Renationalisation 'no longer unthinkable' Government may be called on as an equity investor of last resort in the water industry Because of "a lack of investor interest", the renationalisation of the water industry is "no longer unthinkable", according to Investec. An analyst note from the investment bank said the bal- ance of risk and reward was "no longer attractive" for traditional equity investors, and that the government "may be called upon as an equity investor of last resort". The risk-reward balance has shied against inves- tors because Ofwat has cut the weighted average cost of capital (Wacc) from 5.1 per cent in PR09 to 3.85 per cent in PR14. It could be reduced even further in the final determinations in December. Investec said that the reduction in the Wacc had con- tributed to the operational risks being shied "from con- sumers to equity investors". It said "alternative models may emerge". These alternatives, aside from money from government, could include "Thames Tideway Tunnel clones", state-owned companies such as Scottish Water, or no-shareholder structures such as Welsh Water. Roshan Patel, an analyst at Investec, said extra risks to investors come from "unanticipated increases in real interest rates beyond those implicit in the yield curve, or more blatant political intervention". He said there was a positive impact on share prices and potential returns from merger and acquisition activity, but warned "the heady premiums of the past may not be seen in future, given the new risk-reward outlook". MB ENErGY €40m boost for UK power link projects Interconnector projects linking the UK to Norway and France have received a €40 million (£31 million) boost through European Commission funding. Decc said UK projects that were awarded funds include the NSN interconnector linking the UK to Norwegian hydropower, and two interconnectors to France. Together these projects would double the amount of electricity the UK is able to receive over its interconnectors. The European Commission said it would make €75 mil- lion available to the UK to fund energy infrastructure projects that enhance security of supply across Europe's borders. ENErGY Renewables firms back local ownership The renewable energy industry has launched an initiative to encourage community owner- ship in local projects. The voluntary Shared Owner- ship Taskforce, led by Renew- able UK, said developers of "sig- nificant new schemes" should consult with local community and offer a stake in the scheme of between 5 and 25 per cent. This was a response to the government's community energy strategy, published in January, which said that by 2015 it should be routine for developers to offer communities "some level of ownership" of renewable projects in their area. Energy secretary Ed Davey said: "Shared ownership will offer people the opportunity to buy in to the green energy that their own communities are producing." ENErGY £5.2m investment in efficient data centre The UK's Green Investment Bank (GIB) has said it will finance the Citi Group's energy efficiency project at its London data centre. The bank said its fund manager, Sustainable Develop- ment Capital, would finance the "first of a kind" project for the banking sector, which includes a combined cooling and power system, energy-efficient cooling units and efficiency improve- ments to the building's air con- ditioning system to cut energy use by 10 per cent. The system will also generate almost 24,000MWh a year, 71 per cent of the centre's electricity, while cooling the servers. Citi currently uses mains electricity and diesel back-up generators. The UK is the third largest consumer of data centre-related electricity in the world, making it one of the largest consumers of energy in the economy. Falling Wacc leaves firms in a hole Stock watch 304 302 300 298 296 294 310 305 300 295 290 285 CentriCa share priCe, 6 OCtOber - 3 nOvember 6 Oct 29 Oct 13 Oct 30 Oct 27 Oct 31 Oct 27 Oct 3 Nov 3 Nov Centrica shares hit their highest level in over three weeks on Friday 31 october at 102.50 pence following news that Ian Peters, currently head of british Gas residential, will take over from Chris Weston as interim head of british Gas residential Energy. Citigroup utilities analysts said in a note that the move may prove a positive one for the business. "Given the structural pressures on the business, we believe the business will need to see further restructuring to become cost competitive with smaller suppliers and more consumer focused to improve customer service and defend market shares. As a result someone with a more consumer focused background may be a suitable successor for Chris Weston," the note said. CentriCa share priCe, 29 OCtOber - 3 nOvember

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