Utility Week

UTILITY Week 21st April 2017

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

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Page 5 of 31

The Topic: Attracting investment ATTRACTING INVESTMENT THE TOPIC 6 | 21ST - 27TH APRIL 2017 | UTILITY WEEK "A general flow of investment is probably the cheapest way to keep the lights on." • Dermot Nolan, chief executive, Ofgem "Through all the turbulence we see at the moment, the fundamentals of the sector remain sound." • Catherine Ross, chief executive, Ofwat tainty over the environment the UK will offer to investors in years to come. This makes investors wary, and allows them to place a premium on the capital which utilities so sorely need. To counter the negative implications of investor nervousness, government has a big role to play and its communication of the developing Brexit deal will be crucial. But companies can take action to improve their investment prospects too. Efficient busi- nesses with strong track records for returns and positive interactions with their regula- tors during price setting processes, will be favoured. So will those with robust strategies for adapting to a changing world for utilities operations. In this Topic, Utility Week looks at what is being done to attract vital investment to the UK, and what more can be done to keep the cash coming despite the uncertainties that cloud the future. WHAT'S IN THIS ARTICLE l Renewables in the doldrums, p8 l The Brexit effect, p9 l Interview: Susan Davy, Pennon, p8 l The National Infrastructure Plan, p10 l Community heating, p10 l European Investment Bank and the UK Green Investment Bank, p11 M oney makes the world go round. It fuels business and the delivery of essential ser- vices. It funds advances in transformative technologies and it builds the infrastructure society depends on. But money likes stability and certainty, both of which are in short supply in the UK today, exacerbated by the news this week of a snap general election. With huge invest- ment needed in the utilities sector over the coming decade and beyond, this could pose an existential challenge. As industries go, energy and water are among the most money-hungry. Our energy infrastructure needs an estimated £215 bil- lion by the middle of the next decade, water companies will spend £44 billion on improv- ing services and resilience in AMP6. This money will help fund the roll out of electricity and gas smart meters, the construction of the Thames Tideway Tun- nel and Hinkley Point C. It will enable the development and deployment of smarter technologies, as well as supporting essential maintenance and replacement of vital infra- structure and assets. Without this money, UK utilities will falter and the wider economy – and consumers – will suffer. Traditionally, utilities' position as "defen- sive stocks" has mitigated the investment challenge. Regulators Ofwat and Ofgem have provided predictable and reliable frame- works for returns. Combined with strong reputations for steady sector oversight, this has offered a safety blanket for conserva- tive investors with an interest in consistent return on equity and dividend yield. But then came Brexit, throwing the UK's once relatively stable political regime into turmoil and introducing new levels of uncer- Stability is treasured above all in unstable times

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