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UTILITY WEEK | 21ST - 27TH JULY 2017 | 23 This week Warnings on Ofwat's PR19 price squeeze Ofwat's plans for the next price control could have unintended consequences, say experts Ofwat has been warned that its proposals to squeeze water utili- ties' prices will damage the cred- itworthiness of the sector and could undermine investment. The concerns were expressed at a conference in London that examined the impact of PR19, under which Ofwat is planning to reduce the cap on annual price rises from 3.5 per cent to less than 3 per cent. In his keynote presentation, David Black, senior direc- tor, Water 2020 at Ofwat said low interest rates meant the sector has enjoyed headroom in its borrowing costs. But Stefanie Voelz, senior credit officer at infrastruc- ture finance group Moody's Investors Service, said that the reduction in financial flexibility could lead to a one- notch downgrade in water companies' ratings. She added that greater competition could knock off another notch. "If businesses are increasing their risk at the same time as reducing financial flexibility, that creates pres- sure on the credit portfolio. At the moment, the sector enjoys a very, very low cost of debt but that might not always be the case." Andrew Beaver, director of the infrastructure advisory group at KPMG, said the regulator's proposals would give water companies insufficient leeway to tackle long-term challenges, such as supply shortages and floods. "If we really think there are long-term challenges… perhaps this is the opportunity to use the headroom identified to help address some of those challenges and make investments. There is a question about whether we are pushing too hard to the long term detriment." DB ELECTRICITY Vince blasts cost of Swansea tidal project Ecotricity founder Dale Vince has slammed the proposed Swansea Bay Tidal Lagoon as too expensive. He called on the government to resist giving the £1.3 billion project a "sweetheart deal", which he says would mean energy bill payers would be over- charged by billions of pounds for almost the next century. The green energy tycoon said tidal lagoons can deliver energy for almost a quarter of the price of current Swansea Bay proposal – at a cost of about £90 per megawatt-hour for 25 years rather than £90 per megawatt- hour for 90 years as is currently proposed for Swansea. Tidal Lagoon Power said the Hendry Review, published earlier this year, categorises offshore tidal lagoons as "less developed and more aspirational". ENERGY Bond to fund smart meter rollout in UK Foresight has launched a smart meter bond fund to raise £10 million in its first tranche. The fund is thought to be the first of its kind, an innovative and simple funding solution for the UK rollout of smart meters. The funds raised will gener- ate returns by lending to compa- nies that own, operate and rent smart meters to suppliers. Investors can invest over one, two or three-year fixed terms at annual interest rates between 4.07 and 4.83 per cent. Chairman Bernard Fairman said: "Our innovative Foresight smart bonds fund is a good example of providing investors with market-leading risk- adjusted returns whilst improv- ing the energy infrastructure across the UK." WATER EIB loans £250m for green energy Welsh Water has secured a loan of £250 million from the Euro- pean Investment Bank (EIB) to support green energy projects. The funds will contribute towards the company's plans to invest £1.7 billion between 2015 and 2020 in developing further renewable energy sites. "We are delighted to have secured this loan facility as it helps us deliver higher invest- ment and lower bills for our customers," said Peter Bridgewa- ter, Welsh Water's finance and commercial director. To demonstrate how the funds will be used, Welsh Water invited representatives from the EIB to visit the Five Fords wastewater treatment works in Wrexham, which is due to be transformed into a £36 million energy park. Experts say now may be the best time to invest Stock watch NATIONAL GRID SHARE PRICE, FIVE DAY 20 Jun 27 Jun 4 Jul 11 Jul 18 Jul NATIONAL GRID SHARE PRICE, ONE MONTH National Grid shares were briefly buoyed by the news that HSBC analysts had upgraded the stocks to "buy" aer Ofgem revealed it was considering aligning the settlement periods for the second set of RIIO price controls. They expect the next price control to be delayed from 2021 to 2023, and believe the "stay of execution" could be worth £188 million to National Grid. As trading opened on Wednesday, the share price rose by a little over one per cent to 944.8p. 940 945 1020 1000 935 980 930 960 925 940 920 920 13 Jul 14 Jul 17 Jul 18 Jul Finance & Investment