Utility Week

20 | 27TH OCTOBER - 2ND NOVEMBER 2017 | UTILITY WEEK This week Yorkshire Water to end offshore banking Offshore arrangements have nothing to do with tax but are causing reputational damage Yorkshire Water plans to end its offshore banking arrange- ments, reduce borrowing costs and simplify its finances as part of a long-term drive to enhance service for customers. Speaking at Moody's 2017 UK Water Sector Conference last week, Liz Barber, the company's group director of finance, regula- tion and markets, said Yorkshire Water is committed to closing its offshore banking arrangements in the Cay- man Islands, which it uses to manage borrowing. "There is a real challenge to the water industry's legitimacy at the moment and complex financial struc- tures only add to public concern as to the way in which companies are financed," she said. "We have some offshore companies in our structure, which are no longer necessary or appropriate, and we're taking steps to remove these as soon as possible." Talking to Utility Week, she said: "Our offshore com- panies in the Cayman Islands have nothing to do with tax and no matter how we try to explain, people just don't understand them. As it effects our reputation and legitimacy, we have taken the decision to get rid of them. It may take time but that's what we have decided to do. "We need to make sure we explain our financial structures and are transparent. We demonstrated we are resilient in AMP6 and going into AMP7 we need to show we are resilient going into a lower returns environment." Discussing the sector's reputation, Barber said: "It does a great deal of good, but oen forgets to tell people about it." KP ELECTRICITY Offshore wind costs 'have further to fall' Offshore wind costs have further to fall below the headline- grabbing strike prices achieved in the latest contracts for differ- ence (CfD) auction, a senior fig- ure at Dong Energy has claimed. The sector will continue to reduce costs substantially through learning and economies of scale, said managing director for Dong Energy UK Matthew Wright. Speaking at the annual conference of the industry trade association Energy UK, Wright told the audience that although many people had been surprised by the low strike prices, they probably shouldn't have been because "what we've seen is the application of economic theory – experience curve effects and economies of scale". See interview, p6 WATER Credit quality will face more scrutiny Water companies are likely to see their credit quality come under increased pressure from 2020 aer Ofwat's PR19 price review, according to research published by ratings agency Moody's. Analysts at Moody's expect "a cut in allowed returns coupled with more stringent efficiency requirements, to exert pressure on most companies". The price review comes into effect from April 2020. Stefanie Voelz, vice presi- dent, senior credit officer at Moody's, said: "Most UK com- panies will come under pres- sure from the expected cut in allowed returns and stricter cost efficiency requirements under PR19, requiring them to look at potentially cutting dividends and other measures to bolster balance sheet strength." The research suggests returns will fall despite a switch to par- tial Consumer Prices Index (CPI) inflation. Moody's calculates returns could be cut by around 100 basis points (bps) from the current 3.6 per cent wholesale return, on a like-for-like basis. ENERGY CBI calls for 'clear' CfD pipeline The CBI has called for a "clear and regular" contracts for differ- ence (CfD) pipeline, as part of its Budget submission. It said such a pipeline would help support low-carbon invest- ment in the UK, and it also called for carbon price support to be frozen until 2022. The group's Budget submis- sion also calls on ministers to establish an industrial energy efficiency scheme in consulta- tion with the private sector "as soon as practically possible". Cayman Islands: offshore haven Stock watch 8.0 7.0 6.0 5.0 4.0 ECX EMISSIONS (ICE), ONE MONTH, €/TONNE Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct ECX EMISSIONS (ICE), ONE YEAR, €/TONNE Growing confidence over reforms to the EU Emissions Trading System has bolstered the European carbon price by approximately 40 per cent over the past few months to around €8 per tonne, according to investment firm Jefferies. Analysts expect the price to rise by a further 25 per cent as the changes are finalised, adding €2-3/MWh to French power prices and boosting EDF's earnings per share by 15 per cent in 2018/19. 7.8 7.6 7.4 7.2 7.0 6.8 Finance & Investment 27 SEPT 1 OCT 11 OCT 23 OCT

• Cover