thames water business plan pr24

Thames Water’s new business plan could see bills rise by over 40 per cent by 2030

By: Rhodri Morgan

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Thames Water said this morning it would boost its spending plan, as submitted to the water regulator Ofwat, by £1.1bn following consultations with stakeholders.

In a statement delayed from last week until today, the company said that its now updated PR24 business plan, which is set to cover the 2025-2030 regulatory period (known as AMP8), had been submitted to the industry regulator.

The company said the new plan would result in total capital spending for the period of £19.8bn, which will be “directed to projects benefitting the environment.”

According to the company, these projects would include: “Maintaining safe high quality drinking water, ensuring security of water supplies, delivering further environmental improvements, and building greater network resilience to address an ageing asset base, climate change and population growth.”

Thames Water is the last of all the water and sewage companies to submit its plan for the period, which the regulator requires under a five-year price review process known as PR24.

Ofwat is due to announce its draft decision on the plans in June, with a final determination coming at the end of this year.

Despite the hike in spending, the company said there would likely be no impact on consumer bills outside of its already submitted plan. According to its projections, average consumer bills are expected to rise to £608 by 2030, excluding inflation.

These figures exclude inflation budgeted at two per cent for the regulatory period. After inflation is included, bills could rise by over 40 per cent by 2030.

Thames Water suggested bill profile for AMP 8 (2025-2030)

Thames will continue to look for opportunities to deliver more investment in AMP8 and has proposed that a further £1.9bn of potential investment be placed into a so-called “Deliverability Assessment Mechanism”.

The new business plan suggests that if Thames were to invest the full £1.9bn in AMP8, then annual average customer bills would increase further by £19 over that period.

Chris Weston, chief executive of Thames Water, said: “Our business plan focuses on our customers’ priorities. As part of the usual ongoing discussions relating to PR24, we’ve now updated it to deliver more projects that will benefit the environment. We will continue to discuss this with our regulators and stakeholders.”

The embattled water firm has been in the eye of the storm over its mounting debt pile and the financial health of its parent company, Kemble Water Holdings.

Nationalisation fears have gathered increasing momentum throughout 2024, reaching a pitch last week when a secret plan to nationalise the firm and move billions of pounds of its debt onto government books was reported in the Guardian .

Thames Water has been contacted for comment.

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Thames water plans £18.7b investment to turnaround performance.

About the entity

Thames Water Utilities Finance plc announces that Thames Water has submitted its business plan for 2025-30 to Ofwat as part of Price Review 2024 (PR24) following consultations with nearly 20,000 customers, the communities in which it operates and its wider stakeholders.

Cathryn Ross and Alastair Cochran, Interim Co-CEOs of Thames Water said: ";Our ambitious plan delivers what our customers have told us are their top priorities. We plan £18.7 billion total expenditure - including a record £4.7bn investment in our network and other assets - to maintain safe high quality drinking water, to ensure security of water supplies across London and the Thames Valley now and in the future, and to deliver further environmental improvements. Our plan prioritises storm overflows, bathing water status and reducing leaks and pollutions. In parallel, we will do more than ever to support customers by introducing an improved social tariff for those who struggle to pay their bills."

Our plan will deliver a reliable, secure and affordable service for customers by:

• Preserving a reliable supply of water, with minimal disruption
• Replacing 500km of ageing water mains
• Maintaining safe, high-quality drinking water by replacing 54,000 lead pipes
• Upgrading 150km of sewers to lower the risk of sewer collapses
• Reducing the number of times sewage floods into properties by 17% as well as all other external sewer floods by 14%
• Providing over 530,000 households meaningful support with their water bills
• Resolving more billing and operational issues within 24 hours by improving digital infrastructure, allowing customers to resolve more issues online

Our plan will create more jobs and enhance biodiversity for communities by:

• Hiring more local people by increasing the number of T-levels, summer internships and apprenticeships
• Investing £12 million in improving land to boost biodiversity

Our plan will further materially improve Thames Water’s environmental footprint by:

• Reducing storm overflows by 28%
• Reducing blockages caused by sewer misuse by 15%
• Reducing the total number of pollution incidents by 30%
• Opening the Thames Tideway Tunnel, London’s “super sewer”, the third phase of improvements that will increase the health of the river by reducing combined sewer overflows by c.95
• Investing to improve the bathing water quality at Wolvercote Mill Stream
• Spending over £2.5bn to deliver a 22% reduction in leakage
• Reducing water use per person by 5.5%
• Continuing our industry leading roll out of 1 million smart meters to make it easier for customers to save money and find leaks
• Ensuring water security for this and future generations, including consulting and planning for a reservoir near Abingdon
• Replacing assets that come to the end of their life with carbon neutral alternatives

Our plan is financeable by:

• Delivering an £18.7 billion totex programme to maintain safe high quality drinking water, ensure security of water supplies and deliver further environmental improvements
• Offering sufficient returns for further shareholder funding of £3.25 billion in AMP7 and AMP8, in addition to £0.5 billion received in March 2023
• Proposing a Weighted Average Cost of Capital of 4.25% (real)
• Delivering c.30% real RCV growth over AMP8
• Targeting BBB+/Baa1 investment grade credit ratios
• Reducing average gearing to 71% and strengthening post maintenance interest cover ratio to 2.1x
• Assuming no dividends are paid to our external shareholders during AMP8

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Thames Water plans record investment

2 Oct 2023 12:58

Thames Water plans record investment to turnaround performance for customers, communities and the environment

2 October 2023

Thames Water Utilities Finance plc announces that Thames Water has submitted its business plan for 2025-30 to Ofwat as part of Price Review 2024 (PR24) following consultations with nearly 20,000 customers, the communities in which it operates and its wider stakeholders.

Cathryn Ross and Alastair Cochran, Interim Co-CEOs of Thames Water said:

"Our ambitious plan delivers what our customers have told us are their top priorities. We plan £18.7 billion total expenditure - including a record £4.7bn investment in our network and other assets - to maintain safe high quality drinking water, to ensure security of water supplies across London and the Thames Valley now and in the future, and to deliver further environmental improvements. Our plan prioritises storm overflows, bathing water status and reducing leaks and pollutions. In parallel, we will do more than ever to support customers by introducing an improved social tariff for those who struggle to pay their bills."

Our plan will deliver a reliable, secure and affordable service for customers by:

-    Preserving a reliable supply of water, with minimal disruption

-    Replacing 500km of ageing water mains

-    Maintaining safe, high-quality drinking water by replacing 54,000 lead pipes

-    Upgrading 150km of sewers to lower the risk of sewer collapses

-     Reducing the number of times sewage floods into properties by 17% as well as all other external sewer floods by 14%

-     Providing over 530,000 households meaningful support with their water bills

-     Resolving more billing and operational issues within 24 hours by improving digital infrastructure, allowing customers to resolve more issues online

Our plan will create more jobs and enhance biodiversity for communities by:

-    Hiring more local people by increasing the number of T-levels, summer internships and apprenticeships

-    Investing £12 million in improving land to boost biodiversity

Our plan will further materially improve Thames Water's environmental footprint by:

-     Reducing storm overflows by 28%

-     Reducing blockages caused by sewer misuse by 15%

-     Reducing the total number of pollution incidents by 30%

-     Opening the Thames Tideway Tunnel, London's "super sewer", the third phase of improvements that will increase the health of the river by reducing combined sewer overflows by c.95%

-     Investing to improve the bathing water quality at Wolvercote Mill Stream

-     Spending over £2.5bn to deliver a 22% reduction in leakage

-     Reducing water use per person by 5.5%

-     Continu ing our industry leading roll out of 1 million smart meters to make it easier for customers to save money and find leaks

-     Ensuring water security for this and future generations, including consulting and planning for a reservoir near Abingdon

-     Replacing assets that come to the end of their life with carbon neutral alternatives

Our plan is financeable by:

-     Delivering an £18.7 billion totex programme to maintain safe high quality drinking water, ensure security of water supplies and deliver further environmental improvements

-     Offering sufficient returns for further shareholder funding of £3.25 billion in AMP7 and AMP8, in addition to £0.5 billion received in March 2023

-     Proposing a Weighted Average Cost of Capital of 4.25% (real)

-     Delivering c.30% real RCV growth over AMP8

-     Targeting BBB+/Baa1 investment grade credit ratios

-     Reducing average gearing to 71% and strengthening post maintenance interest cover ratio to 2.1x

-     Assuming no dividends are paid to our external shareholders during AMP8

Interim Co-CEO's Statement

We and our shareholders are fully committed to deliver a step change in investment and performance. That is why, between 2025 and 2030, our plan proposes to invest a record £4.7bn in our network and other assets, which will improve water security for our customers in London and the Thames Valley and deliver environmental improvements. This investment is critical to building greater resilience in the face of an ageing asset base, climate change and population growth.  In doing so, we will more than double current levels of investment.

For over three decades Thames Water's bills have been below the industry average, despite us having the oldest network. And they are no higher today than a decade ago. To deliver water security and environmental improvements, our bills will need to rise but also be affordable. 

We are all too aware that we are asking customers to pay more at a time when many are already facing financial pressure from household bills rising across the board, but it is now vital to fund future investment. We will therefore do more than ever to support customers who struggle to pay their bills and our plan proposes to provide over 530,000 households with meaningful support with their water bills.

We also have choices about exactly how we recover the costs of providing life's essential service over the next period. If we were to adopt a 'rise and flat' bill profile during 2025-2030, the average monthly bill will rise by £14.55. Alternatively, we could introduce lower bill increases at the start of the next price control period, but this would mean steeper rises over time. We are looking forward to discussing the right bill profile for our customers further in the coming months.

We are committed to doing our best to ensure that customers do not pay more than they need to for this vital investment by becoming a more agile, efficient, and responsive company. We will also make sure we deliver performance improvements in the areas that matter most to our customers. Our refocused, prioritised three-year turnaround plan will build on what we have achieved over the last two years and take us into the next period. It will deliver a turnaround in performance and a more resilient Thames Water.

Our shareholders are stepping up to support this much needed investment, underscoring their commitment to delivering Thames' turnaround and life's essential service for the benefit of our customers, communities and the environment. Shareholders have already invested £500 million of new funds in 2023. In addition, they have agreed to provide a further £750 million in new equity funding across AMP7. This further funding is subject to satisfaction of certain conditions, including the preparation of a business plan that underpins a more focused turnaround that delivers targeted performance improvements for customers, the environment and other stakeholders over the next three years and is supported by appropriate regulatory arrangements. Our shareholders have also acknowledged the need for additional equity investments indicatively in the region of £2.5 billion in AMP8. In aggregate, this would equate to total equity investment of £3.75 billion, the largest equity support package ever proposed in the UK water sector.     

We will be hosting 'Your water, your say' meetings for customers and other stakeholders in the coming months to gather feedback on our plan. However, we simply cannot deliver everything that our customers and stakeholders would like to see between now and 2030. Our plan reflects the difficult choices we have had to make. We take delivering our obligations very seriously. We also need to deliver performance improvements in those areas that matter most to our customers and stakeholders, whilst continuing to deliver our turnaround and ensuring our infrastructure is more resilient for the future. 

We have had constructive discussions prior to submission with our regulators on the scope of both our plan and proposed regulatory arrangements, which include the scale of log-up to CPIH-real RCV for totex overspend in AMP7, allowed totex relative to actual spending in AMP8, and the maximum level of penalties that we can incur under Ofwat's Outcome Delivery Incentive regime. We are looking forward to continuing these discussions - which could influence the scope of our plan, the bill impact and bill profile - and securing a price control that, in the round, allows us to both deliver record levels of investment for the benefit of the customers, communities and environment we serve, and offer investors an opportunity to earn the returns required to finance it.

The link to a summary for customers of Thames Water's plan can be found here https://www.thameswater.co.uk/about-us/regulation/our-five-year-plan . Investors should read this summary in conjunction with the full plan to be published by Thames Water.

For investor enquiries please contact

David Gregg - Director of Corporate Finance

Sarah Davies - Head of Investor Relations

[email protected]

For media enquiries please contact   Suvra Jans

Head of Media Relations

07747 640 810

[email protected]

About Thames Water      

Thames Water is the UK's biggest water and wastewater services provider. Thames Water's key workers provide essential services around the clock to 15 million customers   across London, the Thames   Valley,   and surrounding areas.       

Thames Water provides 2.7 billion litres of drinking water and safely removes 4.6 billion litres of wastewater every day.      

Thames Water invested £1.8 billion in 2022/23, and Thames Water will continue to spend wisely on improving resilience,   service,   and efficiency, as well as provide more support for customers in vulnerable circumstances.   Thames Water also has additional responsibilities to society and the natural environment. What Thames Water does and how it does it delivers significant public value, which is why Thames Water has ambitious plans to self-generate more of its own power, reduce its carbon emissions and increase biodiversity across its sites.

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UK Water Sector PR24 Business Plan

Joe Roebuck, Business Lead for Resilience and Places, gives his views on how Arcadis have helped support the recently submitted PR24 business plan submissions in the UK Water sector.

Water companies across the UK have asked for a record breaking £96 billion of investment to reduce pollution, secure our future water supplies and ensure the network doesn’t store up problems for future generations.

At Arcadis we are proud that our decision support tools have supported the draft business plans and long-term delivery strategies for six UK water companies, including Severn Trent Water, Yorkshire Water, Wessex Water, South West Water, Northumbrian Water and Portsmouth Water. A further three companies, Southern Water, Thames Water and Affinity Water have benefited from our advisory and assurance teams in production of their plans.

Our technology solutions have helped produce an evidence-based approach to long term planning, ensuring optimal investment choices are made to maximise value to customers. Stretching performance commitments around pollution, leakage and asset health require historic levels of investment. With an increase in customer bills, starting at £7 per month in 2025 and raising to £13 per month by 2030; the ongoing use of innovative analytics and optimisation technology to ensure this is value for money to customers will be critical going into AMP8.

Below is an example excerpt from the Severn Trent Water business plan, describing how an Arcadis solution was utilised to understand the impact of uncertainty on their investment choices, both in terms of individual schemes and future world scenarios.

The low regrets analysis gives a combined frequency that each option is selected across 100 iterations (of varying option cost, benefit, and delivery time) of the eight scenarios. Figure 3.6 below shows (the) total frequency schemes are selected and how this is spread over time.

This information is used to identify our no regrets investments, i.e. that which is needed in both benign and adverse scenarios, across a wide range of plausible scenarios, or to meet near-term requirements at water resource zone level.

Arcadis look forward to helping the UK water companies with their challenges going into AMP8, such as reducing pollution, maximising the effectiveness of the supply chain as it strives to deliver the biggest programme on record and ensuring resilient water supplies in the face of a rapidly changing climate. We are dedicated to bringing innovative solutions, which combine deep asset knowledge with technology proven time and again in regulatory submissions to help the water companies meet their performance commitments, safeguarding a sustainable network for generations to come.

Joe Roebuck ,

Global Analytics Leader

With over 20 years experience in the water, energy and transport sectors, Joe intends to keep pushing the envelope so sectors, particularly water, can make the best use of their data and analytics to meet current and future demands.

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Home > Publications > Overview of Thames Water’s PR24 draft determination

Overview of Thames Water's PR24 draft determination

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11th July, 2024

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