Table of Contents
Executive Summary
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- The market
- Water & sewerage sector
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- Figure 1: UK capital expenditure on water and sewerage services, 2015/16-2016/17
- Electricity transmission & distribution industry
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- Figure 2: Forecast network investment of the electricity distribution network operators in Great Britain, 2015/16-2022/23
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- Figure 3: Capital expenditure by the electricity transmission industry in Great Britain, 2012/13-2016/17
- Gas transmission & distribution industry
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- Figure 4: Total gas transmission and distribution capital expenditure, 2012/13-2016/17
- Market factors
- Utility industry regulation
- Legislative factors
- Companies
- What we think
Key Insights
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- Will the UK’s decision to leave the EU affect the country’s renewable energy generation and decarbonisation targets?
- What does the shift towards total expenditure (totex) and long-term outcomes in AMP6 mean for the water and sewerage industry?
- What are the expectations of the regulatory framework for price review 2019 and beyond?
- What challenges does the rapid rise in distributed generation pose for distribution network operators?
Introduction
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- Definitions
- Water & sewerage
- Electricity transmission
- Electricity distribution
- Gas distribution
- Gas transmission
- Methodology
- Abbreviations
Market Positioning
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- Customers
- Suppliers
- Market factors
UK Economy
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- Overview
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- Figure 5: Forecast GDP development 2017-21
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- Figure 6: UK GDP quarterly development, 2004-17
- Inflation
- Interest rates
- House prices
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- Figure 7: UK house price changes, 2006-17
- Consumer spending
- Manufacturing
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- Figure 8: UK manufacturing, 2014-17
- Business investment
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- Figure 9: UK GFCF, chained volume measures, seasonally adjusted, 2004-17
- Imports
- Exports
Water & Sewerage Industry Market Factors
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- Key points
- Industry regulation
- Legislative environment
- European Water Framework Directive (WFD)
- Urban Waste Water Treatment Directive (UWWTD)
- The Drinking Water Directive
- Revised Bathing Water Directive
- Implications of Brexit on the UK water and sewerage sector
- Transfer of private sewers in England and Wales
- The Flood and Water Management Act 2010
- Water and sewerage retail competition opens up for all business customers in England in April 2017
- No government decision yet to open up household retail market to competition
Water & Sewerage Capital Expenditure
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- Key points
- Total capital expenditure
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- Figure 10: UK capital expenditure on water and sewerage services, 2010/11-2014/15
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- Figure 11: UK capital expenditure on water and sewerage services, 2015/16-2016/17
- Sewerage-related capital expenditure
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- Figure 12: Analysis of sewerage-related capital expenditure, by water and sewerage companies in England and Wales, 2010/11-2014/15
- Figure 13: Analysis of sewerage-related capital expenditure, by water and sewerage companies in England and Wales, 2015/16-2016/17
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- Figure 14: Analysis of sewerage capital expenditure in England and Wales by water and sewerage companies, by type, 2015/16-2016/17
- Water-related capital expenditure
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- Figure 15: Analysis of water-related capital expenditure, by water and sewerage companies in England and Wales, 2010/11-2014/15
- Figure 16: Analysis of water-related capital expenditure, by water and sewerage companies in England and Wales, 2015/16-2016/17
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- Figure 17: Analysis of water capital expenditure in England and Wales by water and sewerage companies, by type, 2015/16-2016/17
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- Figure 18: Analysis of water capital expenditure in England and Wales by water only companies, by type, 2015/16-2016/17
- Scottish water capital expenditure
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- Figure 19: Analysis of Scottish Water capital expenditure on water and sewerage services, 2012/13-2016/17
- Northern Ireland capital expenditure
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- Figure 20: Analysis of Northern Ireland water capital expenditure on water and sewerage services, 2012/13-2016/17
Water & Sewerage Future Capital Expenditure
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- Key points
- Future challenges facing the water and sewerage sector
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- Figure 21: UK population, by region, 2014-36
- Expectations of regulatory framework for price review 2019 and beyond
- Opening up of non-household retail market in England to provide new opportunities for water and sewerage companies
- Forecast capital expenditure
- England & Wales - AMP6 2015-20
- Move towards long-term alliances and frameworks across industry
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- Figure 22: Total expenditure (totex) allowance for AMP6 in England & Wales, by water & sewerage company, 2015/16-2019/20
- Thames Tideway Tunnel
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- Figure 23: Estimated cost of Thames Tideway Tunnel, 2015/16-2021/22+
- Scotland Investment Programme 2015-21
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- Figure 24: Forecast capital expenditure for Scottish Water, 2015/16-2020/21
- Northern Ireland Investment Programme 2015/16-2020/21
Electricity Industry Market Factors
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- Key points
- Electricity industry market factors
- Price controls
- UK energy policy
- UK committed to reducing carbon emissions by 80% below 1990 levels by 2050
- The government remains committed to tackling climate change despite Brexit vote
- New government policies urgently needed to achieve long-term emission reduction goals
- Government publishes long-awaited Clean Growth Plan in October 2017
- Levy Control Framework
- Renewable Energy Obligation (RO)
- Feed-in-Tariffs (FITs)
- Government commits to fresh FIT review before end of 2017
- The Renewable Heat Incentive
- Contracts for Difference (CfDs)
- First CfD auction concludes in February 2015
- Second CfD auction winning bids dominated by offshore wind, which has seen a dramatic fall in costs
- Next CFD auction scheduled for Spring 2019
- Annual Capacity Market auctions are held to help secure the UK’s energy supply
Electricity Distribution Capital Expenditure
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- Key points
- Capital expenditure
- Gross capital expenditure
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- Figure 25: UK gross capital expenditure by electricity distribution network operators, 2011/12-2016/17
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- Figure 26: UK gross capital expenditure by the electricity distribution network operators, 2012/13-2016/17
- Figure 27: Total expenditure by electricity distribution network operators in Great Britain, by type, 2015/16
- Smart grid development to support low-carbon economy
- Recent years have seen rapid increase in distributed generation connected to DNOs’ networks
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- Figure 28: Distributed generation connected to the distribution network during DPCR5, 2011-15
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- Figure 29: Distributed generation connected to the distribution network, 2015/16
Electricity Distribution Future Capital Expenditure
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- Key points
- New price control framework based on Revenue = Incentives + Innovation + Outputs effective from April 2015
- Forecast total expenditure
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- Figure 30: Actual total expenditure in 2015/16, totex allowance and forecasts for RIIO-ED1, by company
- Ofgem slashes £200 million from RIIO-ED1 DNO spending allowances in September 2017
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- Figure 31: Total expenditure forecast for RIIO-ED1 in Great Britain, by company, 2015/16-2022/23
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- Figure 32: Forecast network investment of the electricity distribution network operators in Great Britain, by company, 2015/16-2022/23
Electricity Transmission Capital Expenditure
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- Key points
- Capital expenditure
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- Figure 33: Size of electricity transmission network in Great Britain, 2017
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- Figure 34: Capital expenditure by the electricity transmission industry in Great Britain, 2012/13-2016/17
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- Figure 35: Capital expenditure by the electricity transmission industry in Great Britain, 2012/13-2016/17
Electricity Transmission Future Capital Expenditure
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- Key points
- New Price Control Period RIIO-T1 2013-21
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- Figure 36: NGET annual capital expenditure, actual 2014-16 and forecast 2017-21
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- Figure 37: SHET annual capital expenditure, actual 2014-17 and forecast 2018-21
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- Figure 38: SPTL annual capital expenditure, actual 2014-17 and forecast 2018-21
- Drivers for future capital investment
- Tentative signs of investor confidence returning in the UK renewables sector
- Energy storage to play key role in transition to clean electricity supply system
- Renewables capacity development pipeline
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- Figure 39: Renewables capacity development pipeline, as of September 2017
- Future potential energy mix
- Renewables
- Nuclear
- Thermal plants
- Interconnectors
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- Figure 40: Forecast power generation installed capacity under “slow progression” scenario, by source, 2017-42
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- Figure 41: Forecast power generation installed capacity under “two degrees” scenario, by source, 2017-42
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- Figure 42: Forecast power generation installed capacity under “steady state” scenario, by source, 2017-42
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- Figure 43: Forecast power generation installed capacity under “consumer power” scenario, by source, 2017-42
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- Figure 44: Future potential energy mix in 2037, by scenario
- Despite Brexit uncertainty, interconnector capacity between Britain and Europe is set to increase
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- Figure 45: Existing and planned interconnectors, as of June 2017
Gas Industry Market Factors
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- Key points
- Social factors
- Economic factors
- The UK’s increased reliance on gas imports
- Government push for shale gas exploration to reduce reliance on imports
- Wholesale gas prices
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- Figure 46: Average wholesale gas prices, 2006-17
- Industry structure and regulatory factors
- National Grid sells majority stake in its remaining four gas distribution networks in 2017
- Roles of distribution networks
- Ofgem regulates gas network operators via price controls
- Environmental and legislative factors
Gas Capital Expenditure
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- Key points
- The market 2013-17
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- Figure 47: Total gas transmission and distribution capital expenditure, 2012/13-2016/17
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- Figure 48: Total gas transmission capital expenditure, 2012/13-16/17
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- Figure 49: Total gas distribution capital expenditure, 2012/13-2016/17
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- Figure 50: Total gas transmission and distribution capital expenditure, 2012/13-2016/17
- Replacement expenditure (Repex)
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- Figure 51: Length of iron gas mains replaced, by distribution network operator, 2011-16
Gas Future Capital Expenditure
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- Key points
- Overview
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- Figure 52: Ofgem’s required expansion of the number of properties to alleviate fuel poverty, 2013-21
- Innovation at centre of new price control model for gas distribution and transmission network
- Gas network operators to face tougher price controls from 2021
- Transmission network
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- Figure 53: Annual capital expenditure plans by National Grid Gas under RIIO-T1, by category, 2014-21
- Distribution network
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- Figure 54: Annual capex plans under RIIO-GD1, by GDN, 2014-21
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- Figure 55: Annual repex plans under RIIO-GD1, by GDN, 2014-21
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- Figure 56: Forecast total capex and repex during RIIO-GD1, 2013/14-2020/21
Supply Industry Structure
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- Key points
- Companies
AMEC Foster Wheeler
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- Transformation programme sees Amec Foster Wheeler sell non-core assets
- Amec Foster Wheeler acquired by Wood Group in October 2017
- Company outlook:
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- Figure 57: Financial analysis of AMEC Foster Wheeler, 2012-16
Balfour Beatty
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- Build to Last transformation programme launched in 2015
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- Figure 58: Financial analysis of Balfour Beatty, 2012-16
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- Figure 59: Financial analysis of Balfour Beatty by segment, 2015-16
Kellogg Brown & Root Holdings
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- Company strategy:
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- Figure 60: Financial analysis of Kellogg Brown & Root Holdings, 2012-16
The Costain Group
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- Company strategy and performance
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- Figure 61: Financial analysis of Costain Group, 2012-16
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- Figure 62: Turnover analysis of Costain Group, by division, 2014-16
Laing O’Rourke
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- Strategic review 2015-16
- Company performance and outlook
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- Figure 63: Financial analysis of Laing O’Rourke, 2012-16
Morrison Utility Services
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- Company performance:
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- Figure 64: Financial analysis of Morrison Utility Services, 2012-16
McNicholas Construction Holdings
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- Kier acquires McNicholas Construction (Holdings)
- Company performance:
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- Figure 65: Financial analysis of McNicholas Construction (Holdings), 2012-16
Forefront Utilities
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- Figure 66: Financial analysis of Forefront Utilities, 2012-16
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Further Sources & Contacts
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- Trade associations & regulatory bodies
- Energy UK
- Energy Networks Association
- Energy Industries Council
- Office of Gas and Electricity Markets (Ofgem)
- Office of Gas and Electricity Markets - Scotland (Ofgem Scotland)
- Office of Gas and Electricity Markets - Wales (Ofgem Wales)
- Association of Consulting Engineers
- British Water
- Chartered Institution of Water & Environmental Management
- International Water Association
- OFWAT
- Street Works UK
- Trade magazines
- The Engineer
- European Process Engineer
- Plant and Works Engineering
- Utility Week
- Trade exhibitions
- Utility Week Live 2018
- edie live 2018
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