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Bazalgette Tunnel will deliver the Thames Tideway project at a lower cost of capital than expected as part of its Ofwat-mandated licence to deliver the £4.2 billion super sewer.
The 2.497 per cent cost of capital figure was reached following a new approach by the regulator which set the amount through competitive tendering.
This market testing of the cost of capital revealed “the efficient cost of managing this project” and has resulted in “significant savings”.
Previous worst case scenarios for the impact of the tunnel on customer bills was up to £80 per year, but this is now expected to be around £20 to £25 per year by the mid-2020s as a result of the lower than expected cost of capital.
Ofwat chief executive Cathryn Ross said: “Once the tunnel had been confirmed as the best solution to the problem of sewage in the Thames, our job at Ofwat was to work with government and the project to make sure that Thames Water’s customers got a fair deal.
“It is important they have trust and confidence that everything possible is being done to keep costs down and make sure it will be delivered on time with the benefit of a much cleaner Thames.
“There’s a long way to go, but our work has provided good foundations to make sure customers are protected.”
She added: “Going out for competition on the construction and financing costs of the tunnel has resulted in significant savings, and we are keen to explore whether this could work for other big projects in the water sector.”
The cost of capital also means Thames Water will be able to keep its bills at £370 before inflation until 2020.
Thames Water chief executive Martin Baggs said that “cheaper finance and other efficiencies mean that this hugely important piece of national infrastructure can be built while keeping our bills at or around their current level, before inflation, for at least the next five years.”
Bazalgette Tunnel is backed by pension funds and other long-term investors represented by Allianz, Amber Infrastructure Group, Dalmore Capital Limited and DIF.
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