Squaring the circle of bills and investment

What happens when an irresistible force meets an immovable object? That question is top of mind for politicians, regulators and utilities this autumn as they attempt to reconcile the affordability agenda with the overriding need for investment to secure sustainable, long-term energy and water supplies.

There are four different answers posited by the events of this week:
1. First, there’s the view expressed by Environment Agency chief executive Paul Leinster, who spoke at last week’s Utility Week Congress and is interviewed on page 8. Asked how water companies could be expected to continue to invest in sustainable solutions in the face of Ofwat’s agenda to drive down bills in the next price review, he replies that innovative and often small-scale solutions such as catchment management are a better solution than grand projects.
2. Then there’s the implicit answer given by Ofwat itself in its response to Thames Water’s application for a short-term bill hike to cover various costs including the preparation of land for the Thames Tideway Tunnel, a hugely expensive project that the water company and most experts agree is vital to the running of the UK’s capital city in the medium and even perhaps the short term. This will be funded by a complex range of measures, most of which are yet to be agreed. However, Ofwat’s message is clear: if it is a question of customers paying more for infrastructure or shareholders accepting less, the customers must win.
3. Npower joined its big six brethren British Gas and SSE this week with announcement of a 10 per cent hike in bills. This is the energy suppliers’ answer to rising costs – but given its unacceptability to the public and politicians, it will not be the last word.
4. Finally, there’s the solution embodied by the Hinkley Point C deal. A fudge in every possible way, it provides some shelter to politicians who claim it doesn’t represent public subsidy for nuclear; and certainty for investors. Ultimately, the customer will pay, but with EDF Energy and its Chinese backers putting up the funds upfront, that inconvenient truth won’t hit wallets for ten years. And that is how the coalition government reconciles an irresistible force with an immovable object.

Ellen Bennett, Editor
ellen.bennett@fav-house.com