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UTILITY CAPITAL EXPENDITURE - UK - DECEMBER 2017

Published By :

Mintel

Published Date : Dec 2017

Category :

Manufacturing

No. of Pages : N/A

The business environment is in transition across the utility sectors, with the industry challenged by a changing regulatory environment, climate change, security of supply and uncertainties regarding future network requirements. These factors also influence the industrys approach to capital expenditure.
Infrastructure investment will continue to be a key focus across the utility sectors, driven both by the need to replace old assets and new capacity requirements on networks. However, approaches to investment are now shifting across sectors due to changes in the regulatory environment, including increased pressure to reduce costs for consumers while ensuring security of supply. There is a focus on innovation, efficiencies and long-term outcomes in infrastructure management and investment, replacing the short-term outputs and capital expenditure preferred in the past. The scope for traditional infrastructure investment may be limited, but there will be more opportunities for companies that can provide innovative solutions for efficient network and asset management.

Table of contents
EXECUTIVE SUMMARY
The market
Water & sewerage sector
Figure 1: UK capital expenditure on water and sewerage services, 2015/16-2016/17
Electricity transmission & distribution industry
Figure 2: Forecast network investment of the electricity distribution network operators in Great Britain, 2015/16-2022/23
Figure 3: Capital expenditure by the electricity transmission industry in Great Britain, 2012/13-2016/17
Gas transmission & distribution industry
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
Will the UKs decision to leave the EU affect the countrys 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
Definitions
Water & sewerage
Electricity transmission
Electricity distribution
Gas distribution
Gas transmission
Methodology
Abbreviations
MARKET POSITIONING
Customers
Suppliers
Market factors
UK ECONOMY
Overview
Figure 5: Forecast GDP development 2017-21
Figure 6: UK GDP quarterly development, 2004-17
Inflation
Interest rates
House prices
Figure 7: UK house price changes, 2006-17
Consumer spending
Manufacturing
Figure 8: UK manufacturing, 2014-17
Business investment
Figure 9: UK GFCF, chained volume measures, seasonally adjusted, 2004-17
Imports
Exports
WATER & SEWERAGE INDUSTRY MARKET FACTORS
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
Key points
Total capital expenditure
Figure 10: UK capital expenditure on water and sewerage services, 2010/11-2014/15
Figure 11: UK capital expenditure on water and sewerage services, 2015/16-2016/17
Sewerage-related capital expenditure
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
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
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
Figure 17: Analysis of water capital expenditure in England and Wales by water and sewerage companies, by type, 2015/16-2016/17
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
Figure 19: Analysis of Scottish Water capital expenditure on water and sewerage services, 2012/13-2016/17
Northern Ireland capital expenditure
Figure 20: Analysis of Northern Ireland water capital expenditure on water and sewerage services, 2012/13-2016/17
WATER & SEWERAGE FUTURE CAPITAL EXPENDITURE
Key points
Future challenges facing the water and sewerage sector
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
Figure 22: Total expenditure (totex) allowance for AMP6 in England & Wales, by water & sewerage company, 2015/16-2019/20
Thames Tideway Tunnel
Figure 23: Estimated cost of Thames Tideway Tunnel, 2015/16-2021/22+
Scotland Investment Programme 2015-21
Figure 24: Forecast capital expenditure for Scottish Water, 2015/16-2020/21
Northern Ireland Investment Programme 2015/16-2020/21
ELECTRICITY INDUSTRY MARKET FACTORS
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 UKs energy supply
ELECTRICITY DISTRIBUTION CAPITAL EXPENDITURE
Key points
Capital expenditure
Gross capital expenditure
Figure 25: UK gross capital expenditure by electricity distribution network operators, 2011/12-2016/17
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
Figure 28: Distributed generation connected to the distribution network during DPCR5, 2011-15
Figure 29: Distributed generation connected to the distribution network, 2015/16
ELECTRICITY DISTRIBUTION FUTURE CAPITAL EXPENDITURE
Key points
New price control framework based on Revenue = Incentives + Innovation + Outputs effective from April 2015
Forecast total expenditure
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
Figure 31: Total expenditure forecast for RIIO-ED1 in Great Britain, by company, 2015/16-2022/23
Figure 32: Forecast network investment of the electricity distribution network operators in Great Britain, by company, 2015/16-2022/23
ELECTRICITY TRANSMISSION CAPITAL EXPENDITURE
Key points
Capital expenditure
Figure 33: Size of electricity transmission network in Great Britain, 2017
Figure 34: Capital expenditure by the electricity transmission industry in Great Britain, 2012/13-2016/17
Figure 35: Capital expenditure by the electricity transmission industry in Great Britain, 2012/13-2016/17
ELECTRICITY TRANSMISSION FUTURE CAPITAL EXPENDITURE
Key points
New Price Control Period RIIO-T1 2013-21
Figure 36: NGET annual capital expenditure, actual 2014-16 and forecast 2017-21
Figure 37: SHET annual capital expenditure, actual 2014-17 and forecast 2018-21
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
Figure 39: Renewables capacity development pipeline, as of September 2017
Future potential energy mix
Renewables
Nuclear
Thermal plants
Interconnectors
Figure 40: Forecast power generation installed capacity under slow progression scenario, by source, 2017-42
Figure 41: Forecast power generation installed capacity under two degrees scenario, by source, 2017-42
Figure 42: Forecast power generation installed capacity under steady state scenario, by source, 2017-42
Figure 43: Forecast power generation installed capacity under consumer power scenario, by source, 2017-42
Figure 44: Future potential energy mix in 2037, by scenario
Despite Brexit uncertainty, interconnector capacity between Britain and Europe is set to increase
Figure 45: Existing and planned interconnectors, as of June 2017
GAS INDUSTRY MARKET FACTORS
Key points
Social factors
Economic factors
The UKs increased reliance on gas imports
Government push for shale gas exploration to reduce reliance on imports
Wholesale gas prices
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
Key points
The market 2013-17
Figure 47: Total gas transmission and distribution capital expenditure, 2012/13-2016/17
Figure 48: Total gas transmission capital expenditure, 2012/13-16/17
Figure 49: Total gas distribution capital expenditure, 2012/13-2016/17
Figure 50: Total gas transmission and distribution capital expenditure, 2012/13-2016/17
Replacement expenditure (Repex)
Figure 51: Length of iron gas mains replaced, by distribution network operator, 2011-16
GAS FUTURE CAPITAL EXPENDITURE
Key points
Overview
Figure 52: Ofgems 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
Figure 53: Annual capital expenditure plans by National Grid Gas under RIIO-T1, by category, 2014-21
Distribution network
Figure 54: Annual capex plans under RIIO-GD1, by GDN, 2014-21
Figure 55: Annual repex plans under RIIO-GD1, by GDN, 2014-21
Figure 56: Forecast total capex and repex during RIIO-GD1, 2013/14-2020/21
SUPPLY INDUSTRY STRUCTURE
Key points
Companies
AMEC FOSTER WHEELER
Transformation programme sees Amec Foster Wheeler sell non-core assets
Amec Foster Wheeler acquired by Wood Group in October 2017
Company outlook:
Figure 57: Financial analysis of AMEC Foster Wheeler, 2012-16
BALFOUR BEATTY
Build to Last transformation programme launched in 2015
Figure 58: Financial analysis of Balfour Beatty, 2012-16
Figure 59: Financial analysis of Balfour Beatty by segment, 2015-16
KELLOGG BROWN & ROOT HOLDINGS
Company strategy:
Figure 60: Financial analysis of Kellogg Brown & Root Holdings, 2012-16
THE COSTAIN GROUP
Company strategy and performance
Figure 61: Financial analysis of Costain Group, 2012-16
Figure 62: Turnover analysis of Costain Group, by division, 2014-16
LAING OROURKE
Strategic review 2015-16
Company performance and outlook
Figure 63: Financial analysis of Laing ORourke, 2012-16
MORRISON UTILITY SERVICES
Company performance:
Figure 64: Financial analysis of Morrison Utility Services, 2012-16
MCNICHOLAS CONSTRUCTION HOLDINGS
Kier acquires McNicholas Construction (Holdings)
Company performance:
Figure 65: Financial analysis of McNicholas Construction (Holdings), 2012-16
FOREFRONT UTILITIES
Figure 66: Financial analysis of Forefront Utilities, 2012-16
FURTHER SOURCES & CONTACTS
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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