Estimating asset replacement expenditure in the water industry
In summer 2025, we explored the application of a bottom-up approach to assessing asset replacement expenditure needs for six companies – Anglian Water, Northumbrian Water, Southern Water, South East Water, Thames Water, and Wessex Water.
We applied the approach developed by the Water Industry Commission for Scotland (WICS), which estimates a sustainable level of asset replacement expenditure, reflecting the cost of replacing assets over the course of their lives and maintaining infinite-life assets in perpetuity.
We found that:
- The results indicate there is a material gap between the sustainable level of asset replacement expenditure and current allowances.
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While further work should be undertaken to refine our approach and the underlying data if it were to inform the future regulatory model, the scale of gap suggests greater asset health expenditure would be ‘no-regrets’.
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The approach provides valuable information for the future regulatory model and can be implemented with available data.
