Infrastructure update: How prepared is the water industry for its biggest ever investment programme?

01 / Introduction

The arrival of much larger water bills in April 2026 will signal the start of AMP8, the water industry’s asset management programme for 2025 to 2030, aimed at improving water network and catchment performance and resilience while reducing environmental impacts.

In all, total capital and operational expenditure (totex) on water networks in England and Wales to 2030 is planned to total £104bn before adjustments for inflation and so on, representing a 71% increase in spend. Most of this upward leap comes from a fourfold rise in enhancement investment to £44bn.

On paper, the increase in spend is huge. However, Ofwat the regulator, cut £7bn from business plan submissions. This means that the level of planned investment is likely to be the minimum required to meet binding statutory requirements covering environmental improvements, resource management, drinking water quality and emissions management.

None of the problems that AMP8 seeks to solve are unique to the UK. Very few countries invest sufficiently in their water and wastewater networks. The UK, however, is ahead of the curve of its asset management cycle, with a growing proportion of life-expired assets. What happens in AMP8 will provide valuable lessons for operators of ageing water systems in other countries.

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The leap in expenditure comes at a difficult time for the water sector. Affordability concerns require a relentless focus on efficiency, and the Water (Special Measures) Bill is being introduced this year to increase accountability. The independent Cunliffe review, launched in October 2024, will review systematic problems affecting the sector. The financial challenges of some water companies are also being widely reported. Spending money wisely by making better, data-enabled decisions will continue to be a critical success factor in AMP8, with top performers such as Severn Trent benefiting directly from their long-term investment in analytics and integrated systems.

The water sector has a huge task to ensure that the AMP8 programme is delivered. Water companies must meet their service obligations and deliver services efficiently but also need to generate returns to attract investment. An upfront increase in water bills ahead of delivery of outcomes is a necessary step. However, the challenge of balancing affordability, investability and customer buy-in will be ever present, even as the industry ramps up capacity to deliver the biggest network investment programme since privatisation in 1989.

02 / AMP priorities and how the capital programme will change

Water company objectives have historically been focused on affordably meeting customer needs for safe, reliable water, while maintaining the network. Typically, some 80% of capital works undertaken, by value, have been small in scale. The scope of work has become progressively more complex, given the role that water providers play in environmental protection and in response to climate change. The portfolio now includes major reservoir and water transfer works to address an increasingly severe risk of drought over the next 30 years. Water utilities will need to prioritise, innovate and collaborate more effectively to improve performance in wider areas like real-time catchment management, water recycling or consumption reduction. 

Above all, as the climate, weather events and even financial markets become more unpredictable, the resilience and adaptability of networks and network owners has become a critical consideration. These multiple requirements have led to the adoption of a holistic, “one water” approach.

Looking forward to the new AMP, water companies are being set tough goals by Ofwat, focused on:

• Performance transformation, for example by reducing the number of service failures and by reducing per capita consumption. Under the totex model this will include investment in leak reduction, smart metering and real-time data as well as partnerships with customers. Making the right investment choices is a key part of this transformation.
• Addressing long-term challenges including water supply, network resilience and enhanced natural capital. As these are national-scale, network-wide issues, they demand a partnership-based approach involving water companies, their supply chains, and a wide range of stakeholders.
• Delivering greater value for customers and the environment, partly by reducing the impact of operations.

Looking at the investment programme, £12bn is targeted at protecting the network and £24bn at environmental improvement. Both are down payments on long-term programmes, with £50bn planned for the Strategic Resource Option programme (SRO) of large-scale investments to increase the capacity and resilience of water supply such as reservoirs, and a 25-year, £50bn storm overflow discharge reduction plan. Major areas of spend include:

• £5bn on additional water supply, including preparatory expenditure on the RAPID programme of 30 proposals for water storage, transfer and recycling
• £2bn on water quality improvements, including lead pipe replacement and PFAS clean-up
• £3.3bn for nature-based solutions (NbS) to manage storm overflow and other catchment-area issues
• £6bn for the management of nutrient neutrality, including phosphorous pollution at 1,000 sites
• £12bn on the reduction of spills from combined sewer outfalls (CSOs), requiring work at nearly 3,000 locations, delivering a 45% reduction in spills by 2030.

The CSO target has the highest profile and comes with stretching delivery targets (see panel below).

Accelerating investment at this pace introduces huge challenges, notwithstanding that the operational water and wastewater network is a difficult asset to work on, with a vast number of stakeholders and little spare or duplicate capacity.

Firstly, the water companies will need to expand their management capability with either in-house teams or a managed service. Networks are geographically dispersed and with more investment will need bigger teams to undertake the essential client-side function. With revenue to support most investment only coming on-stream once the AMP starts, recruitment will take time to ramp up.

Secondly, highly specialised elements of the industry, including those focused on drinking water, will also need to scale up. A current example is laboratory capacity for type testing. This has implications for product development and manufacturing capacity for sector-specific plant such as membranes for new desalination technologies.

There are also well-documented shortages of specialist skills in electrical, treatment and process engineering which limit the capacity of the contractor supply chain – even the largest treatment schemes struggle to attract more than two or three bidders due to capacity constraints.

Fortunately, not all aspects of the programme are dependent on scarce resources. Much of the workload associated with the infrastructure asset, including works to pipes and storage structures, will be able to access a larger civil engineering supply chain. However, this resource will be shared across competing investment programmes including transmission and EV charging, and the water sector has often struggled to secure its share of resource to deliver essential programmes such as leakage reduction.

Challenges associated with new reservoir development programmes, providing 4 billion litres of storage, vividly illustrate how these twin challenges come together. With no new capacity built in 30 years, the UK cannot easily access the specialist hydrology skills needed for the design and construction of dams and other structures. This also has a knock-on effect on the risk appetite of contractors that might undertake the work, even though most of the expenditure is in works with a simple content such as earth-moving. Long-term planning undertaken since AMP7 is helping to plug these gaps.

03 / Attracting investment into the sector

The UK water sector is a textbook example of how private investment is deployed into operational infrastructure. With a secure, inflation-adjusted income from user charges, utility companies can access a deep pool of capital. However, water is competing with other infrastructure programmes such as Sizewell C. Recent tough regulatory settlements offering a lower return on capital have made it harder to attract finance.

The costs of finance have an impact on customers, accounting for 20%-30% of bills. Based on the December 2024 final determination, between £8bn and £13bn of new equity investment is required by 2030. Investors will receive 5.01% on their equity investment and 3.15% on debt. Borrowings will rise by 60% from the previous AMP. The level of returns is not particularly generous, and some water companies have commenced an appeal to the Competition and Markets Authority (CMA) in connection with their final determination.

Ofwat has taken extra steps to better balance investability and deliverability, for example by including more risk-related adjustments for inflation. However, water companies will be more accountable for the delivery of new investments. Price control deliverables (PCD) focused on named projects mean companies will have to return money if they do not meet their targets. They may also have to delay scheduled bill increases through “delay delivery cash flow” so that bills later in the AMP reflect the extent of work completed.

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Demand for investment is set to increase during the 2030s as further schemes come on stream, including large-scale reservoirs and water transfer schemes planned under the SRO programme. Rather than channel the programmes through incumbent water companies, Ofwat plans to tap wider financial markets using models similar to that used for Tideway. Development and planning work is being funded through AMP7 and AMP8 by water companies, but the design, build, finance and operation will be undertaken by other organisations. Construction of some schemes – such as HARP, a water supply scheme for the North-west – will begin before 2030.

These schemes are estimated to require a further £50bn of funding. Two funding options are under consideration. The first, direct procurement for customers (DPC), is where a water company subcontracts the financing, construction and operation of an asset as a single deal operated under its water licence. The alternative, under the Specified Infrastructure Projects Regulations (SIPR), envisages the creation of a standalone organisation with its own water licence to build, operate and finance larger standalone assets such as reservoirs or water recycling plants.

The Tideway model, which reached financial close in 2015, is similar to SIPR. It reduced bills by securing finance at a lower cost than the wider industry. Given higher interest rates, it is yet to be proven whether the new generation of schemes will attract investment or will be delivered at a lower lifetime cost.

04 / The growing role of digital technologies

Data and technology play a critical role in infrastructure delivery. The National Infrastructure Commission first referred to “data as infrastructure” in 2017, and as water course and network management capabilities have become more sophisticated, requirements for digital adoption have accelerated.  

Expectations for AMP8 are that digital services will focus in particular on customer service, using advanced tools like the Octopus Kraken system to manage all user interactions, including the management of the needs of vulnerable customers. Plans for open data-sharing, similar to that pioneered by Transport for London across its networks, should also create a wider range of opportunities for user interaction. However, Ofwat’s creation of a £400m innovation implementation fund highlights that achieving widespread adoption is now a big priority so that the full benefits of technology are secured more widely.

At the level of the network, predictive modelling based on digital twins and intelligent models supports a wide range of activity from investment planning and failure prediction to the active management of catchments. The early modelling of investment programmes using tools like enterprise decision analytics has been proven over multiple regulatory cycles to result in reduced maintenance costs, better performance, and better customer outcomes. Ofwat recognises top performance with an enhanced return on investment worth millions of pounds for companies including Severn Trent.

Automation of design, modelling and simulation will also play a key role in increasing the delivery capacity of the supply chain, particularly for distributed programmes such as NbS, which could potentially feature thousands of small-scale interventions. By enabling consultants and contractors to access a wider range of skills either globally or within eco-system partners, the constraints inherent in the industry’s preferred headcount-based procurement model can be loosened.

05 / Holistic delivery of environmental investment and decarbonisation through the AMP

One of the key objectives of AMP8 is to deliver for customers and the environment. Water companies have a large operational footprint, significant control over water courses and direct engagement with a large number of stakeholders such as farmers with a direct role in managing pollution and run-off. This means that the water industry is a critical player in national sustainability strategies.

Well-integrated biodiversity strategies will also deliver water quality, flood attenuation and water retention as well as carbon reduction and air quality improvements.

Increasingly water companies are well-positioned to collaborate with other organisations, providing, for example, commercial biodiversity net gain offset services as part of the outcome from their NbS investments.

The direct role of water companies in decarbonisation is primarily through their reduction in energy use and management of greenhouse gas emissions such as nitrous dioxide. With energy costing upwards of 10% of totex, the economic incentives to save are strong indeed. Available interventions involve reducing treatment volumes, increasing the efficiency of plant, process optimisation and nitrous oxide treatments.

In addition to the economic regulation pursued by Ofwat, the Environment Agency sets its own five-year regulation, WINEP, the Water Industry National Environmental Programme. WINEP in AMP8 has directed investment towards pollution reduction with a particular focus on river quality and biodiversity.

Water companies are now strongly incentivised to invest in natural capital, including river, wetland and catchment restoration, as well as the wider adoption of NbS including reedbeds. For example, 25% of the CSO programme is planned to be in SuDS and NbS.

However, more collaboration at the local level is needed to make this a reality. The development of new arrangements for SuDS, including local authority-led approval bodies (SABs) and nutrient management boards is enabling more effective local collaboration through the development of action plans.

Nutrient neutrality constraints set by the Environment Agency have created particular challenges for water companies, requiring the reprioritisation of investment programmes to facilitate the delivery of much-needed housing.

With the introduction of nature restoration funds in the Infrastructure and Planning Act, developers will be able to pay into a fund to support area-wide solutions. Water companies will have a key role in the delivery of these new environmental services on behalf of developers. 

06 / Procurement trends and growth prospects

With a fourfold increase in the scale of capital programmes, water companies have been highly active securing their supply chains in advance of the commencement of AMP8. The sector has a history of scaling back in-flight programmes during control periods, but with the new PCD structure linking revenue to progress on investment, the pressure for a quick start is on.

AMP8 involves the delivery of a much-expanded capital programme in parallel with pre-construction activity associated with schemes in the RAPID programme. With water companies, contractors and now new delivery organisations being established under DPC and SIPR, there is a lot of competition for resources – particularly those with experience of managing large, complex programmes. With other large capital programmes competing for the same major programme delivery expertise, there is a real risk that clients and their suppliers will struggle to scale up and as a result will face challenges in delivering complex projects to time and budget.

The industry has adopted a number of strategies to secure the teams needed to deliver the AMP8 investment:

• Increase the number of consultant and contractor teams appointed to frameworks and alliances. Supply chain diversification is a common strategy. However, it has been difficult to attract new players into the sector. In practice, a similarly sized supply chain will be spread across more appointments.
• Transfer a larger proportion of design and development work into the supply chain. A number of water companies are focusing their expanded management teams on a thin client role, with most of the design and programme management input coming from contractor-led teams. This creates more opportunity for innovation but requires clear definition of a wide range of outcomes, including those for public good, such as access to nature.
• Adopt best athlete supply chain strategies. These combine large-scale and small-scale national and regional contractors to complete work programmes at different scales. SME procurement provides further opportunities to delivery public good through the AMP programme.

Given the scale of the new programme and the extent of resource augmentation that is required, the ability of clients and their teams to deliver the programme at pace remains to be seen. An early focus on bottlenecks in planning, design and equipment procurement will be essential to ensure the overall success of the programme.

07 / Conclusions

Water companies face a huge challenge over the next 15 years as they make investment at scale to address issues of environmental improvement, resource management and drinking water quality. They also have a great opportunity to invest in nature-based solutions benefiting people and the environment. 

AMP8 represents a critical down payment, with the general public expecting significant improvements in water quality by 2030. In parallel, the foundations will be put in place to attract even more investment into new capacity, resilience and low carbon programmes to be delivered by 2040.

The need for clients and their suppliers to rapidly progress their design and construction programmes creates real opportunities for collaboration and innovation. The imperative to deliver greater value for customers and the environment will leverage investment in NbS. This investment will help to ensure that AMP8 makes its full contribution to sustainability objectives while reliably providing safe, clean water to all customers, wherever it is needed.