This will have an impact on the energy and utilities sectors
Affordability has long been a focus for the gas, electricity and water sectors, but the cost-of-living crisis is going to cause this spotlight to intensify. For the water companies planning for PR24 this will have an impact on the business planning process.
Over the last few years, Savanta has supported energy and utilities organisations with their business planning research and engagement. I have strong memories of focus groups designed to understand views on RIIO-2 business plans, in which people said “oh it’s only a small percentage of the overall bill [that goes to a GDN or DNO], so I don’t really mind if it increases by a few pounds per year”. I suspect that story would now be very different, as customers are forced to scrutinise an increase in any part of their growing bill.
As the water industry gears up for PR24, it is going to have to square this issue of affordability with a need to combat the effects of climate change
The impact of the cost-of-living crisis
In research conducted on behalf of Yahoo News on 25th-27th February 2022, we can see just how severe the current situation is for many households around the UK:
- 85% have noticed an increase in their utilities bills in the last 6 months
- 78% are worried about the cost of living
- 31% struggle to afford their current bills; 6% cannot afford them at all
- 43% expect their financial situation to get worse in the next six months, compared to only 20% who expect it to improve
As the water industry gears up for PR24, it is going to have to square this issue of affordability with a need to combat the effects of climate change – an issue of growing importance in the eyes of both the regulator and the customer. As Ofwat announced to set the parameters of the upcoming price review “it is clear the water sector faces profound challenges in the coming years and decades, from climate change to growing customer expectations, and concerns about affordability”.
Affordability and inter-generational fairness
The data suggests that those aged 35-54 are being hit hardest by the crisis, with this group simultaneously less likely to be able to afford their bills and more likely to be worried about the cost of living. This presents a further challenge for the utilities sector which traditionally needs to balance a long view on its investments with inter-generational fairness.
In my experience, middle-aged customers are less likely to support the idea of investing now in infrastructure to reap the benefits in the future – be that combatting climate change, introducing more digitisation or upgrading a network for efficiency gains. Older customers see the benefits of planting a tree whose shade you personally won’t experience, and the young know they likely will feel the benefit of current investments. Those in the middle, however, have historically been less supportive of future-facing investments, probably because they are already the biggest tax contributors, and the investments of previous generations are quickly forgotten. With this group now also the most likely to be feeling the pinch, we have to wonder how this will impact their support for ambitious business plans in PR24 and beyond.
Get in touch: