AMP8: still waiting for the taps to turn

Six months into the Asset Management Plan 8 (AMP8) regulatory cycle, the scale of the challenge facing the UK in upgrading its water infrastructure is becoming increasingly clear. Given the level of excitement among investors and business owners with exposure to the sector, we wanted to take a step back and provide some perspectives. We still have conviction that there is significant upside in the value chain but it is not going to be linear and, just as with regulatory cycles in other regulated utilities, good intentions and large numbers won’t necessarily translate into EBITDA and cashflow without a few bumps along the way.

AMP8: What is it and what’s the fuss about?

The UK water industry is entering the largest investment cycle in its history. AMP8, which covers 2025–2030, signed off a staggering £104 billion of capital expenditure, more than double AMP7. It is worth pointing out that AMP applies only in England and Wales, with Scottish Water and NI Water subject to their own regulatory regimes; the direction of travel over time, however, will be the same across the four nations.

The main driver of the uplift is a substantial increase in “enhancement” spending, which is due to nearly quadruple to £44 billion, against £60 billion of base expenditure (i.e. maintaining existing systems and performance). This reflects the clear regulatory pivot from asset maintenance to improvement, in order to drive better environmental outcomes (e.g. reduced leakage and nutrient management) and long-term resilience (e.g. greater interconnection of water supplies, more reservoirs and increased stormwater management).

What exactly is the scale of the challenge?

In short: huge. “Fixing” the UK’s water network will take decades and substantial investment beyond AMP8. The industry itself has estimated a spend of £290 billion over the next twenty-five years to meet environmental targets set out by the previous government in 2023 and address supply challenges – and that’s over and above day-to-day spending. Put simply, that equates to five more AMP cycles of roughly the same size as AMP8.

This should not be surprising. Since privatisation in 1989, it can be argued that Ofwat focused extensively on minimising customer bills, which was ultimately inconsistent with the level of spend required on infrastructure. Hence the sharp increase in AMP8 and the continuing requirement to spend significant sums over the next generation.

Anyone familiar with the history of UK infrastructure deployment may be inclined to think that AMP8 is somewhat more likely to be a damp squib than a firework. And the list of practical challenges is long, examples including:

• five water companies are seeking redetermination of their price controls, arguing that Ofwat’s final determinations left them unable to fulfil their regulatory requirements;
• industry estimates suggest that around 100,000 additional supply chain employees will be required to deliver AMP8, which is running at the same time as significant investment on the electricity grid, relying in part on the same supply chain; and
• the increase in spend and intensity of delivery will require water utilities to engage with their supply chain as partners in a way which has not always been the case.

The pace of delivery so far in AMP8 has been undoubtedly slow, with far fewer shovels in the ground than were hoped – or are needed. It is true that we have seen the same in many of the cycle transitions in other utility sectors, but AMP8 is about the same size in spend terms as the last road, rail and electricity transmission determinations combined – so every day lost counts much more.

Ultimately, we were somewhat sceptical ahead of April 2026 of the industry’s ability to meet AMP8 spend and are even more sceptical today. Ultimately we think that unmet spend will be deferred rather than lost, but the trajectory of recent settlements in road and rail does merit some caution.

Who are the likely winners - and will there be any losers from AMP8?

Despite our reservations about the execution of AMP8 in full, it is frankly difficult not to believe that this AMP – and those that will follow – offer a generational opportunity for businesses in the sector.

Most obviously, capital delivery projects will benefit project design and management firms, civil engineering contractors and specialists such as MEICA (Mechanical, Electrical, Instrumentation, Control and Automation) providers, particularly on the wastewater side which is the primary beneficiary of spend. The sheer volume of projects will ensure that nimble SME’s who can provide the boots on the ground will win significant work as subcontractors to the Tier 1’s on larger projects and will have the opportunity to contract directly on smaller works. As ever, the key for contractors will be contractual terms and the extent to which they bear risk for project delays or cost overruns.

The focus on reduction of nutrients in wastewater – principally phosphorus and nitrogen – will also benefit environmental consultancies, chemical suppliers and treatment system producers.

While wastewater has taken a larger share of increased spend in this cycle, there will also be a continued need for investment on clean water processes and assets to maintain drinking water quality. We are seeing an increase in demand for modular purification plants, for example, to assist utilities in meeting their regulatory requirements in a flexible and cost-effective manner.

In due course, we expect to see further tightening of clean water standards in relation to PFAs (“forever chemicals”) for which there is no current regulatory standard in the UK (Northern Ireland does not have a regulatory standard but may at some point incorporate the EU Drinking Water Directive Recast into its water standards). This will give rise to further opportunities for providers of filtration or ion exchange technologies, among others.

Finally, the additional asset base, once constructed, will offer opportunities for O&M providers to ensure continued operation at optimal cost. Embedding technology and digitalisation into delivery of AMP8 projects will be essential to achieving this and, indeed, is at the core of AMP8’s enhancement goals, including:

• sensing & instrumentation to enable real-time leak detection, spill monitoring and nutrient recording, alongside completion of the nationwide household smart-meter rollout;
• digital twins and analytics to provide improved asset-health forecasting, predictive maintenance and programme-control tools; and
• process technology across low-phosphorus treatment methods, energy-efficient drives and advanced filtration systems to upgrade the UK’s water network to a truly modern standard.

So no losers?

Most obviously, customers will be losers as well as winners. While infrastructure enhancement will benefit us all, bills will rise by an average of 30% over the AMP period to part-fund this spend, with bills in certain areas rising by over 50% (for example Thames Water).

There will be companies who fail to take full advantage of AMP8, but that will largely be due to lack of internal planning. Addressing supply chain points of weakness, engaging early with the tender process and ensuring the ability to scale with demand as well as flexibility to reduce costs when the inevitable slow down comes in 2029 will differentiate the true winners (we acknowledge that there are different views on this but we tend to think that, in this instance, the past will provide an indication of the future).

Final words

Investors and businesses in the sector need to take a long-term view: we are at the start of a 20-year build-out of the UK’s water infrastructure. The opportunities for businesses and investors exposed to this supply chain are significant, but the trajectory is unlikely to be linear in practice, despite what can be forecast on paper. And ultimately, the water industry remains of huge importance to the public and to the media. While outsized pay for water utility CEOs has been the focal point of public dissatisfaction in the past, it is not unthinkable that outsized returns for the industry could also lead to public scrutiny, particularly for larger suppliers. Investors and businesses would be wise to plan to manage, or at least account for, public perception once the taps of AMP8 open fully.