Image description: Elan Valley Reservoirs in Wales. Photo by Callum Blacoe on Unsplash.
Ofwat’s new report, the Economic Impact of Water Supply Infrastructure Investment, has explored the economic growth case for significant investment in water supply infrastructure across England and Wales.
The study examined how investment in new assets – such as reservoirs, bulk water transfer schemes, desalination plants and advanced water recycling facilities – could affect the wider economy, concluding that large-scale projects could deliver wins for economic growth, environmental resilience and long-term water security.
Water sector prepares for one of its largest ever investment cycles
The findings have been published ahead of one of the water sector’s largest ever investment cycles. During the upcoming regulatory period, companies in England and Wales are expected to deliver a programme worth more than £100 billion between 2025 and 2030, targeting both environmental improvements and supply resilience.
Water resources are facing increasing pressure, driven by population growth and climate change. Forecasts used in national water resource planning indicate that, without intervention, England could face a shortfall of up to 5 billion litres of water per day by 2050.
The trade-off between affordability and long-term resilience
The report emphasises that maintaining reliable water supplies underpins economic productivity. Secure water availability is essential for a wide variety of industries, including manufacturing, agriculture, energy and construction, while housing growth is increasingly constrained in regions where water resources are under pressure, such as the South-East of England.
In particular, the report emphasises the importance of “strategic resource options”, such as new reservoirs large-scale water transfers between river basins, and projects to expand water reuse and desalination capacity, that can provide additional supply or increase system flexibility.
The economic modelling presented in the report indicates investment in strategic supply schemes would generates value in several areas, value which would extend beyond the water sector itself. These include direct economic activity during the construction phase, productivity gains from improved water reliability, and the avoided costs associated with drought restrictions or supply interruptions. Construction of major infrastructure also stimulates activity across engineering, materials and specialist supply chains, supporting skilled employment and regional economic activity.
Significantly, the analysis also warns of the cost of inaction: severe water shortages could lead to restrictions on industrial abstraction, crop losses and wider economic disruption.
However, Ofwat acknowledges that large infrastructure projects incur substantial capital costs and long development timelines. Additionally, financing these investments ultimately is reflected in rising customer bills, creating a tension for regulators and water companies attempting to balance affordability with long-term resilience. The report emphasises the need for robust cost-benefit assessment, careful project selection and efficient delivery.