Review of Ofwat’s Weighted Average Cost of Capital (WACC)

The report examines various aspects of Ofwat’s indicative PR24 WACC, including:

• The overall WACC allowance and cross-checks
• Debt and financing assumptions
• Equity assumptions, specifically the:
  • risk-free rate
  • total market return; and
  • equity beta.

Key findings

• The review of data, assumptions, and methods used by Ofwat found 24 signals that the true cost of capital is lower than Ofwat’s ‘early view.’
• By replacing its ‘early view’ with a ‘market-led-view,’ Ofwat could save customers £2.6 billion over 5 years, equivalent to around £20 per household per year.