Right, I'll make a start. Good morning, everyone, thank you for joining myself and Paul as we share Pennon's full year results for 2022, 2023. We also have some new members of our executive team with us here today in the audience. We're joined by John Halsall, who's our Chief Operating Officer, Andrew Garard, who is our GC, and David Harris, who is our Drought and Resilience Director. There will be opportunity to meet all our new executive team later in the year when we take you through our strategy and business plan to 2030. I think it's probably worthwhile me talking about the context for the 2022, 2023 results. It has been one of extremes. We have seen extreme weather patterns.
Those have tested our operational resilience. We've had the volatility of the macroeconomics that have impacted the income statement, which Paul will talk about later. The one thing that we have done, we have responded with agility, with pace, and we have pivoted to focus on the things that matter most, right here, right now, for our customers and our communities. We couldn't have done this without the support and the dedication of our 3,000 employees, who have continued to show extraordinary care for the communities that they serve and for each other. Understandably, given our region, the beautiful region that I call my home in the South West, we've had a unique level of interest in what's been going on in our region over this last year.
Understandably, customers are keen to understand our environmental performance, and how we've been tackling the drought that started last year and is continuing as we stand here today. Many of our customers are indeed shareholders through our WaterShare+ scheme. I know some of them will be joining us online. What I'm going to do today is take you through how we've been tackling the biggest challenges head-on. With those challenges, the progress we've been making in 2022, 2023, and towards our targets to 2025. We have made progress. We have had resilient financial performance. I talked about the macroeconomics. We have a resilient balance sheet. We have a robust level of gearing, and that is supporting us to invest.
A step change in investment, you will see in our results, that is the new run rate for us going forwards. Finally, as an outlook, we are building our plan for 2025- 2030, based on what matters most to our customers, to our communities, and we will take you through that in October, but I'll give you some highlights of how that's coming together. Tackling the challenges head on. Let's start with storm overflows and pollutions.
I think it would be remiss of me not to acknowledge upfront that this has been a challenging time for the sector, and I'm sure there's no one in the room today who hasn't seen any of the media, any of the social media headlines, and heard and felt the strength of feeling and anger around the use of storm overflows, a feature of our Victorian sewage system. For us in the South West, we look after 1/3 of the nation's bathing beaches, a huge responsibility, over 150 bathing beaches, and we have to make sure that they are available for our communities and for the over 10 million visitors that we have to our region, and supporting the tourist economy. We've put in place our WaterFit program, which I'll talk about today. That's the first challenge. Second challenge, water resilience, water quality.
Storm overflows and pollutions are a key priority for our customers, absolutely, and for the business to the region. The number one priority for our customers is always safe, clean drinking water, and we have to make sure that we have that in place. The supply across our region is under pressure. We have a granite coastal peninsula. We operate across a unique topography, where over 92% of our water and our resources in the region is reliant upon what comes from the rivers, backed up by our reservoirs. Last year, we saw that acutely impacted, with the hottest, driest weather on record, culminating in a one in 200 year event with all the visitors that we had to the region. That picture that you can see there, that's not one of our beaches.
That's actually Colliford Reservoir, and that's where Colliford Reservoir went to last year. What have we been doing? We've been doubling down our efforts. We've been investing, we've been getting ourselves to a better place, and I'll take you through that. Third challenge, net zero, climate change. We live in a fantastic region, a beautiful region. The topography of it means that we use a lot of power, a lot of energy. It's our second largest operating cost after people. We have seen, given the power markets and the impact on us for last year, that we need to accelerate one of the three pillars that we have in place for our net zero plans, which is around renewable energy investments, and we are accelerating that.
That will help us mitigate the impacts of a volatile energy market. We are investing in new infrastructure to prevent those impacts. Last challenge, customer affordability. We're living through probably one of the worst cost of living crises that many have experienced in their lifetime. In our region, where one in three constituencies have above average levels of deprivation, it's incredibly important that we do what we always said we were gonna do: keep our costs as low as possible, be as efficient as possible, and keep our bills as low as possible, while also having an affordability toolkit that helps our customers and our communities. In order to do that, it's meant that we have reached out to our communities in different ways and expanded our community support. I'll come on to some of the ways that we have done that.
Those are the challenges. What are we doing to tackle those challenges? Starting with storm overflows. We launched our WaterFit plan last year. That program has many activities within it, but its fundamental focus is around reducing the number of times that storm overflows are used in our region, targeting our rivers, our seas, but predominantly our bathing beaches for our region in the first instance. We're targeting to halve the number of releases from those storm overflows by 2025. Pollutions and pollution incident reduction plan. We put that in place. We are targeting a significant reduction in pollutions. One pollution is one pollution too many. There are times when things go wrong in our system. We know that, but we have to mitigate those risks.
We have to make sure operationally, we're targeting where we've got hot spots, and we need to make sure that we are delivering the improved infrastructure. We've delivered a 50% reduction in pollutions so far over the last couple of years, and we're on track for a green EPA assessment from the Environment Agency for 2024, and I'll talk to you what we're doing for that. The second challenge that I referred to, water resources. I said, we're still in drought in the southwest, officially. We have been working at speed, we have been agile, we have been looking at how we optimize the water resources we've got in place already, whilst developing new water sources and building new infrastructure.
We are going to increase the amount that we can access, in terms of resources, by 45% of the needs for Cornwall when they need it most, and by 30% in Devon by 2025. I can talk to you in a moment about the work that we're doing to achieve that. The pillar of our net zero commitment around renewable energy, we have allocated GBP 160 million to developing our renewable energy generation, capability, and capacity. We've acquired a 40 GW site in Dunfermline, and we've got advanced discussions on further sites. When we've got those in place, that will equate to around 45% of our energy requirements for the group.
In terms of our last focus area, affordability, I think it's incredibly important we help everybody by keeping the bills as low as possible, but also for those who are finding it acute at the moment with their cost of living issues. We are doubling the number of customers who are benefiting from our support tariffs, where customers can get up to an 85% discount to their tariffs, and we are tackling water poverty. Underpinning the plans that we've got and the improvements that we're making is our investment program. We've invested more than we've ever done before, GBP 350 million in 2022, 2023, and our run rate is set for the next two years.
We're going to be investing GBP 750 million as part of our K7 program, and importantly, accelerating investment to make sure that we can achieve the priorities I set out and the challenges that we're facing. One last point in terms of what we're doing: We need to be innovative. We need to work smarter. We are on with that, but we also realize we don't have all the answers ourselves. We have joint ventures with the University of Exeter, and we have a brand new facility which will be open this autumn, that's focused internationally on looking at some of the acute issues that we have in the water sector. That Centre for Resilience, Environment, Water and Waste will be international, not just nationally placed, looking at those issues that we've got, whether it's forever chemicals, whether it's microplastics.
We'll be looking at how can we help solve these issues, and that will help us, in turn, face some of the challenges that we have. We are making progress, but we also know there is more to do. I touched at the beginning about storm overflows and the reputation of the sector and the reputation of our own business, Pennon. I know we can only rebuild trust over time through what we do, through our actions. I also know it's incredibly important for us to support our customers and communities. WaterShare+, that is the scheme, I mentioned it at the beginning, many of our customers are now shareholders. That is the scheme that we set up to do two things. One, make sure where we are financially outperforming, and you'll see that in our results today with our return on regulated equity.
We are sharing the benefits of that with all of our customers, so that they can get reductions on their bill, or indeed, join us in terms of supporting the business and becoming shareholders, and many of them have. We now have one in 14 customers in the South West who are shareholders in the business. That's only one part of it. The other part of it is how we engage regularly with our customers. Every other month, myself and the exec team get together with whoever wants to join from our communities and ask us what's happening in the business and what are we doing about these priorities. It's been incredibly important, incredibly useful to understand what's on our customers' minds and also understand some of their specific issues.
In doing that, we're also attending, every week, day in, day out, town halls, parish councils, so we really get to understand what it is communities would like from us and what it is they need to see as our priority in their region, in their village, in their town. Alongside the direct engagement, we've also been thinking about the information that we can give customers about their communities and their region, that help them make decisions, and indeed, visitors to our region. We launched WaterFit Live earlier this year. If any of you have seen it's the map of all our 150 plus bathing beaches, and it lets you know where our assets are that may or may not impact bathing water. It lets you know what's happening in real time, so you can make decisions.
If something's happening that day, then you can maybe choose to go to another beach. It's been incredibly important giving that transparency so everybody knows what's happening with our assets. Lastly, Save Every Drop. I talked about the fact that we are in drought. One of the campaigns we ran, Save Every Drop, last year, was about how we engaged Cornwall to help us rebuild the volumes that are in Colliford Reservoir. Coming together as a community, putting customers in control. They obviously came together. We saw, a bit like a church fund, we saw the reservoir levels rising. They gained by getting money off the bill, and we saw that across everybody in the South West, in Cornwall. They all came together to do that. Incredibly important that we are reaching out to make progress. Lastly, strengthening our capabilities.
I introduced some members of the new exec team this morning, but this isn't just about the exec team. This is about our 350 apprentices and grads that we've welcomed over the last couple of years. This is about how we are in sourcing and making sure for our delivery schemes on the engineering side, that we've got the right capabilities. This is about making sure we're match fit for today and for what's coming. I'm going to move on and just give you some of the facts, figures and insight from the work we've been doing this year with those challenge areas, starting first with the environment. Starting first with pollutions. I said at the beginning, things go wrong, things can happen. In 2020, we had 225 wastewater pollution incidents. In 2021, we had 151.
In 2022, we had 108. You can see the direction of travel. We're bringing them down. We know one is one too many, and we're targeted in getting that to where it needs to be. 50% reduction since 2020. We have our plan in place, whether that's tackling some of the acute pressures and hotspots we've got around rising mains, whether it's making sure that we can see what's going on on our network that stretches from here to Australia as an equivalent length. We're putting in sewer depth monitors so that we can see what's happening, and we know where to intervene. The hotspot investments, 50 areas that we did in 2022, 2023, which cumulatively brings us to 260 over this K7 period. Storm overflows. We know the strength of feeling around this. I get it.
We have to make sure that we're reducing our use of storm overflows, because it puts at risk our bathing water quality, which the secondary running is 100%, we don't want to risk that for our communities, for our customers, for our visitors. We are investing, we are changing our operational approach, we are reducing the flows that are getting into our network that cause those triggers on the storm overflows to release, we are putting in storm storage so that we can capture any of those flows and treat those. I've talked a lot about the beaches, because that's where our customers see their priority, we also are in a region where we have some beautiful rivers as well, we need to improve river water quality, we're investing to do that.
We have reduced the rivers not achieving good ecological status from 19%- 12% so far in K7, and we're gonna reduce that further by the time we get to 2025. In terms of bathing water, we know how important it is for our region. Schemes accelerated, 19 done today, a couple more to do. Thinking about bathing waters, we've also had feedback from our communities. They'd like rivers to be bathing waters as well. We're progressing pilots on the Tavy and the Dart, and we're hopeful that those will get designated when they go forward, and one of them is going forward this autumn, and we're helping the community with that. We've been busy. There's been a lot going on. We have got our reductions in pollutions, in storm overflow use, our bathing water for the second year running, 100%.
In terms of our assessment from the Environment Agency around our environmental performance, yes, we have improved from 1- star to 2- star, but let's be clear, that's not good enough for our region, and that's not good enough for our customers. We want to make sure we achieve that 4- star, not because it's a star rating, but because it will mean that we have reduced our impact on the environment, and we are on with doing that. That's our environmental improvements. I think I need to give the spotlight on Cornwall and Devon and water resilience. Before I talk through what we've been doing this year, the first box around water quality and quality first, is incredibly important. Yes, customers want to turn on their tap and receive fresh, clean drinking water, but we cannot sacrifice quality, and we haven't.
Indeed, the metric around water quality for Devon and Cornwall improved last year, which is pleasing. There were less risks around water quality than we'd had the year before. Yes, we were under pressure to make sure that we were delivering for our customers, but actually, water quality is our first priority. Has to be. In terms of the level of resources, what have we been doing? Well, you can see from that slide, it is a busy slide. We have been doing a lot, and there are two twin track strategies for this. First is resource and supply. Second is, how do we help customers to use less, and how do we, as a company, use less? For customers, if they use less, that means they save money as well. It's a win-win. First of all, supply side investments.
Well, for both Devon and Cornwall, we've been working at pace with the Environment Agency, with the Drinking Water Inspectorate, to augment the supply, to make sure that when we can recharge into our reservoirs, we've got the infrastructure in place to do that, and that we can recharge and make sure that we are replenishing when we need to. We've put in schemes this year that will boost when we need it most, Devon by 12%, Cornwall by 11%. We've also been looking at opportunities where we can put in small new treatment works, again, with an abstraction that allows us to serve the population in a slightly different way and optimize our operations. Extra 3% for Cornwall for that. Something that has been talked about a lot for the sector: Where are the new reservoirs? Where's the new supply?
Well, in our region, we've been thinking innovatively about that. We've been looking at ex-quarries, ex-mines that have water in them, that we can repurpose. Almost recycling in action, isn't it? We've invested in the quarries that we have. We've also bought a new one, and we've put those to work, and that will give us an extra 11% in terms of supply. You can see the total increase today that we've achieved. We're not gonna stop there. On the right-hand side of the slide, there is more that we're on with. For Cornwall, we're looking at desalination.
We have a small desalination plant on the Isles of Scilly already, and we're bringing that onto the mainland into Cornwall, and we've also got another quarry that we've identified where we can take resource from there, and that will bolster our resource availability by another 20% for Cornwall. For Devon, we put in our Green Recovery back in 2020, a scheme that again, would help us with more storage and recharge, and that will deliver another 18% by 2025. That's the supply side, and we're on with it. Demand side. Well, first of all, I have to talk about what are we doing to reduce our own usage on our own sites, where one of the bigger users of water in our own region. We have to look first to ourselves, and we have.
That figure there, 6 ML a day, what does that mean? It's about 20% of what we use. Last year, we absolutely focused on ourselves being as efficient as we can be. We've been fixing more leaks than ever before. We've been giving free leak repairs to our customers, and the take-up has been good, and we have been supporting customers with free water efficiency devices, 130,000 free water butts, free shower heads, making sure that customers can take control and do what they need to do. I talked about the Stop The Drop campaign. You can see there in terms of the rise of the Colliford Reservoir and the fact that that was a targeted campaign of eight weeks. We learned a lot from it.
The demand that we saw in terms of the reduction, 5%, Paul will talk about in his financials in terms of the revenues. Yes, we saw increase through the drought, but with our initiatives, we've seen demand from our customers falling as well in the latter part of the year. We've been busy, but it is working. We've made progress, and we've got some more to deliver, but it's working well. Net zero, three pillars. I talked about accelerating renewables pillar, which is in the middle of the slide, where we're investing in solar PV to achieve that 45% of self-generation. We're on with it. We've got the first site, advanced discussions for the portfolio of four. That will help us mitigate risk in terms of volatility of the market and give us that security.
The other two pillars, one's around process emissions, putting our monitoring in place so that we know what's happening across our assets and our network, so that we can target how we reduce our impact on the environment. We're also investing significantly in our catchments. We work in 80% of our catchments. Why? Because we have moorland, we have water quality improvements that we can gain from working on the moorland. Those natural sponges that we have in our catchments, that captures the water, natural filtration, comes down into our treatment works and makes it easier for us to treat. It also captures carbon, and that's why we're doing it. We've invested in 300 hectares of peatland restoration this last year, and we're on for 1,000 by 2025.
We get biodiversity benefits that go alongside this, and we're planting trees. Again, doing all the right things, reducing our carbon footprint by 40%, and importantly, mitigating risks in the volatile energy market with our renewables. Customer affordability. I said at the beginning, this is about keeping bills as low as possible, being as efficient as possible. We bought Bristol Water, we knew there would be efficiencies from that. Paul will talk about those. That is helping keeping our cost base as low as it needs to be. Yes, we're investing, yes, we're doing all the things we need to do, but ultimately, where we can make efficiencies, that helps with the overall levels of bills. You can see there our inflation-linked bill increases for 2023, 2024. South West Water, 0.8% compared to the headline level inflation, keeping it as low as possible.
Bristol Water, 5.5%. I talked about WaterShare. We know we're giving back to our customers when we can. Indeed, if you look at the WaterShare issuances, you look at the support with Stop the Drop, you look at the support we're unlocking for our customers, with the tariffs that we give them that are discounted, with the one-off toolkit changes that help them get back on track, we're unlocking that support to the tune of GBP 85 million to date. We know we want to eliminate water poverty in our region. That sounds a big ask for the South West, but actually, Bristol customers, when we ask them if they find their bill affordable, it's actually gone up.
Bristol Water, 100% of customers that we've asked find their bill affordable. That's also risen for South West, Devon, and Cornwall, 97% of customers, ahead of the profile that we anticipated. We also know, though, that going forward, while customers will be benefiting from our social tariffs, and we will be investing in the community with our community funds, we know we need to think about charging in a different way, certainly for our region, where we have many visitors who come to the region and usage can go quite high through some of the months, as we saw last year. We need to think about seasonal tariffs. We need to think about how we are charging for capacity in a different way, 'cause we have to have a system that can cope with those visitors to our region.
We're gonna think very initiatively about that going forward and supporting customers in our region when we do so. Those are the four challenge areas. I just touched very briefly on our performance. Given the weather patterns we have had last year, it's not surprising when you look at this chart that our delivery measures have been slightly impacted, both for South West, and for Bristol. We are being clear that we are focusing on making sure that we take learnings from that. We did, through the freeze-thaw, perform much better than we did when it was Beast from the East. We are finding and fixing more leaks than we've ever done before.
We will take those learnings, but a key underpinning for it is making sure that we've got our compliance in place and that we are providing safety and drinking water. Bristol Water do particularly well on their customer service measures. We're gonna take that learning across into Devon and Cornwall as well. I talked about the investment that we're making. GBP 358 million, a step up for 2022, 2023, 50% increase. GBP 750 million over the next two years. The important piece of information to take away from this slide, yes, the increase. Actually, it's around the capability. We've got our frameworks in place for K7, that takes us to 2025, absolutely.
We are working now, and we will have in place in the autumn, our supply chain for the step up and the increase in investment that we see coming. We've had excellent interest, we've engaged the supply chain. It's as much about supply chain wanting to work with us as much as us working with them, and we're going through that process now. We will be much fit and ready for that by the autumn. Finally, in terms of our financial resilience before that, elegantly segues into Paul's section. I think for me, return on regulated equity, we are performing. That allows us to reinvest in those priorities that I've identified this morning.
Our gearing is stable, and we've had the gearing around about the 60% for a number of periods now, and that helps us support the investment and accelerate investment that we want to make. Liabilities, like the pension scheme, are in surplus. From a balance sheet perspective, we're in a good place. Despite the fact we've had the macroeconomic impact on the income statement for this year, we're actually in a good place. You can see where we are reinvesting outperformance that we have made back into the business, whether it's our WaterFit program for storm overflows, or whether it's our water resilience program to get our resources and resilience on the water side where they need to be. With that, I'm gonna hand over to Paul, who's gonna take us through that point.
Thank you, Susan. Good morning, everyone. Let's move on to the summarized income statement that you can see there. As Susan says, macroeconomic challenges have obviously been before us this year, but inflation is something I've talked about a number of times in these presentations, and the inflation effect on Pennon Group really is about changing a profile of earnings. In this first period of the high inflation, what we're seeing is our costs being impacted first, and for us, as we've said a few times now, that means power costs going up, and it means our financing costs going up as we have higher interest charges on our index-linked debt. Those two factors alone make up the majority of the reason for the reduction that we've got in underlying profit before tax this year.
In terms of inflation impacts on revenue, that will come through in future years, and we will see inflation feed into higher tariffs and higher RCV growth going forward. It is really a timing point to consider there. One way of looking through that is looking at our regulated return on regulated equity, the regulatory financial performance, and that continues to be strong in double digits. That really does underpin, as Susan was just talking about, all the outperformance and re-outperformance we're delivering, which is enabling the reinvestment that we're on with now. One of those key areas that we've accelerated is one of our commitments to our groundbreaking WaterShare scheme.
That gives customers the opportunity to take a credit on the bill or to take a share in Pennon Group plc, and that had a cost of GBP 20 million. You can see that in the income statement there as a non-underlying item in the year. Regulatory earnings are also important because they are one of the main factors that underpin the dividend alongside our substantial retained earnings, and indeed, our resilient and robust gearing position. Looking at profit before tax in more detail, you can see the bridge here, and the two biggest items very much being power and financing costs, as I've already alluded to. I'll just touch quickly on some of the other key moving parts in our profit this year. This is the first full year of contribution from Bristol Water.
Last year had 10 months worth of contribution, given the acquisition date, so we've got a step-up in earnings coming through there from Bristol. In terms of our demand, this has a number of moving parts, as it always seems to have with us. COVID is still having a little effect as we're seeing our business customer demand, pleasingly recover as businesses are getting back to work, and their demand now is near pre, pandemic levels. That demand has stepped up. In terms of household customers, well, through the year, we did see demand peak in those summer months, as Susan has talked about.
With the weather-related events that we had in the summer, demand did peak, but we did see, demand reduce in the second half of the year in response to the water efficiency campaigns that we were putting out and, obviously, the good work that our customers were doing to reduce demand themselves. A small step down for demand. The next bar there is around GBP 26 million reduction in revenue for regulatory adjustments. Again, this really relates back to COVID-19 and casting our mind back to the first year of the regulatory period, when our demand was higher than it would have otherwise been because of all the usage in the region and the second homeowners and the influx that we had into that region.
We had higher demand, very much COVID-driven, and that has returned through the regulatory mechanism in this year, and that's that adjustment there. I won't talk too much about power now, 'cause I'll come on to that in the outlook, but you can see in that slide there that it's not just the wholesale costs that have gone up, it's also the non-commodity charges for transmission that are also up in the year. I'll come on to power later. In terms of other inflationary impacts, like all businesses, you know, all costs have increased, whether it be our chemicals costs that we use or our consumables, we are seeing higher costs. We're working hard to drive efficiencies through the business.
One of those key areas for us where we have the opportunity to do that is the integration of Bristol and South West Water. As some of you may know, that formal process, if you like, from a company statutory perspective, concluded on the February 1st, this year, so that these two businesses now operate under South West Water Limited, under one regulatory license. That's enabled us now to start delivering on financial efficiencies that we're seeing from having that one combined executive management team and back office functions, as well as procurement benefits that we're now starting to realize.
If I cast my mind back to the acquisition deal model and look at the numbers in there and where we're coming out at the moment, we can see GBP 9 million of benefits already locked in, ongoing, in terms of delivery of operational costs. If we add to that the effect of higher inflation when we compare back to the deal model, plus the benefit of terminating a Bristol Water bond that I talked about at the half year, we can see benefits coming to close to GBP 50 million from those activities. There's more to come, because we're still rolling out a second and third phase of the integration plan. Good work on Bristol integration. In terms of the other bar there, we've talked about inflation, interest a little bit.
I mean, that change there, the GBP 43 million, is entirely related to inflation-linked debt. I'll pause for a moment just to talk about Pennon Water Services, because it is pleasing what we're seeing there. They have benefited as well from the increase in business demand that I talked about earlier, and they've also benefited from contract wins coming through, and that's actually improved their margin. Not only have they got higher revenue, they do have higher profit before tax, increasing to GBP 1.8 million from GBP 1 million last year. Pleasingly, we've also received our first contribution from water2business of GBP 0.3 million in the year. Just for those who may not know, water2business, a very similar company to Pennon Water Services, operating in the same market, same size and scale.
Moving to the next slide, looking at our net debt position. Quite a few numbers on here, but the headlines, as I see them, net debt has increased around GBP 300 million year-on-year. There's three main factors driving that increase. The first is around our capital investment plans. Susan's talked through all the work we've been doing there. As you can see, there are a number of areas of high levels of activity. Our capital investment, in terms of cash flow, has stepped up GBP 100 million year-on-year. The second key aspect is inflation. Inflation has contributed to us having a higher net debt through partially reduced earnings, yes, but also those interest accretions onto debt, increasing the principal amount of debts that we will be paying at the end of the debt's maturity.
The final element I draw your attention to is the final tranche of the buyback program, the GBP 40 million in there, that concluded in summer 2022. As I've said before, the key item, and the way we look at net debt is excluding fair value adjustments, so that bottom line there, that takes that net down GBP 100 million, net debt down GBP 100 million, is the key one we use internally when we're tracking net debt, and looking at our ratios, and it excludes acquisition fair value adjustments. Moving now to our financing performance in the year. It's been another strong year of financial performance in terms of our interest charge, sector leading at 5.5%.
We have a good average maturity of 15 years, that really is based on our financing strategy of having a relatively low level of index-linked debt and around 65% of our debt either fixed through the natural fixing of the instruments or having hedges in place on floating rate debt. I touched earlier on inflation increasing net debt. It also increases our RCV, our regulatory capital value. You can see our regulatory capital value there increasing to GBP 4.7 billion. That's gone up GBP 479 million in this year alone, inflation being a key driver of that. As Susan has articulated already, that leaves us with a gearing of around 60.8%, a nudge down from where it was last year, leaving us in a good, sustainable position there.
I would note, I'm presenting shadow RCV here. Because of the Green Recovery and the accelerated infrastructure delivery initiatives, I think it's important we do track shadow RCV through this period, as we will be spending, and that money will be going into net debt. To compare like with like, we're putting it into that shadow RCV as well, so we can see that. Finally, it's been a busy year in terms of raising new debt. You can see there, we've raised GBP 825 million of new and refinanced debt since March, 2022. I'll just take a moment to say thank you to those investors in the audience who have helped and given advice and supported us through that process. Thank you to you.
Pleasing to see in this period, we issued a first syndicated USPP, GBP 300 million. We're very pleased with that. It was heavily oversubscribed. We've got an average maturity of 12 years there. We see further issuances of syndicated debt as we move forward through the rest of this regulatory period and into the next. We're also continuing with our usual bilateral loans and leasing. That's been part of the portfolio for many years. The one thing I would note as well is the amount of RCFs that we've got on the books. We've ticked that up slightly to give us a higher level of pre-funding, given the level of CapEx that we're looking at is moving up. Just a little bit more on the financing portfolio.
What sets us apart, and why do we have that leading position? Well, for me, we have a diverse portfolio of debt. I think that's a key pillar of what we've always done. Our debt portfolio looks different to most companies in our sector, and it's something that I think is one of our strengths. Really, having the USPP is just diversifying that even further, and we'll continue to look at diversifying that portfolio, and making sure we're in the right markets at the right time to get the best credit margins. We're gonna continue to target an index-linked debt proportion of around 20%-25%. We have seen that nudge up on the acquisition of Bristol Water. Bristol Water came to us with 50% index-linked debt, so therefore, it did step up over 30%.
We've taken action to reduce it. By the time we're in the next regulatory period, we expect to be at 20%-25% of index-linked debt. We're going to be continuing to manage our hedging on a 10-year rolling basis. As we're putting in new debt now, to floating rate debt, we will be looking to swap that out over longer times to lock in the benefits that we're seeing. Something else that's a little bit new for us as we go into the next regulatory period, is we will be having a rating at the South West Water company level, and that's something that will be in place for K8. We're very much targeting a strong investment grade rating there. Just to note, that was about South West Water.
At the Pennon Group level, we do also have an element of debt, a modest amount of debt. Gives us a bit of flexibility, supports the funding we have into Pennon Water Services. Now, as Susan's talked about, with us moving forward with acquisitions of renewable opportunities, that does also give us the opportunity to raise further debt at the Pennon level, backed by those renewable returns that are gonna come through there. That's an exciting part of the business that's going to be growing. In terms of RCV, you can see there our expectation for this regulatory period to end at around GBP 5.2 billion, an increase of over 50% from where we started the regulatory period. A combination of acquisition of Bristol, plus all the accelerated investments that are continuing.
As I look at those accelerated investments, and Susan outlined them earlier, we are expecting our gearing level to tick up as we move towards the end of the regulatory period. As I say, RCV also will be driving that growth into the long term. I'll just touch on outlook now, if I may, 'cause we are still in a high inflationary environment. I think the expectations are for it to soften somewhat, but at the moment there are persistent pressures which are keeping it at an elevated level. What does that mean?
In terms of South West Water's revenues, as Susan's talked about already, our tariffs will be increasing by less than the headline rate of inflation, but nevertheless, they will still be increasing, and that means our revenues in South West Water will be stepping up this year. From an operating cost perspective, very much the challenge is to keep that flat. And I think one of the key aspects of that is clearly our power costs. I said I'd come back to them. Power costs, year-on-year, where are we for 2023, 2024? We're around 75% hedged as I stand here today. And given where the markets are, and they have softened somewhat, and that softening has really continued, it seems one directional at the moment. We're expecting our power costs to be broadly similar to this year.
Perhaps there's even that opportunity for them to become a little bit lower, depending on where markets move to. We've got 25% left unhedged for this year as we stand here today. Clearly, we'll be looking at continued efficiencies rolling out in terms of Bristol Water, which will also help offset general inflation pressures in our operating costs. In terms of financing costs, I think here it's key to note that we have been raising more debt. We are going to be raising more debt to fund the capital investment that we've got on the horizon.
Everyone in the room will probably know that yields are somewhat higher than they were 12 months ago, and therefore, not only our variable rate debt, but also new debt that we put in place, will be more expensive than we've seen in recent years. That will lead to an overall increase in our financing costs for the year coming. CapEx, Susan's already touched on, so I won't focus on that too long, but yes, we're expecting an elevated level of CapEx to continue, and GBP 750 million to be incurred over the remainder of this regulatory period. Finally, I'll just touch on Pennon Water Services again. Yes, we're seeing continued revenue growth, and we're also expecting to see continued margin growth.
We should be able to hopefully sustain the levels of improvement that we've seen. We'll be looking for another step-change improvement as we deliver for this financial year. With that, I shall hand back to you, Susan.
Thank you, Paul, for taking us through that. Just for the next couple of minutes, sticking on the theme of outlook, I wanted to talk about the work we've been doing on our plans for 2025-2030. Very much putting them in the context of our long-term delivery strategies that we have been working on and publishing more recently. I think it's the first thing that I want to touch on, though, and I said this right at the beginning of the 2022-2023 results presentation, where we focused on what we've been doing for this last year. What is important to us is what is important to our customers and communities, and so we engage with customers, communities, every single day in very different ways.
One thing we do learn is what their priorities are. I said number one priority is safe, clean drinking water, so it won't be a surprise to see that as a pillar and a feature in our plan for 2025- 2030. We know our area very much focused on tourism, agriculture. Making sure that we protect the natural environment is also a key pillar of what's in our 2025- 2030 plan. We know our customers want to spend time at the beach, want to make sure that tourists who come to our region can spend time at the beach, too. When we're looking at our program of interventions to alleviate the use of storm overflows, we will be tackling the bathing waters and the beaches first. We know that our customers and communities want us to help support their local communities with water saving, with efficiency.
We are out there doing that today, and we'll be doing a lot more of that going forward. We are engaging with our customers through our WaterShare+ scheme in a way that we've not engaged in the past, and that will only grow and develop over that period, too. Going back to the challenges I talked about at the beginning, are the challenges that we'll see for 2025-2030. We have to tackle the storm overflow, we have to eradicate pollutions in our region, and we are prioritizing the work that we're doing in that period to achieve that. We'll be upgrading many wastewater treatment works. We will be addressing issues around microplastics and forever chemicals, working with the University of Exeter to think about innovative ways to do that. We will be building further our resilience on the water resources side.
We will be investing in new resources. We are going to look to start to accelerate our investment for Cheddar 2 up in the Bristol region. That will help with the Greater South West resourcing position. We are making sure that we are investing in our operations, our bioresources work, reducing emissions, making sure we're fit for the 2025-2030 period, continuing to work in our catchments, moving that 80% up further, looking at restoring thousands of hectares of habitat, and making sure that that habitat then delivers us fresh, clean water into our treatment works. I mentioned at the beginning, customer affordability. We need to be innovative with how we charge customers. We need to make sure it's fair. Customers have told us that's what they expect us to do, and that's what we'll be focusing on.
In terms of the timetable, I'm sure many of the room will be aware of it. We've already been issuing our long-term positions and plans. We know there is a step change in investment required. We're already ramping up for that new run rate now, and those investments will be tackling the most significant challenges that we've got. We'll be more than quadrupling our enhancement investment program. There will be a lot for us to take you through, and we're excited about it. It's gonna be a very innovative, well-positioned plan, and we are going to undertake a spotlight on that plan on the October 5th. I'm hoping many of you in the room will be able to make that and come and meet the exec team who will be delivering it.
In terms of a, of a summary, this has been a very busy year. We have been tackling the biggest challenges head-on. We have made good progress. We are on with our targets for 2025. We've got a resilient balance sheet, and our outlook is good. We are developing a robust plan for 2025- 2030. With that, I'll thank you for coming today, and we'll take your questions.
Yeah, good morning. It's Martin Young at Investec. Can we expand a bit on storm overflows and, what needs to be done? Strikes me, if I try to simplify this, you know, you can possibly drop it into three boxes. You know, firstly, make sure what you already has works. Secondly, reduce, you know, what actually goes into those storm overflows. Thirdly, make them bigger. So if you think about those three boxes, you know, could you sort of give us an indication of, you know, whether there are any issues with the functionality of what you already have? Then, as it pertains to, you know, stopping, or reducing, inflows, what you actually can do there, you know, right across the sort of the broader spectrum.
Thirdly, you know, how much you might have to invest in terms of making the storm overflows actually bigger in size? Thanks.
Great question, Martin. You know, there's no coincidence that that was the first pillar in terms of challenges that I talked about, we've been looking at and tackling in 2023, and it features heavily in our plans going forward. You're right, how we will tackle our storm overflows. First of all, we have got all our monitors in place, so our monitors across our 1,400 storm overflows are now giving us the information that we need to let us know how those are operating and when they're operating. You're right, there's a threefold approach to this. One is investigating and making sure we're clear about how they are operating and when they are operating.
John, who has come in as the Chief Operating Officer, is looking at the teams that are in place already and making sure that we have the resource available to undertake those investigations and at speed. Indeed, we have a wealth of information that we have going into the plans that we'll be putting forward at the end of June, which will indicate for each of those overflows, what we will be doing. You're right, it's a combination. It's a combination of making sure flows keep out of the network, so where we have surface water coming into the network, how do we redirect those flows, and how do we work in those catchments to achieve that.
If the flows are coming into the network, and we think it's the best way to resolve the overflow issue, then we will be building more storm storage, so that we can capture those flows and then treat them. You're absolutely right, it is going to be a combination of diverting flows as well as capturing flows to then treat them. Our focus is around our bathing beaches, so in our WaterFit program, which is what we're badging as the program to tackle our storm overflow use, we are addressing 49 of the 151 beaches in our region in the period to 2025, and that is a mix of more storm storage going in as well as looking at how we can divert flows.
It might be a combination of both, at some of those beaches as well, that we're talking about, but our focus is around the beaches. There is a lot of focus, isn't there, on the average number of spills? There are assets in our region, where inland, we need to investigate and understand what is happening there. We know our priorities from our communities are focusing on the bathing beaches, because one spill, at, you know, one of our pristine beaches, is something that we want to try and alleviate as quickly as possible. It is a mix. Sorry, just your last part of the question, it will be a key driver of that ramp-up of investment that I talked about, certainly, around our enhancement investment going forwards into 2025, 2030 business plan.
Dominic?
Hi there. Yeah, it's Dominic Nash, Barclays. A couple of questions. Actually, the first question I'm gonna follow on from Martin, which I think he probably would have followed up with himself, which is, the water industry's earmarked GBP 10 billion of CSA spend out to 2030. Could you give us an indication of what proportion of that comes from South West Water? When you look at the Stantec, report, the South West Water contribution of the GBP 56 billion is really tiny. Is that a realistic expectation, or do you think it'll be a lot larger than that?
The second question is, South West Water, obviously, clearly, you've got a number of investigations going on at the moment from Ofwat and the EA, on flow to full investigations, and then also announced a couple of weeks ago on the leakage and per capita consumption. Could you give us sort of an update of what you see, what sort of news flow and impact that potentially could have, and could you give us any assurances that there's nothing else out there beyond those two investigations, please?
Okay. Thanks, Dominic. Thanks for those questions. The first question, you talked about the Stantec work, and what that looked like as a proportion for the South West region. I think the Stantec work, as I understand it, focused quite a lot on inland and rivers. Obviously, we're talking about beaches and bathing beaches in our region. As I just touched on for Martin, obviously, we want to make sure that we can reduce, and in some cases, well, target elimination of some overflow use for those beautiful, pristine bathing beaches. The numbers for us will be influenced by the amount that we are focused on in terms of those bathing beaches.
As I said, I think Stantec focused more on what was inland and river, whereas ours is more bathing beaches. In terms of the GBP 10 billion, you can see the run rate that I talked about, we're stepping up in terms of our investment. You know, there is going to be the GBP 350 million that we spent last year, the GBP 750 million over the next two years. That is a run rate for our kind of investment going into the next regulatory period, and yes, a significant proportion of that will be around tackling storm overflows. Just moving on to your other question around the investigations.
Let's be clear, we, as a sector, are in the spotlight, and our regulators, understandably, will want to understand, you know, how we are operating, and what our performance is, and will want to deep dive into that. We are working through the investigations, both from Ofwat and the EA, around Flow to Full Treatment. That is ongoing. We have been giving information across to our regulators, and been open and transparent about doing that, obviously. You know, they will be working through a process, so I don't have an update here today around that investigation. Similarly, for the leakage investigation that was launched by Ofwat last week, obviously, we have shared information with the regulator and will continue to do so through that review process.
You know, we have to, borrowing the phrase from somebody I spoke to recently, "Trust in the process," in terms of what we're gonna go through with the regulators. It's not a surprise to me that the sector is in the spotlight, and the regulators will want to understand our performance, perhaps at levels and in depth, in a way that they haven't done historically, and that is fine. I think we need to be open, not just with our regulators, but also with our customers and communities, which we will do so. When we are working through this process, if there is information to give, we will be giving it, and we will be making sure that we're very clear about where we land with that. James?
James Brand from Deutsche Bank. Three questions, please, on slightly different topics. Firstly, on the shadow RAV, it's quite useful to have that, thank you for that. Can I just ask what adjustments are in that? When we go into the next regulatory period, there'll be all sorts of adjustments made by Ofwat around TotEx overspend or underspend, you know, tax. Is that a view of literally, you know, once the adjustments are made at the end of the period, that would be where your RAV's running, or there are some things that are included in that and some are not? Secondly, on ODI performance, you obviously said you were impacted by the weather this year. Do you have any expectations?
Obviously, you don't have a firm target, but do you have any rough expectations for next year or the year we've just gone into? Then thirdly, on TotEx, is TotEx underspend a thing of the past? Thank you.
I'll start with the last one first, actually. Is TotEx underspend a thing of the past? I think efficiency isn't. Where we talked about the work we're doing, obviously on the integration of Bristol and the fact that we, you know, want to make sure we're as efficient as we can be internally and with our supply chain, that won't stop. You can see from the presentation, where we are making efficiency, that gives us headroom to reinvest and to make sure that we are prioritizing those improvements for our customers. I think underspend is probably the wrong way to think about it, but efficiency is absolutely here to stay. Sorry, Paul.
Okay. In terms of shadow RCV, James, we are intending to put as many adjustments through as we can into that, so it should be everything. Obviously, when it outturns, clearly, it'll be different, as every forecast tends to be. Obviously, there's inflation forecasts in there as well. It does include technical adjustments for tax, things like that you were mentioning, as well as blind year adjustments from previous regulatory periods that would normally come through at this time. It does pick up on those aspects.
Yeah, ODI. Obviously, we were impacted in our ODIs by some of those weather events, whether it was supply interruptions, that obviously got impacted, whether it was the hose pipe ban that went in place, obviously be restrictions for customers. We are obviously wanting to make sure that we deliver for our customers and communities, and want to target the better performance that we've had in the first couple of years for our ODIs. We will be putting plans in place to make sure that we can do that, not just for the year we're in now, but also for the last year of the regulatory period.
It's important for us to deliver for our customers and make sure that we are reducing those supply interruptions, and making sure that we get our resource position into a place where we can lift those hose pipe bans. Any more questions?
Go on, Dom.
If there's no other questions, I'm happy to lob in a couple more. It's Dominic here from Barclays. Couple of things piqued my interest. One, looking at your water resources, and you talk about increasing Devon and Cornwall, what about the good people of Bristol and Bournemouth? Is there any plans to increase water resources for those regions, and particularly in Bristol? If I remember, one reason why it made strategic sense for you was the infrastructure to link it up to the greater sort of South West-
Yeah
Water transfer. The second question, on, second homes and holiday homes and your tariff reforms, I think that you're talking about, could you just give us a color of what percent of your revenues come from sort of second homes, and what second homes and holiday homes should be contributing to your revenues? Thank you.
Okay, thanks, Dominic. In terms of water resources, the impact last year for the regions in drought were Cornwall and parts of Devon, and we are obviously still in drought in those periods now. That doesn't mean to say that there weren't pressures in Bristol and Bournemouth, and indeed, the Isle of Scilly, but the resources were there in place. We were able to, you know, abstract from the environment in such a way that we were able to replenish those going forward into the autumn period. That said, we know that there will be requirement for more resources going forwards, we are putting in plans for advancing the work for Cheddar 2, which is up at Bristol.
We've put that forward as part of the acceleration investment program that we more recently discussed with Defra. Yes, Dom, we will be looking to bolster resources, for the greater South West. In terms of second homes-
Yeah, shall I-
Yeah.
just articulate the sort of revenue level that we've got there. In terms of second homes, I think we talked about one in 2017. If you use that as a proportion of household revenue, and if you're thinking of South West Water's revenue, around 80% of that is household. Take that to proportion, and you'll get somewhere close to that revenue that's from those people. I think, you know, the whole point around this really is the thought process that if meters are in place, then perhaps the level of bill that they are paying, if they're not there utilizing the second home through a full year, might be somewhat lower than an average bill.
Mm-hmm.
That level of revenue may be somewhat suboptimal, and effectively being subsidized by the rest of the resident population, which is what we're looking at in terms of that fair charging, to make sure we can get the best outcome for the good people of Devon and Cornwall, and Bristol and Bournemouth.
...Martin?
Can I follow on from Dom's, you know, question around, you know, sort of, you know, second homes, but, you know, thinking about what you said about sort of innovative tariffication. If you were to go to seasonal tariffs, rising block tariffs, you're presumably going to have to have smart meters in place in order to facilitate that. You know, where are you at the moment with smart meter rollout, and where do you think you will get to in AMP8? On the continuation of the tub that you have in place, you know, when do you think you will be able to lift that for the good people of the South West?
Yeah, great question, Martin. In terms of our metering penetration for Devon and Cornwall, we're up at around 85%. We have some, but a modest number of smart meters in now. The tariffs that we're looking at, we are looking at how we might be able to implement them sooner rather than later with the meters we have in already as our estate. That's one thing we are looking at, because I think the need to move to a fairer basis of charging is really important. Secondly, so that we can be more sophisticated, again, with the tariffing structures that we put in place. You're right, smart metering will be incredibly helpful for that. We have advanced our program for smart metering, which again, was part of our acceleration.
We're putting in 50,000 as part of an accelerated program, so we can get those in place and see what that's telling us. Yes, it forms a key pillar for our business plan for 2025- 2030. Just to be clear, I think there's a way we can introduce tariffs now with the meter penetration we've got. Obviously, they won't be as sophisticated as perhaps where they might end up when we get with the smart metering, but that doesn't stop us looking at this now, and that's why we're going to put the pilots and trials in place to do that.
In terms of temporary use bans and the hose pipe ban, I did say in the presentation, just to be clear, you know, we are making sure we're helping our customers through this. The free water efficiency devices and the free water butts, incredibly helpful. You can use your hose pipe off a water butt. Making sure that customers can have those devices in place will help them through this period. Yes, you're absolutely right. We are looking at building our resource position. There is a graph that's in the appendix to the presentation that shows you where we are for the Colliford Reservoir and the fact that we are and have been building our resource to a good position. We need to make sure that we don't impact the environment.
We are going to be looking at our position at the end of July, and then we'll look again at the end of August, and we'll see whether we are in a position that our resources availability allows us to lift that temporary use ban. We will keep checking that. We obviously want to make sure that we're keeping customers updated with that and giving them all the ability to manage their own water use and efficiency. Okay, good. I think we're done. Thank you very much to everybody for coming this morning. Great to see you, and hopefully, we'll see you at our Spotlight event in October. Thank you.
Thank you all.