Green Book Review 2025: A changing foundation for investment planning in regulated utilities?

Published: 3 July 2025

The Green Book Review 2025 addresses concerns about how appraisal supports investment across regions.

The most relevant findings for utilities from the review include:

The strategic cases justifying investment is often poor and there is weak alignment to wider objectives. The case regularly fails to articulate a compelling case for change or link to place-based outcomes.
There is an over-emphasis on using Benefit-Cost Ratios (BCRs), which are used to compare the expected benefits of a project to its costs in monetary terms, to justify investment. A BCR greater than 1 means the benefits outweigh the costs, but relying too heavily on this measure can overlook wider, difficult-to-value benefits such as social or environmental improvements.
There is a lack of clarity on how to assess transformational change, i.e. large, long-term projects that aim to bring major improvements to places such as boosting local economies, “crowding in” other investment, or upgrading infrastructure.

There is also an increasing need for system-wide considerations at the individual project level to provide more spatially-focused benefits. The guidance will be simplified and made more accessible, with clearer expectations on proportionality for small and simple projects. There will also be greater transparency with greater requirements to make decision rationales visible and easier to communicate.

Summary of findings and actions

Nr.	Finding	Action
1	Lack of place-based objectives.	Bring together all projects to achieve the overall objectives for a particular place.
2	Ineffective assessment of transformational change.	Improve the Green Book guidance to appraise transformational change, independent review of the discount rate.
3	Over-emphasis of benefit-cost ratios.	Update the Green Book to provide greater clarity of the benefit-cost ratio in appraisal, no use of arbitrary thresholds (ratio of <1 does not mean poor value for money and a benefit-cost ratio ranking does not indicate value for money for allocating funding).
4	Guidance overly long and complex.	Radical simplification of Green Book and accompanying guides for start of 2026, which will include a proportionate level of detail for cases of different cost and complexity.
5	Inadequate public sector capacity and capability.	The National Wealth Fund will provide early stage development support to local government. Treasury will support government departments for more secondments.
6	Poor government business case transparency.	Government will publish business cases for major projects and programmes, providing decision-making transparency.

Next steps

A revised version of the Green Book and associated business case guidance will be issued by early 2026.
HM Treasury has committed to reviewing the social time preference rate to better account for the long-term benefits of major infrastructure and environmental projects.
A central taskforce led by HM Treasury and involving the Department for Levelling Up, Housing and Communities and the Department for Transport will define how area-based business cases should be developed and appraised.

Implications for regulatory planning

Place-based planning

The water sector already operates through spatially-focused frameworks via water resources management plans and drainage and wastewater management plans, but there is scope to better align these with local authority priorities, infrastructure plans, and community development goals.

Companies have an opportunity to do more to articulate how their schemes support local needs, e.g. enabling growth, improving social equity, or building resilience. Improved links to community outcomes would improve the strategic case for investment and help demonstrate non-financial value.

There is growing potential to develop joint options with sectors such as housing, transport or energy, especially where investments have overlapping impacts (e.g. surface water management or land reuse).

Expectations for appraisal practice

Benefit-cost ratio remains an important tool, and one which can be more accurately applied through improved quantification of costs and benefits.

However, a reduced emphasis in the future on highly technical approaches to justifying investments, such as the use of benefit-cost ratio through cost-benefit analysis, may create fundamental changes to how investments are justified. This potentially gives companies more freedom to make the case for projects that are hard to justify (quantitatively) using a technical approach or deliver system-wide or long-horizon benefits such as climate adaptation or ecological restoration, even if these are harder to value.

While benefit-cost ratio remains an important tool, its role is likely to shift from threshold to narrative device. This, in turn, may flow into changes in which regulators (particularly Ofgem) set thresholds for investment. There is an expectation for companies to be more flexible and transparent about how benefits are estimated.

The current approach to discounting assumes all future monetary values decrease over time at a constant rate, prioritising shorter-term solutions and easy-to-value benefits. A more flexible use of discounting, reflecting the characteristics of different cost and benefit categories has the potential to dramatically improve the justification for longer-term transformational investments that benefit society and environment. Leading companies will already have explored the sensitivity of their modelling to changes of this nature.

As appraisal moves towards more place-based and integrated approaches, there is a need for companies to broaden their primary toolkit beyond willingness to pay and environmental valuation. This could include demonstrating outcomes through regional, social or distributional lenses, especially for projects with significant non-financial benefits. Again, leading companies are already exploring this area, but there is a great opportunity through the next round of drainage and wastewater management plans and water resources management plans to bring 'place' to the fore.

There are potential gains from developing and assessing options jointly with other sectors where water infrastructure enables or benefits from broader local interventions.

Anticipated regulatory response

Regulators may find it difficult to relax their focus on monetised evidence and standardised methodologies, although they are unlikely to reject better-framed strategic narratives or more visible appraisal assumptions.

With less rigid use of benefit-cost ratio thresholds, companies may gain more traction through clearer qualitative articulation of outcomes that are harder to price.

Ofgem will need to consider the changes ahead of publication of gas and electricity sector final determinations in December 2025, and companies should consider how they can build the refinements into their draft determination responses over the summer.

Ofwat will certainly have time to build in the latest review ahead of business planning guidance for PR29, and companies have the chance to get on the front foot ahead of this.