Depreciation, Affordability, and the Hidden Trade-offs in Infrastructure Investment

Infrastructure debates tend to focus on what should be built next. Yet a more fundamental question sits beneath them: how quickly should we pay for what has already been built?

That question goes to the heart of depreciation. As discussions at the March roundtable underscored, it is emerging as a central lever in infrastructure economics and regulation. How does intergenerational fairness impact affordability?

Depreciation directly shapes returns, bill trajectories, and risk allocation over time. Choices on depreciation determine how costs are distributed between today’s consumers and future ones, making it a central lever in balancing affordability, investment incentives, and long-term system planning.

A system already carrying a high asset base

The UK approaches this question from an elevated starting point. It has a large existing asset base, much of which is already embedded in consumer bills.

Across energy, water and transport, the Regulated Asset Value (RAV) per capita is amongst the highest in Europe. In electricity and gas networks alone, asset values exceed £1,000 and £500 per person respectively, around 60 to 100 per cent higher than in Italy and Spain. Total electricity, gas, water, and rail RAV amounts to roughly £3,000 to £3,400 per person in the UK and Belgium, 60 to 110 per cent above some European peers.

Both consumer bills and investor returns are directly linked to the RAV. Higher RAV means that returns on regulated assets add around £60 to the average electricity bill in the UK, compared with roughly £30 in Italy or Spain. In gas, the comparable figures are £28 versus £10 to £20.

Depreciation as a policy lever

Depreciation determines how quickly the RAV is paid back to investors. It has a direct impact on bills today and in the future. Accelerated depreciation increases bills today but lowers future RAV and bill impacts. Decelerated depreciation does the opposite: lower bills now, but a larger residual burden over time.

Regulatory approaches on depreciation are beginning to diverge. In gas, Ofgem has accelerated depreciation for new assets in line with their Net-Zero related discontinuation. In electricity, by contrast, the priority is enabling large-scale network expansion to support electrification, while managing the impact on bills.

There is, however, little consensus across sectors. When roundtable participants were asked whether depreciation should be accelerated to bring UK asset values closer to international benchmarks, views split sharply. Some favoured faster depreciation to reduce long-term costs and align with peers. Others argued for maintaining current profiles as a balance between affordability and investment incentives. A third group supported slower depreciation to ease immediate bill pressures, even at the cost of higher future liabilities. However, the dominant view was that depreciation policy cannot be applied uniformly, and must reflect sector-specific dynamics.

This divergence reflects a deeper reality. Depreciation is not merely an accounting convention. It is a distributional choice, one that determines how costs are allocated over time.

The regional dimension: where depreciation meets inequality

These trade-offs become more acute when viewed geographically. The analysis draws on modelled infrastructure asset data from Vallorii Asset Intelligence, providing a granular view of regional variations across the UK.

Infrastructure asset values vary significantly across the UK. In London and Birmingham, they stand at around £2,700 per person. In Wales, they rise to approximately £4,300: some 60 per cent higher. At the same time, incomes tend to move in the opposite direction, with lower average earnings in higher-cost regions.

The result is a pronounced divergence in affordability. Measured relative to income, the infrastructure burden is roughly three times higher in Wales than in London.

Depreciation interacts directly with this imbalance. Faster depreciation raises near-term bills, disproportionately affecting regions already under pressure. Slower depreciation defers costs, but locks in higher asset values that future consumers, often in the same regions, will have to fund.

This raises a related question: should regional disparities be actively mitigated? Here too, views diverge. Most participants supported cross-subsidisation between regions; others pointed to cost reductions or service adjustments as more appropriate tools.

What is striking is that depreciation itself is not seen as the mechanism for addressing regional inequality. The debate instead separates into two distinct questions: who pays, and when. Redistribution addresses the former; depreciation governs the latter.

The debate instead separates into two distinct questions: who pays, and when.

An intergenerational choice

At its core, the depreciation issue is one of timing.

Depreciation determines how costs are shared between current and future consumers. Accelerating it brings costs forward; slowing it pushes them back. Neither reduces the total cost. Both reshape its distribution.

As infrastructure investment accelerates, driven by decarbonisation, environmental standards and resilience, the size of the asset base will continue to grow. The pace at which those costs are recovered will become increasingly consequential.

Depreciation, in other words, can no longer be treated as a technical detail. It sits at the intersection of affordability, investor risk and long-term system planning, shaping not just how much consumers pay, but when they pay it.