Affordability does not affect infrastructure investment directly. It affects it through politics and regulation.

As utility bills rise faster than household incomes, political sensitivity to pricing decisions increases. That sensitivity, in turn, raises the risk of intervention in regulatory frameworks, cost recovery, and allowed returns. For long-lived capital-intensive infrastructure assets, this mechanism matters because it changes not the need for investment, but the returns investors require to commit capital.

This is the channel through which affordability becomes a cost of equity risk.

From household pressure to political risk

High utility bills are consistently among the most important concerns for UK voters. Survey evidence shows that concerns about energy costs, fuel poverty, and broader cost-of living pressures dominate perceptions of financial vulnerability.

As affordability deteriorates, tolerance for further bill increases declines. This raises the likelihood of political and regulatory intervention, particularly where large capital programmes imply sustained upward pressure on bills. Interventions can take many forms, including changes to allowed returns, adjustments to cost recovery timelines, or delays and re-scoping of investment plans. What they share is increased uncertainty around future cash flows.

This risk is especially acute for large, irreversible infrastructure projects, where capital is committed upfront and returns depend on stable regulatory commitments over decades.

In practical terms, affordability stress increases the probability that investors do not earn what they expect, not because assets fail technically, but because the political environment changes.

Pricing affordability-driven political risk

Vallorii’s VAPRI framework is designed to translate political and regulatory risks into cost of equity and valuation impacts, rather than leaving them as qualitative concerns.

Applying VAPRI to electricity network and transmission investments exposed to affordability-driven political risk, the analysis estimates cost of equity uplifts of approximately 30-130 basis points. The range reflects differences in exposure to future capital programmes, particularly those linked to offshore wind build-out and long-term demand expectations.

For north to south transmission projects developed under the ASTI programme, the uplift reflects heightened sensitivity to political risk. Investment decisions made today depend on future consumers’ willingness to pay for infrastructure whose benefits accrue over long horizons and whose costs are recovered through regulated bills.

These are not marginal effects. For capital-intensive sectors, shifts of this magnitude materially affect hurdle rates, financing costs, and investment viability.

Figure: Cost of equity impacts for electricity networks and transmission projects

Risk is not uniform

An important nuance in the analysis is that affordability-driven political risk does not affect all assets equally.

Exposure varies by project type, timing, and scale. Transmission operators with large anticipated additions to their regulated asset base face greater sensitivity to changes in political sentiment than those with more limited capital expansion. At the company level, the same affordability backdrop can therefore translate into different cost of equity impacts.

This dispersion matters. It explains why political risk is priced into some assets and not others, and why aggregate sector averages can obscure the underlying drivers of required returns.

A shared conclusion

This framing resonated strongly at the January Roundtable.

In polling during the session, participants broadly agreed that affordability creates material, non-diversifiable risks for infrastructure investment, and that these risks should be reflected in required returns rather than assumed away through diversification or contracting. The discussion repeatedly returned to the same point. When affordability is ignored in financial analysis, it tends to reappear later as political intervention.

Figure: Poll results from the January Roundtable

Why this matters now

Affordability is a clear transmission channel from household economics to political risk, and from political risk to capital markets. As bills rise faster than incomes, the stability of long-term regulatory commitments becomes more uncertain, particularly for assets that rely on sustained bill increases to recover capital.

Vallorii’s analysis makes the link explicit. By combining forward-looking affordability forecasts with the VAPRI framework, it translates household-level pressure into measurable impacts on cost of equity and valuation.

Affordability is no longer a social or distributional concern. It is a priced political risk that increasingly shapes the cost of capital and, in turn, which infrastructure investments proceed.