It is no secret that infrastructure investment is a cornerstone of the UK government’s plan for economic recovery. The Autumn Statement identified well over £300 billion of capital required to be invested in new UK infrastructure.
The global financial crisis has increased the demand for stable, yielding assets – infrastructure assets provide exactly that and there is no shortage of capital willing to invest in core European economies such as the UK.
However, a large sum of capital and foreign investment will be required to reach the target. Investors will also expect to earn a return on, and return of, capital. The government will have to ensure that both regulation and legislation are transparent, consistent and attractive to ensure these sums can be raised.
At the same time, government and regulators face the challenging task of ensuring customer bills are affordable – all against a backdrop of low economic growth and a government in a weak fiscal position.
In the end it is customers and taxpayers who pay for new infrastructure spending decisions, as well as the ongoing cost of maintaining the infrastructure.
Improvements in the water, gas and electricity sectors will be funded by increased utility bills. The Department of Energy and Climate Change’s central projection is for an 18 per cent increase in energy bills, in real terms, by 2030. This will exceed household income growth and put pressure on household affordability.
Despite these challenges, the UK needs this investment to replace ageing assets, meet EU policy commitments, ensure security of supply and service the needs of a growing population.
Companies will be under scrutiny to ensure that every project delivers value to the consumer. Regulatory bodies are already beginning to recognise this importance and are encouraging companies to engage with representatives of the end-user. As institutional investors look closely at the opportunities ahead in UK infrastructure, this will be a factor they cannot afford to ignore.
Daniel Wong, head of power & utilities, infrastructure and real estate, Macquarie
Capital Europe