Lawrence Slade, chief executive, Global Infrastructure Investor Association Countdown to COP, Finance and investment, Low-carbon generation, Policy, Policy & regulation, Regulation, Strategy & management, Water, Opinion

Leading private investors in infrastructure are estimated to have at least $200 billion of “dry powder” available for deployment. However, for the UK to unlock this potential to power its decarbonisation push there is an urgent need for regulatory reform and political clarity, writes GIIA chief executive Lawrence Slade.

Infrastructure is of course key to modern life, and even while many of us are now no longer commuting, digital networks have replaced transport infrastructure as being essential to our everyday lives.

As we progress further into the 2020s and as the pressure to decarbonise our economy to meet our 2050 net-zero carbon goals becomes stronger, so will the pressure grow to ensure that our infrastructure is fit-for-purpose not just for today but for decades to come.

Worryingly in the most recent Global Infrastructure Investor Association (GIIA) and Ipsos MORI report 65 per cent of people think that Britain is not doing enough to meet infrastructure needs – a figure that, for instance, indicates that the UK lags behind other G8 countries.

Achieving net zero will require substantial investment across both greenfield and brownfield infrastructure. A recent report produced by the GIIA in partnership with PwC indicated that to finance the transition to net-zero, the UK would need to attract investment in the 2020s alone of at least £400 billion.

While of course, it is fair to add that the government will also fund varying amounts of the investment required, Covid-19 has added immense fiscal pressure to already strained public budgets, thereby increasing the need to attract private finance.

However, to complicate matters, the UK is not the only nation or trading bloc to have committed to net zero, and the huge investment this entails. Given the scale of investment needed around the globe, the UK must ensure that it has the appropriate policy and regulatory frameworks in place that will ensure it can compete to attract capital from long-term investors.

This necessity should not be taken for granted as over the past few years, foreign direct investment (FDI) levels overall into the UK have been falling. The House of Commons Library shows that by 2019 FDI had fallen for the third consecutive year since 2016, having peaked at £192 billion in 2016 to £35.6 billion in 2019.

So, what needs to be done?

Over the past few decades, the UK has seen hundreds of billions invested in its water and energy networks alone, a sum that is nearly double pre-privatisation levels. This investment was attracted by the UK’s excellent regulatory frameworks. But, over the last decade, the view of many is that these “gold standards” have been steadily undermined, to an extent that confidence has reached a low point at the very moment when the UK needs to increase FDI.

The long-awaited National Instructure Strategy (NIS) laid out the welcome expectation that substantial levels of private capital will be required to meet the UK’s infrastructure investment needs – HM Treasury expects private finance to provide at least half the required investment – while acknowledging more needs to be done to mobilise this. For instance, there is also an acceptance that the UK’s regulatory regime must be updated to reflect the different challenges of today, helping to ensure that private sector investment can be unlocked at the lowest possible cost.

Likewise, there must also be a clear understanding of the roles and responsibilities of regulators and governments, linked to a commitment that aligns the interests of consumers in both the short and the long term.

But regulatory reform is just part of what needs to happen if we are to see the required levels of private investment in the UK’s infrastructure across the length and breadth of the country, helping to deliver against not just the net-zero agenda but importantly helping to meet the government’s levelling up ambition.

The publication of the NIS, the Energy White Paper, and other government policy papers has provided an encouraging glimpse of the government’s direction of travel. However, as the National Infrastructure Commission recently called for in its 2021 Monitor Report, we desperately need a clear framework that sets out the delivery plan that will achieve these policy goals; a plan that will provide investors sight of a strong pipeline of projects laid out over the next few decades.

The government needs to work with industry to resolve issues tied to more nascent technologies such as CCUS and hydrogen where revenue models are underdeveloped.

There needs to be an honest conversation about the role and expectations for these technologies; their ambitions for instance for hydrogen across industrial applications and domestic applications and the gas versus electric heat debate for example.

Only when investors and industry can see these answers and can judge how the government is seeing the risk and reward balance can sensible decisions be made.

Over the years there has been much debate about the benefits of private investment in the UK’s infrastructure. We strongly recommend that all parties work together to build a strong transparent evidence base that can allow stakeholders to make accurate performance evaluations of the value of private investment in, and operation of, our infrastructure.

This will assist and improve future financing decisions; help rebuild trust and aid discussions around the suitability of different financing models across differing sectors.

Also, it is of the upmost importance that the government should carefully consider the application of powers granted by the National Security and Investment Bill. The scope of the bill is very wide, creating the likelihood that a large volume of notifications should be expected when the powers become operational. Given this, government must ensure that the unit set up to manage this is fit for purpose from day one, ensuring any delays in deal approval are kept to a minimum and that there is as much transparency as possible around decisions.

Moves to encourage early informal advice are to be welcomed, this should be combined with a determination from government to use its powers sparingly, to help continue the view of the UK being a positive destination for foreign investment.

As we approach COP26 the government, regulators, and investors must work together across this agenda to stand a chance of delivering the scale of ambition for UK infrastructure. It is often said that there is no shortage of money, and indeed the GIIA estimates that the leading private investors in infrastructure have at least US$200 billion of “dry powder” available for deployment, with new funds being raised all the time.

But there is a shortage of time.

When net zero 2050 was announced, there were 122 quarters before 2050. Since the legislation came into being on 27th June 2019, we have burnt through six of these and are nearly through the seventh. As a country we have the technology, skills, and businesses; let’s not waste any more time and ensure we get the right frameworks in place to guarantee we also have the required levels of investment from private as well as public sources.

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