Aviva Investors, Darryl Murphy, Head of Infrastructure
Q. How is the world of infrastructure investment changing?
Infrastructure investment in the United Kingdom is most closely associated with building roads, railways and bridges, but the whole sector has undergone a fundamental change over the last ten years and particularly in the two years since the COVID-19 pandemic began.
The race to net zero is also having a dramatic impact on the infrastructure world, because investing in transport can seem to contradict sustainability principles even if in the longer term this investment can lead to a reduction in carbon emissions.
Ten – and certainly 20 – years ago, the concept of levelling up or rebalancing Britain would have hinged on public-private partnerships between contractors like Balfour Beatty and Carillion, but Government is now dissuaded from taking this route. Carillion’s dramatic collapse in January 2018 with GBP 7bn of debt, at a time when it was still a major player in the UK’s hospital building programme, was perhaps the last straw.
The whole trend now is for infrastructure which does not generate a direct economic return and is funded by the taxpayer to be financed purely through the public purse. The public sector can borrow at far lower rates than private contractors, so it makes sense, but that does not mean private sector infrastructure investment has come to an end.
Q. So what infrastructure is the private sector now financing?
There are large swathes of infrastructure which are now far more suitable for private sector investment – or publicprivate partnerships – than only traditional roads, railways and bridges.
This often hinges on new concepts, sometimes focused on the theme of net zero.
For example, the roll-out of electric vehicle charging points across the United Kingdom could be co-ordinated across multiple regions by a single private sector company which, having struck a deal with a collection of local authorities, would anticipate making a profit.
New district heating networks can also make a good and relatively low-risk return for the private sector, and we have already seen that the private sector can be a rapid and efficient partner for the rollout of broadband across the country.
But politics intervenes in the world of infrastructure as well. Despite net zero emissions being a key target and three COVID-19 lockdowns causing road usage to plunge, we are yet to see the Government reconsider the use of road pricing in the United Kingdom. This is because such a move would likely be highly unpopular, and considered a big vote loser by any political party introducing it with a private sector partner.
Q. How can infrastructure investment be co-ordinated across towns and cities to help their renewal?
Is there an argument for localised investment funds which are co-ordinated by the public sector and bring to the table valuable projects for the private sector to participate in?
Manchester has been very entrepreneurial in promoting electric vehicle charging, but the question remains as to whether local authorities have enough autonomy to support infrastructure without Government departments stepping back in to take control of the process.
Having a plan for infrastructure is important: we have had a National Infrastructure Plan, but there aren’t many infrastructure plans at a city or regional level, meaning it’s very uneven across the country.
Fibre is about the most popular tier of infrastructure investment right now, with numerous alternative networks (alt-nets) in the market for financing and investment.
These networks are estimated to be planning to spend GBP 12bn in creating full fibre connectivity between 2021 and 2025, and in that sense will play a very big role in the renewal of town and city centres, improving the connectivity of otherwise neglected regions and supporting the Levelling Up agenda.
Q. What other new infrastructure technologies will we see?
There is growing interest in hydrogen trains and e-buses (or electric buses) which store electricity on board and which are particularly prevalent in China with 99% of all battery electric buses in the world and 421,000 buses on the road.
Carbon capture, usage and storage as well as the development of hydrogen are also sectors seeing interest from investors, whilst nuclear power is making a comeback in conversations, particularly as Europe reduces its reliance on Russian oil and gas.
Private sector infrastructure investment will have a massive part to play in the Levelling Up agenda – but perhaps not in the way that most people are anticipating, which is often based on its historical role.
The public sector will finance social and public transport infrastructure because it is now considered to be best placed to do so. But there is a vibrant role in Levelling Up for the private sector in new, net zero focused infrastructure which can play just as critical a role in renewing towns and cities but which needs the innovation for which the private sector is best known.
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Name: Darryl Murphy
Title: Head of Infrastructure
Company: Aviva Investors
