Sustainability and innovation
Ease of doing business
The UK government announced a National Infrastructure Strategy in November 2020. An anticipated slew of further strategies, reviews and policy papers for areas including rail, energy, electric vehicle charging, hydrogen and decarbonisation will shape the future direction of the infrastructure sector and the legislative and regulatory environment. In the meantime, much of the sector lacks visibility on the way forward, not least because there is still no replacement for the Private Finance Initiative and its successor schemes.
A funding gap?
Launched in March 2021, the National Infrastructure Bank will fund private sector projects that tackle climate change and support regional and local economic growth, partly taking the place of the European Investment Bank post-Brexit. But with initial capital of just GBP 12bn it is unlikely to support as many projects as the EIB, potentially allowing private capital a greater role.
Since 2012 England’s public authorities have had to consider social value when awarding contracts. They are now required to give social value – including economic, social and environmental outcomes for communities – a minimum weighting of 10% in tenders. Social value must be included in contracts and outcomes measured.
Scotland has similar social value requirements (without the minimum weighting rule). However, the Scottish government may seek to enhance its requirements, given the increasing importance placed on social value and the need to show how communities benefit directly from public procurement.
ESG drives investment priorities
The environmental, social and governance agenda is also evident in targets for greenhouse gas emissions. Planned legislation commits the UK to cutting emissions to 78% below 1990 levels by 2035.
Investment in renewables will receive a boost when the fourth Contracts for Difference allocation round opens in December, aiming to award up to 12GW of new capacity (more than double that of the previous round).
The secondary market for renewables has seen continued activity, with deals such as the sale of the transmission assets for the Hornsea One and Walney Extension wind farms for GBP 1.2bn and GBP 450m respectively, the sale of waste-to-energy business Wheelabrator UK, and KKR’s GBP 4.2bn acquisition of waste and resource management company Viridor.
The National Infrastructure Strategy also supports investment in other areas relating to climate change, such as nuclear power (including small modular reactors) and flood defences, as well as newer technologies such as hydrogen, carbon capture and storage, and charging infrastructure to accelerate the adoption of electric vehicles.
Major road and rail projects
Prospects for rail investment are mixed. The London-Birmingham HS2 line was given the go-ahead in February 2020, and in the autumn opened GBP 12bn of contracts to suppliers. A GBP 1.6bn rail link from Heathrow to south London will be opened to investors in the summer of 2021 – unusually it will be entirely financed and built by private investors and fully funded from revenues recouped from access charges paid by train operators. But budgeted public funding for rail investment in the years to 2024/25 has been reduced by GBP 1.0bn to GBP 9.4bn, and a lack of visibility on the project pipeline limits the private sector’s ability to plan.
The National Infrastructure Strategy envisages ‘record investment in strategic roads’ in England, with over GBP 27bn to be spent by 2025 on upgrades and significant projects, such as the new Lower Thames Crossing, which will be Britain’s longest road tunnel, and the controversial Stonehenge tunnel on the A303. Additional funding will be allocated for projects elsewhere in the UK.
A regulatory boost for telecoms
The National Infrastructure Strategy has scaled back the government’s pledge to roll out full-fibre broadband to the whole of the UK. The target is now for at least 85% of premises to have access to gigabit-broadband by 2025. But other developments are more encouraging for telecoms investors.
In March 2021 Ofcom, the telecoms regulator, relaxed price controls on fibre for Openreach, BT’s broadband network which is also used by other service providers. Ofcom also introduced measures to stop Openreach restricting investment by other providers through its commercial practices. Both BT and its competitors now have ambitious plans to expand their networks.
Ofcom’s latest round of spectrum auctions in April increased the capacity available for mobile services by nearly 20%.