Utility Week

20 | 27TH MARCH - 2ND APRIL 2020 | UTILITY WEEK Finance & Investment T he government may rightly have turned its atten- tion to combatting the coronavirus, yet major infra- structure decisions still wait to be addressed. Speaking before the outbreak redrew immediate national priorities, chair of the NIC, Sir John Armitt, said asking the right questions from the start was vital. Armitt was also speaking shortly before news that the government's National Infrastructure Strategy (NIS) would be further delayed. The commission therefore still awaits a formal response to its own National Infrastruc- ture Assessment (NIA) from 2018 and Armitt's hard-hit- ting message to the Investor Summit prevails. On achieving change "Defining the specific outcomes being sought when we approach major public infrastructure projects is abso- lutely key to building consensus, attracting investment and unlocking wider economic opportunity," he said. "All the areas we are discussing today… the urgent need to decarbonise our economy and the current politi- cal impetus behind levelling-up our economy… can only be fully effective if we spend some time deciding on the exact outcomes we want and the ways those outcomes can be achieved… Major infrastructure decisions need to be organised within a cross-departmental, cross-govern- ment, long-term strategy." Armitt outlined four key tests for the government's NIS "to be worthy of the name": a long-term perspective; clear goals and plans; firm funding commitments; and a genuine commitment to transformational change. On the net zero imperative The government has legislated for net zero since the NIA, accepted Armitt, but he added: "While the rec- ommendations were set under a previous context, this further ambition underlines the urgency and importance of several of them, including deliv- ering a highly renewable, flexible, 21st- century power system, with at least 50 per cent renewable generation by 2030." Pointing to a critical need for evi- dence trials for e-pumps and hydrogen heating to help deliver a net zero com- patible heating solution, he warned: "I believe if those trials are not concluded and [do not] actually come up with some real conclusions in the next five or seven years at the latest, we have zero chance in reaching net zero by 2050." Event Utility Week Investor Summit, 5 March, London Asking the right questions There was "a clear role" too for the regulatory frame- work to help electricity networks facilitate electric vehi- cle charging infrastructure. But he told the City audience: "While net zero creates many challenges for utilities, importantly for investors it creates many opportunities. The Committee on Climate Change has estimated the target is expected to require £20 billion of investment a year in the power sector until 2050." On levelling up Armitt welcomed the government's clear ambition to drive employment opportunities and prosperity, across the North of England in particular, but cautioned it to look closely at what the communities themselves require. City leaders need new powers and adequate fund- ing settlements to unlock a potential myriad of urban projects supported by public and private funding. "But, crucially, they would be designed in the town hall rather than Whitehall." On regulation "Good infrastructure, supported by public and private investment, requires the regulatory system to be effective and responsible to the evolving context," said Armitt. "Critically, we also recommend regulators should focus standard periodic price controls on the mainte- nance of existing networks." It may be, he added, that "major strategic investment should be removed from that process and open to competition to support innovation". On legitimacy Ensuring public trust in the regulatory system was "para- mount", he said. This benefits investors in a system with "high political and public confidence, and a lower risk of political intervention". "However, the price for this, and investors, is that building public confidence requires some rebalancing of where the risk is borne. I believe there are a huge num- ber of politically rewarding opportunities for investors, but they should be prepared to accept a proportionate rate of return for low-risk infrastructure investments in the RAB [regulated asset base]. "Even when, especially when, there are tempting options available that might be politically expedient, or generate greater profit – with no corresponding benefit to the public – being willing to ask colleagues, clients or contractors the right questions to get to the core of the objectives behind the brief is the route for aligning cus- tomer, environment and financial priorities." The conversation Calling for proper, grown-up public discourse on net zero, Armitt said: "Net zero is going to cost. Without a public understanding of that, it's going to be very diffi- cult for the regulator to achieve that balance." "Why I get excited, is that we have what I describe as our 'man on the Moon challenge'. Except that we need 30 years; and 30 years is not a particularly long time in infrastructure terms. " Suzanne Heneghan, editor, Utility Week magazine Huge unknowns continue to loom over the future of the country's national infrastructure but "asking the right questions" is critical, chair of the National Infrastructure Commission Sir John Armitt told Utility Week's Investor Summit. "There are a huge number of politically rewarding opportunities for investors, but they should be prepared to accept a proportionate rate of return for low-risk infrastructure investments"

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