Utility Week

UTILITY WEEK | APRIL 2021 | 11 Countdown to COP The UK must compete for net zero investment Chief executive's view Lawrence Slade A chieving net zero will require substantial invest- ment across both green eld and brown eld infrastructure. A recent report produced by the GIIA in partnership with PwC indicated that to nance the transition to net zero, the UK would need to attract investment in the 2020s alone of at least £400 billion. While it is fair to add that the government will also fund varying amounts of the investment required, Covid-19 has added immense scal pressure to already strained public budgets, thereby increasing the need to attract private nance. 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 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, because over the past few years foreign direct invest- ment (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, hav- ing 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, a sum nearly double pre-privatisation levels. This investment was attracted by the UK's excellent regula- tory frameworks. But over the past decade the view of many is that these "gold standards" have been steadily undermined, to an extent that con dence 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 nance to provide at least half the required investment – while acknowledging more needs to be done to mobilise this. For instance, there is an accept- ance that the UK's regulatory regime must be updated to rež ect the diŸ erent challenges of today, helping to ensure that private sector investment can be unlocked at the lowest possible cost. Likewise, there must be a clear understanding of the roles and responsibilities of regulators and governments, linked to a commitment that aligns the interests of con- sumers 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 Commis- sion 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 under- developed. There needs to be an honest conversation about the role and expectations for these technologies; their ambi- tions for hydrogen across industrial applications and domestic applications, for instance, and the gas versus electric heat debate. 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 bene ts 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 nancing deci- sions, help rebuild trust, and aid discussions around the suitability of diŸ erent nancing models across diŸ ering sectors. Also, it is of the upmost importance that the govern- ment 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 noti cations can be expected when the powers become operational. Given this, gov- ernment must ensure the unit set up to manage this and is t 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 determina- tion from government to use its powers sparingly, to help continue the view of the UK being a positive desti- nation for foreign investment. Lawrence Slade, chief executive, Global Infrastructure Investor Association The full version of this article is available to Utility Week subscribers at: www.utilityweek.co.uk

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