Utility Week

16 | MAY 2021 | UTILITY WEEK Finance & investment Analysis Investing through uncertainty The world around utilities is changing fast. What does this mean for investors and the kind of investment needed in the sector? These were the questions which spurred debate at Utility Week's Investor Summit 2021. A major shi in gears from global gov- ernments to face up to the threats of climate change is having a profound e ect on many markets, the returns inves- tors can expect from them and the nancial inputs required to capitalise on the bene ts the energy transition should entail. Nowhere is this truer than in the utilities industry where achieving targets like the UK's 2050 net zero emissions goal directly implies an expectation for billions of pounds of infrastructure investment in the inter- vening decades as well as stimulation of new markets to drive carbon o setting and unlock the potential of the demand side. To further complicate matters, all of this must be delivered at a politically and pub- licly acceptable cost, and in an environment of widespread scepticism about the legiti- macy of privately owned public services. It was in this context that Utility Week welcomed senior leaders from utilities com- panies, policy, regulation and the inves- tor landscape to its 2021 Investor Summit. Together, they explored the challenges that must be tackled to unlock a green recovery for the planet and for prosperity. In these pages, we highlight some of the topics which spurred the most lively discus- sion and animated sharing of opinion from our in‡ uential speakers. Jane Gray, content director W ith the UK's 2050 net zero target rmly enshrined in law and global focus swinging behind to need for action against a climate crisis, the requirements for investor con dence during this monumental transi- tion was an unsurprising running theme at Investor Summit. James Richardson, chief economist at the National Infrastructure Commission, set out some of the stark gures on the scale of investment needed to hit the 2050 net zero target. He quoted Committee on Cli- mate Change predictions that an additional £50' billion a year will be needed from 2030 to decarbonise the UK economy – equivalent to 15 per cent of the whole economy's capital investment or 25 per cent of private funding. While these may seem eye-watering sums, Richardson pointed out that investment on this scale is not unprecedented, citing the Comment James Wallin Digital editor "Investor confi dence is key to reaching for net zero targets" But there are still important signals that need to be communicated to unlock this capital. Dominic Nash, head of European utilities research at Barclays, summed up the situation succinctly: "Investors are simple creatures. They crave clarity." "What investors really need to hear from policymakers on net zero is how the vari- ous strategies pull together into a cohesive whole," Nash said. This was later described by UK Power Networks director of strategy and customer service Suleman Alli as "the strategic knitting". Philippe Busslinger, of Omers Infrastruc- ture, a global pension fund investor, stressed the importance of avoiding unsustain- able strategies that ultimately end up being reversed saying: "That will destroy investor con dence." There was strong support throughout the day for the regulated asset base model as a one that is trusted by, and familiar to, both investors and governments. But there was also a recognition that fresh models will be needed and potentially new types of inves- tors whose risk appetite ts the particular challenges of emerging technologies. As Ovo Energy's chief nancial oœ cer Bill Castell put it: "Net zero is big enough for many winners." situation in the 1950s when c15 per cent of total investment was going into the electric- ity system. Liz Barber, chief executive of Yorkshire Water, meanwhile mentioned gures from the Global Infrastructure Investor Associa- tion which show that foreign direct invest- ment (FDI) in UK infrastructure shrank from £192'billion in 2015 to £35.6 billion in 2019. Against this backdrop of declining FDI, the obvious and urgent question, she said, is how the UK can mobilise the investment needed to decarbonise energy and ensure critical infrastructure is resilient to the impacts of a changing climate. A panel of senior industry investors was clear that there is signi cant pent-up inves- tor demand and that the UK remains a sta- ble and attractive market for those looking to deploy funds.

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