Infrastructure Insights: The road to building back better – private sector priorities for the UK Infrastructure Bank - Watson Farley & Williams

< Back to insights hub
As part of the UK government’s “build back better” response to the Covid-19 pandemic, the UK Infrastructure Bank (“UKIB”) was launched in June 2021 as a government-owned policy bank.
“…the range of tools at the UKIB’s disposal appears to be fairly broad…”
Perhaps unsurprisingly in a post-Paris Agreement (and post-Brexit) world, at its core the UKIB’s investment activity will be guided by two strategic objectives:
The UKIB started life with a financing capacity of £22bn, comprising of:
Its stated intention is to operate across a range of sectors, prioritising the clean energy, transport, digital, waste and water sectors, strategically positioning the UKIB to occupy the role vacated by the European Investment Bank (EIB) in the UK post-Brexit.
It is notable that the January paper does not exclude the possibility of investment in other sectors, flagging HMT’s expectation that the UKIB will unlock more than £40bn of overall investment.
Interestingly, and encouragingly for the market, the range of tools at the UKIB’s disposal appears to be fairly broad, including loans, mezzanine debt, guarantees and equity investment. The January paper makes it clear that, for the right deal, the UKIB is willing to accept higher levels of risk than commercial market participants ordinarily would, and confirms “we do not have a preferred investment type”.
Within the sphere of private sector investment, the UKIB has expressed a willingness to prioritise projects where there is an “undersupply of private sector financing”, or where private sector financing fails to reflect the full social benefits of a project.
Potential private sector funding gaps and opportunities identified in the January paper include:
< Back to insights hub
Partner London
T: +44 20 7155 2741
M: +44 7525 891 384
View profile
Senior Associate London
T: +44 20 7814 8237
M: +44 77023 67143
View profile
“…public sector support to plug a perceived funding gap for UK digital infrastructure…”
Mature clean technologies with strong access to finance present a weaker case for investment, except where such investment would:
The UKIB will still monitor the sector for any emerging financing capacity gaps in mature clean technologies.
The January paper emphasises the value proposition presented by the transport sector, identifying opportunities for alignment with the UKIB’s net zero and local and regional growth objectives.
Areas earmarked for potential involvement include:
The UK government’s £5bn Project Gigabit initiative underlines the perceived need for public sector support to plug a perceived funding gap for UK digital infrastructure, which private funding alone may not be able to fill.⁴
The UKIB expects to prioritise emerging delivery and business models, including supporting 5G rollout and technologies which have not yet been deployed at scale in the UK.⁵
The case for UKIB investment in the water sector in the immediate short term is presented as a less compelling option.
Unlike RAB model-supported new nuclear projects, the RAB model-supported water sector is judged to have sufficiently strong private financing support.
However, the UKIB does not pull the plug on the water sector – it proposes what is best characterised as a “wait and see” approach, which includes tracking the impact of Ofwat’s Direct Procurement for Customers model and the developments of other models and future project proposals (including those which are being developed by DEFRA).⁶
“…true to its word, the scope of projects has been broad, from fibre broadband rollout, to port infrastructure, to subsidy-free solar.”
The Energy from Waste sector’s shift towards net zero is earmarked by UKIB as a viable target for support, either through development of new projects, or retrofitting existing plants which have a “clear and deliverable plan” on CCUS and/or substantial heat offtake.
The January paper presents a positive message for those interested in (among others):
Next on the agenda for the UKIB is the publishing of its first Strategic Plan, scheduled for June 2022. The Strategic Plan will flesh out the KPIs which the UKIB intends to hold itself accountable against and will also deliver the outcome of the UK government’s review into whether UKIB should broaden its primary initial focus, to include improving the UK’s natural capital (in addition to climate change mitigation and resilience).
The January paper is quick to emphasise it is not a formal consultation document, nor is it intended to be a first draft investment strategy. However, it does welcome stakeholder views (particularly prior to 25 February 2022) as part of a wider engagement exercise which the UKIB will undertake in the weeks following publication of the January paper, as it builds towards the release of the Strategic Plan.
The UKIB has already made significant investments in the private sector and, true to its word, the scope of projects has been broad, from fibre broadband rollout, to port infrastructure, to subsidy-free solar. The scale of financing capacity at its disposal, the flexibility of financial products and structures on offer and its willingness to engage with stakeholders, all suggest there will be plenty more to come.
[1] For more information, please see the UKIB’s March 2021 Policy Design document.
[2] For example, UKIB’s £250m matched funding commitment to the NextPower UK ESG fund, which is dedicated to subsidy free UK solar.
[3] For example, UKIB’s £107m investment in a 450m quay designed to service the offshore wind sector, as part of the Teesworks Freeport Project.
[4] See HMG’s March 2021 press release for more information on Project Gigabit.
[5] For example, UKIB’s £100m co-investment, along with commercial banks, in Gigaclear’s high-capacity broadband rollout.
[6] See Ofwat’s catalogue of key resources on the subject.
< Back to insights hub
Partner London
T: +44 20 7155 2741
M: +44 7525 891 384
View profile
Senior Associate London
T: +44 20 7814 8237
M: +44 77023 67143
View profile
Read more
Read more
Read more
Looking for someone?
Or view everyone
More about us
Visit our Insights Hub
Read more
Read more
Read more
Looking for an Office?
or
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again
Search again

source

By admin

Leave a Reply

Your email address will not be published.