The UK Infrastructure Bank’s new strategy prioritises clean energy investments to support net zero and energy security.
A year on from its interim launch, the UK Infrastructure Bank published its first strategic plan.
The strategy sets out how the bank will address its two main goals: tackling climate change and supporting regional and local economic growth.
Its publication follows a period of consultation with stakeholders. This included a roundtable with infrastructure investors hosted by ICE earlier this year.
Here are five takeaways from the new strategy:
1. Clean energy will receive the bulk of investment
The bank has five priority sectors set by HM Treasury:
- clean energy
However, investment won't be equal across all of them.
It expects clean energy to be the largest sector in its portfolio given its importance to the UK’s net zero and energy security goals.
The rest will mostly target transport and digital.
The bank's focus will be on economic infrastructure, not social or cultural. Although, it can consider mixed projects with a significant economic element.
2. The bank aims to be a market leader in unlocking net zero solutions
To deliver net zero the Climate Change Committee predicts the UK will need to invest an extra £50 billion a year in infrastructure by 2030.
To help, the bank aims to lead the market in tackling specific infrastructure challenges within its scope.
It sees opportunities in electric vehicle charging points, retrofitting, and funding the transition to subsidy-free business models.
It'll also explore scaling-up new net zero technologies facing viability issues. For example, hydrogen, and carbon capture, usage and storage (CCUS).
This could be especially important with the Intergovernmental Panel on Climate Change (IPCC) recently reporting that using new emission removal technology at scale is vital for limiting global warming to 1.5°C.
The bank will also consider the climate resilience of the infrastructure it invests in. And, it will examine the role it can play in emerging markets, such as nature-based solutions.
3. Local investment will align with the levelling up missions
The bank has £4 billion available to lend to local governments for complex infrastructure projects.
This will align with the government’s levelling up missions.
The investment will focus particularly on employment, productivity, transport and digital.
ICE’s recent levelling up policy paper highlighted the need for clear, defined outcomes to ensure investment isn't wasted.
The paper noted the benefits of assessing local needs and recommended aligning levelling up with net zero and the UN Sustainable Development Goals.
The bank says it will ensure all its investments are place-based and in line with its dual objectives. This means any investment in economic growth won't do significant harm against its climate goals.
It's also developing pilot programmes for its role as an advisor. In this role, the bank will help build local authority capacity to deliver infrastructure projects.
4. The Bank is expected to generate a return but not replace private investment
The bank has £22 billion of financial capacity to start with. It aims to invest all funds over the next five to eight years.
During the ICE roundtable, investors expressed concerns that the bank could unintentionally crowd-out private investment.
The strategy addresses this. It points out that the bank’s work will be an addition to the market, increasing infrastructure investment in general.
The bank says it can offer concessional finance, which means it can provide finance that's below the market rate.
It also noted that it has a wider risk appetite and greater flexibility than other investors.
The bank will target areas where there's a lack of private investment and projects that can create, scale and speed up markets.
Yet, it's still expected to create a positive financial return on equity of between 2.5% to 4% a year.
5. The foundations have been laid
In the year since its interim launch, the bank has closed seven deals worth £610 million. It's mobilised over £4.2 billion of private investment.
It's opened its headquarters in Leeds and steadily built capacity.
The bank plans to reach full headcount in 2023 while phasing in more functions, like its advisory service.
Still, the bank's at an early stage and the strategy makes clear that it's not a final document.
It's intended to be flexible, and the bank will continue to refine its thinking moving forward.
ICE had long argued for a UK infrastructure bank as a key element of the country's strategic infrastructure framework.
The publication of the bank’s first strategy is an important milestone. It gives clarity to the sector about the role the bank will play.
It comes as the UK Infrastructure Bank Bill is before Parliament. The bill will establish the bank and its goals in law and protect its operational independence.
Aligned with global context
The strategy itself is broadly similar to the discussion document the bank published in January.
Yet, the impact of its stakeholder discussions and of following global events are clear.
In light of Russia’s invasion of Ukraine and rising inflation, the Chancellor told the bank to prioritise investments that focus on energy security.
The Levelling Up White Paper also provided a framework to help direct the bank’s local authority investment and advisory work.
The bank will measure the impact of its investments in terms of jobs supported, productivity and greenhouse gas emissions.
Still, the government could do more to ensure the wider levelling up agenda targets projects that deliver the greatest benefits to the places that need it the most.
Maintaining a strategic framework
The UK Infrastructure Bank Bill also offers an opportunity to strengthen strategic decision-making.
One way would be to add a formal mechanism in the bill for setting up and regularly updating the National Infrastructure Strategy.
This would ensure the UK maintains an overall strategic framework. In turn, this would guide long-term infrastructure planning and help the bank make effective decisions.