As the UK Infrastructure Bank begins to share its emerging thinking on its strategic plan, ICE hosted a roundtable between the bank and senior infrastructure investors to discuss its future direction.
With £22 billion of infrastructure finance available, the UK Infrastructure Bank (the Bank) will play a key role in helping deliver net-zero and supporting regional and local economic growth across the country.
The Bank was established by the government in 2021 with a mission to partner with the private sector and local government to stimulate investment in the infrastructure needed to achieve these two strategic objectives.
The Bank has already made its first three investments, including £107 million in the South Bank Quay, part of the Teesside freeport and renewable energy project, and £100 million in Gigaclear, which specialises in deploying broadband networks in remote parts of the UK.
It will also invest up to £250 million in NextPower UK ESG, a private 10-year fund which aims to raise £500 million to invest into subsidy-free solar power plants in the UK.
The Bank recently published a discussion paper setting out its unique selling point (USP) and emerging thinking on its private sector function, specifically, where the Bank can best deploy its £8 billion of private sector capital and £10 billion of government guarantees to crowd-in private sector finance. The Bank is speaking to over 100 organisations to hear their views.
Establishing a USP
Speaking to infrastructure investors at the roundtable, the Bank emphasised that it was not set up to substitute for private capital or to hand out grants, but is required to deliver financial returns while crowding-in investment in projects needed to deliver net-zero and for levelling-up.
Nevertheless, it occupies a unique position in the sector and is expected to address problems and market failures which are impeding pursuit of those objectives.
The Bank can take on more risk than other investors would consider and indicated it would seek to act as a cornerstone investor and be open-minded about the products it can offer to enable investment, such as guarantees and concessional finance.
Indeed, participants suggested that targeting more nascent and difficult sectors, new technologies and other projects that deterred private investors could be where the Bank is of most value in developing new markets.
The Bank is required to deliver a profit, but its approach will be one of cooperation and partnership with other investors, not competition. It will seek to use its convening power and unique position, with arms in both the public and private sectors, to build networks and confidence across the sector.
During the discussion, it sought to ease concerns that, rather than crowding-in, it could actually crowd-out investors.
The Bank has scope to consider any investment opportunities that fall within its overarching objectives. HM Treasury have asked the Bank to prioritise five sectors: clean energy, transport, digital, water and waste.
There is potential for considerable overlap between the Bank’s net-zero and levelling-up objectives. Where an investment is primarily to support local and regional economic growth, the Bank will ensure that it does not do significant harm against their climate objective.
Within its priority areas, the Bank is examining a range of sub-sectors for investment challenges and signs of market failures, including floating off-shore wind, EV charging infrastructure and giga-factories, capacity shortfalls in broadband and 5G roll-out, and Carbon Capture and Storage.
Market failures may arise due to various factors, including the pace and scale of change and expansion causing shortfalls in funding and capacity or policy gaps creating uncertainty for investors and other stakeholders.
In sectors characterised by fragmentation and small projects, the Bank could act as an aggregator, creating scale for investment.
Investors highlighted other areas which are likely to require special attention, including climate resilience and legacy infrastructure that is losing the support of investors who are turning towards net-zero compliant projects.
While noting the need, the Bank cautioned that it has a specific mandate limiting the scope of investments it can make.
The Bank will publish its first strategic plan in June, which will set out its investment priorities following this engagement period.
The Bank will need to establish itself in the market through its early investments and build up its expertise in sectors that are less mature or most in need of acceleration in the UK.
In time, the Bank aims to provide intellectual leadership as investors grapple with the most challenging infrastructure requirements of reaching net-zero and levelling-up.
In the meantime, continuing to engage with organisations with a credible track record in those sectors and learning from other countries will help the Bank to build up its capacity.
Participants cautioned that the Bank should not go out chasing deals, but it is already reporting high levels of enquiries meaning that choosing the right sectors and deals will be of greater concern.
There are also important announcements from the government expected which will provide further direction to the Bank and other investors; in particular the long-awaited 'Levelling Up White Paper', which is due to be published shortly.