- Government policies have 'spooked' renewable energy investors
- Stability would make the UK a more attractive market
The UK government needs to prioritise renewables and provide clarity on its plans for the infrastructure sector in order to restore investor confidence, infrastructure trust managers have argued.
From details of a potential revenue cap on renewable energy generators to commitment to sustained infrastructure investment and a focus on energy efficiency, sector leaders have quite the wish-list for the Sunak government.
Restoring faith
“The government has threatened a number of policies of late that have spooked the investment community,” said Ross Grier, managing director at NextEnergy Capital, which manages the £700mn NextEnergy Solar (NESF) trust. “It is not too late to restore faith in the sector, but it must be done immediately.”
Renewable infrastructure trust valuations fell quite sharply from the end of September, initially on the back of the 'mini' Budget and later as a result of the government announcing a revenue cap for the sector, without providing details of the level it will be set at. They have since partly recovered, but are still feeling the impact of investor worries over the cap and over rising interest rates hitting valuations.
Grier said that any sort of windfall tax has to take into account “the real entity generating a windfall” and “the investment in the UK that has already been made and is set to be made”.
“Investors in renewables have not had any support when power prices have fallen so they must be treated fairly when there happens to be a short-term gain,” he said.
Clarity on projects and funding
Core infrastructure investment trusts such as HICL Infrastructure (HICL), International Public Partnerships (INPP) and BBGI Global Infrastructure (BBGI) have less direct exposure to energy issues, but invest in public-private partnerships (PPPs), so governments are important actors in their investment processes.
Last month, Australia’s IFM Investors, one of the world’s largest pension fund managers, told the FT that the UK needed a “clear plan” for new infrastructure projects if it wanted to attract more foreign investment. Duncan Ball and Frank Schramm, co-CEOs at BBGI, which has about a third of its portfolio in the UK, agreed with this assessment.
“The UK government must be clear about what projects it wants to deliver and which projects it will fund on its balance sheet and for which it wants private investment brought in,” they said.
The managers’ wish-list also included exploring new delivery models for attracting private finance to infrastructure projects, and putting sustainability at their centre.
The three core infrastructure trusts also saw their share prices drop sharply following the September 'mini' Budget, and have been on a bumpy road to recovery since. BBGI maintained that despite the 'mini' Budget turbulence, there are still significant amounts of private capital that are looking to invest in government-initiated infrastructure opportunities in the UK – stability and a clear plan from the government would ensure that it remains an attractive market.
Attractive
Jonathan Maxwell, chief executive of SDCL, noted that for his company the UK market “strangely looks quite attractive”. SDCL Energy Efficiency Income Trust (SEIT) is the biggest of a sub-sector of trusts that focus on energy efficiency and on the energy transition, and has about 15 per cent of its assets in the UK.
“[The UK] is quite attractive because it’s got big problems,” Maxwell said, explaining that in a country where energy prices are volatile and buildings are extremely inefficient, solutions that aim to reduce the amount of wasted energy become more valuable.
From an energy-efficiency perspective the European Union is ahead of the UK, according to Maxwell, who said he would like to see chancellor Jeremy Hunt “put an efficiency lens over everything” in his upcoming Autumn Statement.
A more organic and comprehensive approach is a big part of what infrastructure investors, and particularly renewable energy investors, want from the government.
“It’s no good, as successive administrations have done recently, to harp on about the amount of renewable capacity you're going to put on the grid, and see that as a badge of honour for tackling the energy transition – you need to go beyond that,” said Richard Lum, co-manager of VH Global Sustainable Energy Opportunities (GSEO), a trust that focuses on the energy transition and has a third of its assets in the UK.
Lum’s list of priorities also included energy efficiency and behavioural changes, as well tackling what he called the “Holy Grail” of achieving a sustainable energy system underpinned by renewables – storage. Not just in terms of batteries, but particularly in terms of long-term storage technologies that can help tackle the intermittency of renewable energy supply.
“A lot less talk about panaceas, such as nuclear power, given the risk that is involved in that, and more about providing leadership to achieve a truly sustainable system across the grid,” Lum concluded.
