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The UK is one of the first countries to have pledged, in legislation, to reach net zero by 2050. And yet Oxford Economics researchers have found that under the current policies it is unlikely to achieve its climate goals and would need private investments to increase by two-thirds. When the US and the EU are each coming up with comprehensive green deals to attract private investments, the UK is being urged to step up.
My previous article in Compound Interest touched on how the Government could and is helping by providing subsidies to new technologies, including carbon capture, usage and storage (CCUS), or tail risk guarantees for large scale investments like nuclear. In this article, I focus on the role infrastructure investors have to play.
Infrastructure investors, especially ones with buy and hold mandates like PIC, have fully integrated the transition to net zero into their decision making. It is a mindset shift which has been accelerated by Covid. We now systematically ask ourselves how every asset sits within the transition to net zero. Not only is this key for us to provide debt purposefully, but it has become a key credit consideration to ensure we don’t end up with stranded assets in 10 or 20 years from now. We also make sure we get the right information on carbon emissions of those assets throughout the length of our debt in order to better monitor their contribution to net zero.
Upgrading water and wastewater treatment facilities can improve water quality, reduce pollution, and promote water conservation. The construction of the Havant Thicket Reservoir, in southern Hampshire, will enable the supply of up to 21 million litres of water per day to Southern Water in periods of drought, reducing abstraction from the neighbouring River Itchen and the River Test, and protect the biodiversity of these unique environments. This project was done under the new Direct Procurement for Customers (DPC) introduced by Ofwat as a model to enable large scale infrastructure projects in the water sector and bring third-party investment into the industry. PIC is keen to provide funding to more of those.
Transportation is a critical area of infrastructure that needs upgrading and decarbonising. Financing new trains that relieve overcrowding promotes public transportation while reducing CO2 emissions. A double win. Our debt financing to Corelink is a good example of how we can take part in these improvements. The investment included two new electric fleets to be built by Alstom and covering London commuter services, long distance routes connecting Birmingham to other major centres and regional services in the West Midlands. Transactions in this sector have generally been slower this year due to increasing costs in the industry at a time when government stakeholders are looking to decrease costs.
