We hear from the UK Government's Infrastructure and Projects Authority on how infrastructure investment can boost economic growth and will help to drive the recovery from COVID-19 in the UK
We hear from the UK Government's Infrastructure and Projects Authority on how infrastructure investment can boost economic growth and will help to drive the recovery from COVID-19 in the UK
In the UK, around half of the £600bn infrastructure pipeline is financed by the private sector. This is supported by a range of established tools, such as Contracts for Difference, the Regulated Asset Base Model, and the UK Guarantees Scheme.
In addition to these, over the past few years, the UK Government has used other innovative models including that of commercially managed funds in order to catalyze private sector investment into two emerging sectors in particular: ultrafast fiber and electric vehicle charging infrastructure. These sectors are being supported through two digital infrastructure investment funds, namely Digital Infrastructure Investment Partners (DIIP) and the National Digital Infrastructure Fund (NDIF), and the Charging Infrastructure Investment Fund (CIIF).
Their investments as a cornerstone investor reflect the Government’s confidence in, and commitment to, the growth potential of these sectors in the UK. The Infrastructure and Projects Authority (IPA) is the UK Government’s center of expertise for major projects. It was the IPA’s experience of working with the private sector on infrastructure and project finance which enabled it to procure these infrastructure investment funds on behalf of HM Treasury.
In each case, HM Treasury is providing up to 50% of the funds on a commercial and pari passu basis with private sector investors, with the intention for all limited partners, including Treasury, to earn a commercial return.
Following a competitive procurement process, in which all bidders were required to demonstrate their ability and experience in raising match funding and sourcing an appropriate pipeline of projects, fund managers were selected to administer the funds on behalf of Treasury. The fund managers make independent, commercial decisions on how to invest, within parameters set by the Government. This structure enables the Government to utilize the private sector’s experience of identifying the most promising development opportunities.
The Digital Infrastructure Investment Funds
With regard to the digital infrastructure investment funds, the availability of £400mn of Treasury funding was announced in the 2016 Autumn Statement. The funds were launched in 2017 with the aim of providing greater access to finance on a commercial basis to support the growth of alternative developers of full fiber digital communication networks. Investments so far from Infracapital’s Digital Infrastructure Investment Partners include: Gigaclear, which builds and operates fiber-to-the-home networks, focusing on historically underserved rural communities in England; SSE Telecoms, a leading wholesale and enterprise connectivity provider, focused on expanding its 20,000km fiber network to provide critical services to its customers (including utilities, financial institutions, the public sector, and telecom network operators) and supporting the 5G roll-out; WightFibre, the Isle of Wight’s local operator, which is being upgraded to provide full fiber coverage of the whole island; and Spectrum Internet, a Cardiff-based business and residential ISP which is rolling out fiber-to-the-home in the South Wales region.
The Amber Infrastructure Group-managed National Digital Infrastructure Fund has four investments to date; these have focused on providing high-speed broadband infrastructure and connectivity to communities and carriers around the UK, aiming to decrease the digital divide across UK regions. In particular, NDIF’s investment in Community Fibre has contributed to the roll-out of high-speed broadband to lower-income communities in a push to decrease London’s social and digital divide, and its investment in Airband is helping to drive productivity and connectivity in remote and rural communities. Together with its other investments, such as in toob and NGA, NDIF has deployed over 1,250km of fiber and passed over 200,000 premises, with fiber connections planned to be delivered to over three million premises.
The digital infrastructure investment funds have also seen competition from other financial institutions who have been active in the digital broadband sector in the last 24 months. This is an indication of success for the UK Government given that the main focus of the policy was to catalyze the deployment of commercial investment in broadband roll-out.
The Charging Infrastructure Investment Fund
Following the success of the digital infrastructure investment funds, the CIIF was announced in the 2017 Autumn Statement. Zouk Capital LLP was appointed to manage £200mn of Treasury funds and the CIIF was launched in August 2019. The aim of the CIIF is to accelerate the roll-out of publicly accessible charging infrastructure by investing in new and existing companies and projects that produce and install charge points; this is so that charging infrastructure is not an impediment to the growth of the electric vehicle market in the UK.
The fund launched with a cornerstone investment from Treasury and the Abu Dhabi Future Energy Company, Masdar. The fund's first investment was into InstaVolt, the UK’s largest owner and operator of rapid electric vehicle charging stations with plans to nationally bolster rapid charge points to a total of 5,000. The second investment focuses on providing on-street charging facilities in large cities and towns where many residents have no access to off-street parking; Liberty Charge, a joint venture between multinational telecommunications company Liberty Global and Zouk Capital, will roll out on-street residential electric vehicle charging points in the UK to address this shortage.
Despite the challenges of the pandemic and Brexit, momentum with fundraising has been maintained; this is due to significant and growing interest in the investment opportunities in electric vehicle charging infrastructure, as well as the underlying environmental impact of the strategy. The fund has attracted investment from high-profile investors from the UK, US, Australia, and Germany including The Church Commissioners for England, Willis Towers Watson's clients and investment funds, and Morgan Stanley Investment Management.
The Future of Private Finance in the UK
The UK Government continues to be committed to ensuring that the UK remains an attractive destination for private investment, to help it deliver on its commitments to transition to net zero by 2050 and to level up economic opportunities across the country. This commitment was further demonstrated, in November 2020, with the publication of the first National Infrastructure Strategy (NIS). This Strategy set out to deliver a once-in-a-generation transformation of the UK’s economic infrastructure and provide the Government’s official response to the National Infrastructure Commission’s 2018 National Infrastructure Assessment.
The Government is committed to a long-term approach to investment to provide predictability and appropriate incentives to investors, while also balancing the needs of current and future consumers. Therefore, alongside the publication of the NIS, the Government announced it will create a new infrastructure bank for the UK from Spring 2021, which will co-invest alongside the private sector in infrastructure projects. This bank will help to catalyze private investment to support the development of projects and programs across the UK, as well as provide the market with the long-term policy direction required to instill investor confidence.
Ultimately, infrastructure investment can boost economic growth and will help to drive the recovery from COVID-19 in the UK. Private investment plays a key role in this in the short term, but more importantly in the long term, by supporting and modernizing the infrastructure that individuals and businesses in the UK rely on.