Building back better, faster and greener

Giv­en the extra­or­di­nary glob­al health cri­sis we are liv­ing through, it would be easy for the decar­bon­i­sa­tion and dig­i­tal­i­sa­tion of pub­lic infra­struc­ture to slip down the polit­i­cal agen­da. How­ev­er, here in the UK, it’s been real­ly encour­ag­ing to see these chal­lenges being pri­ori­tised by the gov­ern­ment.

In Novem­ber, prime min­is­ter Boris John­son announced a ten-point plan to make the UK a nation rich in green infra­struc­ture invest­ment oppor­tu­ni­ties and jobs. This was swift­ly fol­lowed by the pub­li­ca­tion of a broad­er Nation­al Infra­struc­ture Strat­e­gy that has called for a rad­i­cal improve­ment in the qual­i­ty of the UK’s infra­struc­ture.

The gov­ern­ment had already cre­at­ed a legal com­mit­ment for the UK to reach net-zero green­house gas emis­sions by 2050. But by deliv­er­ing a strat­e­gy and a set of goals to help take us there, min­is­ters have made a pow­er­ful state­ment of intent and direc­tion. As an unprece­dent­ed and unpre­dictable year draws to a close, I am great­ly encour­aged by this sense of momen­tum and the impor­tant role for the pri­vate sec­tor and pri­vate finance in deliv­er­ing it. 

Infra­struc­ture invest­ment will help to accel­er­ate the nation’s recov­ery from the pan­dem­ic. But with gov­ern­ment spend­ing already stretched, the prime min­is­ter has made it clear that the £12-bil­lion state financ­ing pen­cilled in for the green indus­tri­al rev­o­lu­tion must be tripled by pri­vate sec­tor invest­ment, to the tune of £42 bil­lion. We should be con­fi­dent we can achieve this and more. The UK has already proven itself more than capa­ble of catalysing pri­vate finance to build green pub­lic infra­struc­ture.

Take off­shore wind. Long-term, effec­tive pub­lic-pri­vate plan­ning and financ­ing, includ­ing Macquarie’s own Green Invest­ment Group, which start­ed life as a gov­ern­ment ini­tia­tive, has helped the UK become the largest off­shore wind mar­ket in the world. It is because of strong pol­i­cy frame­works that we have seen the cost of off­shore wind fall by two-thirds in the past five years. It’s a tremen­dous suc­cess sto­ry for the UK and bodes well for the goals ahead of us.

To meet the government’s ambi­tion to quadru­ple the UK’s off­shore wind pow­er capac­i­ty by 2030, we esti­mate it will require £50 bil­lion in invest­ment to achieve this goal alone. It’s bold, but the invest­ment and reg­u­la­to­ry frame­works have been estab­lished. The stage is ful­ly set for this huge invest­ment to hap­pen.

We see a sig­nif­i­cant oppor­tu­ni­ty to repeat this suc­cess in oth­er tech­nolo­gies and sec­tors. There are a host of excit­ing new invest­ment oppor­tu­ni­ties that could prove trans­for­ma­tive for the nation’s eco­nom­ic and envi­ron­men­tal future, and deliv­er real region­al devel­op­ment ben­e­fits in almost every cor­ner of the UK. 

At Mac­quar­ie Infra­struc­ture and Real Assets (MIRA), we see high poten­tial in low-car­bon hydro­gen fuelling UK homes and busi­ness­es. Heat­ing for homes and busi­ness­es accounts for half of the UK’s ener­gy con­sump­tion and one third of its car­bon emis­sions. While we don’t believe hydro­gen is the only low-car­bon heat­ing solu­tion, it is a key piece of the net-zero puz­zle. One of our own busi­ness­es, nation­al gas dis­trib­u­tor Cadent, is cur­rent­ly demon­strat­ing the fea­si­bil­i­ty of blend­ing up to 20 per cent hydro­gen into the UK’s nat­ur­al gas net­work.

Car­bon cap­ture and stor­age (CCS) tech­nol­o­gy is anoth­er com­ple­men­tary method to cut the nation’s car­bon out­put. Right now, Cadent is plan­ning a new hydro­gen pipeline and the cre­ation of the UK’s first CCS infra­struc­ture in north-west Eng­land. As emerg­ing tech­nolo­gies, both hydro­gen and CCS will need clear, long-term gov­ern­ment sup­port to draw in con­sis­tent pri­vate invest­ment. The good news is we have the invest­ment frame­works already in place.

Along­side decar­bon­i­sa­tion, the UK gov­ern­ment also has dig­i­tal ambi­tions to achieve a giga­byte-capa­ble econ­o­my by 2025. For those who have migrat­ed to work­ing or study­ing from home this year, the case for full-fibre, high-speed cov­er­age across every part of the UK has nev­er been stronger; Ofcom report­ed an increase in day­time broad­band traf­fic of up to 60 per cent dur­ing the first lock­down. Each month, we are reach­ing new inter­net traf­fic peaks. The aver­age UK adult, accord­ing to Ofcom, now spends a dai­ly aver­age of at least four hours online.

Region­al dig­i­tal­i­sa­tion projects are already under­way, deliv­er­ing sig­nif­i­cant returns for investors and for the com­mu­ni­ties they serve. Hull, for exam­ple, is home to the UK’s fastest inter­net net­work, with aver­age speeds of 94.7Mbps. This is the result of inter­net provider KCOM’s sev­en-year invest­ment pro­gramme, which saw the city become the first in the coun­try to have fibre laid down in every street. Cru­cial­ly, the invest­ment led to £469 mil­lion of incre­men­tal eco­nom­ic activ­i­ty in the area. Ear­li­er this year, under MIRA’s own­er­ship, KCOM announced a £100-mil­lion invest­ment to fur­ther expand its net­work to under­served com­mu­ni­ties in England’s north.

These are just a hand­ful of oppor­tu­ni­ties for the pri­vate and pub­lic sec­tors to cre­ate flex­i­ble, well-con­nect­ed and low-car­bon infra­struc­ture across the UK. So how do we realise them?

The pri­or­i­ty for all of us is to build on the momen­tum and direc­tion set by the gov­ern­ment in the past month. This will take strong part­ner­ships across gov­ern­ment, the pri­vate sec­tor and the com­mu­ni­ties who will be the ulti­mate ben­e­fi­cia­ries of these invest­ments. “Build, build, build” is the right mes­sage. It now needs to be backed up by a team effort to “plan, col­lab­o­rate and get it done”.

The stakes are high. Done well, infra­struc­ture invest­ment stim­u­lates job cre­ation and helps deliv­er bet­ter work, health and finan­cial out­comes for the entire coun­try. It pro­vides real assets, not just in the finan­cial sense of the term, but in sol­id, tan­gi­ble improve­ments to our every­day lives, whether that be through ultra-fast inter­net access or through clean­er air and pow­er.

The scale of pri­vate cap­i­tal required to deliv­er this new era of decar­bonised, dig­i­talised infra­struc­ture will be huge. How­ev­er, I am pos­i­tive that fur­ther pri­vate invest­ment can and will come. The gov­ern­ment is push­ing on an open door: the pub­lic wants a clean­er, more con­nect­ed coun­try and the pri­vate sec­tor wants to be part of the solu­tion.

You can learn more about MIRA’s work at mirafunds.com

Pro­mot­ed by Mac­quar­ie