The report finds that up to £80 billion of essential transport and energy projects are struggling to attract project finance. Instead of reflecting a lack of available finance, the paper finds a mismatch between the types of projects the Government wants financed and the market's appetite for financing them.
The Government wants to press ahead with a new wave of large-scale nuclear power stations, renewable energy and carbon capture and storage projects. Many of these have been identified in its recently updated National Infrastructure Plan (NIP), which identifies a pipeline of specific projects it expects to be financed privately. This is where the blockage exists. The NIP seeks to attract money for projects that banks and investors are less confident financing. They are more comfortable financing less complex social infrastructure and energy schemes with a proven track record, such as on-shore wind, where the cash flows are clearly defined and underlying risks better understood.
Our report “Financing the UK's Infrastructure Needs” examines this logjam, explaining why the market considers some types of infrastructure as more attractive to finance than others. We also examine how the financing market has evolved post-crisis, including growing competition between banks and institutional investors, and offers suggestions for how the situation can be resolved.
-Government interventions should be carefully sculpted to ensure they are supporting investment activity which would not be taken by the private sector alone.
-The broader regulatory environment around infrastructure projects (particularly energy) needs to be more certain and predictable.
-The private sector needs to recast its expectations about the type of deals available. Infrastructure needs have changed and the constraints of the public finances and context of workable funding models means the world is very different now in terms of opportunities.
Above all there needs to be a much better dialogue between the financing industry, the Government (Infrastructure UK) and the infrastructure industry. This will help foster the required innovation in the financing arena to ensure that the proposed pipeline evolves from being somewhat of a wish list to a “concrete” reality.
Commenting, BBA Chief Economist Richard Woolhouse said:
“The stakes are high. The potential prize is not just meeting the infrastructure needs of the coming decades. It is also maintaining London's position as a centre of excellence in project financing and establishing infrastructure as an asset class for institutional investors.
“Failing to clear the blockages in the UK pipeline of projects threatens to hinder our economy for decades to come.”