After reading the National Infrastructure Plan 2014 (NIP14) released yesterday and listening to the Chancellor’s Autumn Statement, BLP considers the key themes to be:
- Funding….well that’s private - The UK budget deficit is with us for some time to come (although lower than many predicted), so true publicly financed and publicly provided infrastructure projects will be in the minority, especially as the HS2 rail project has the bulk of the projected allocations for the next 5-10 years. The NIP14 clearly sets out a landscape of private infrastructure provision, financed using private finance. The majority of new projects will be private – especially as these will be in energy, water, aviation, waste and ports and the majority of investment is from the private sector. Additionally, under the NP14, the Government will focus public funds on road, rail, flood defence and science projects.
- The missing link....infrastructure stimulates regeneration and housing - The NIP14 recognises that infrastructure can unlock and accelerate regeneration and housing projects in local areas. It is the first time a NIP clearly makes the case for the link between infrastructure and regeneration, particularly housing. The NIP14 also contains far more detail on the role of devolved administrations, regional and city growth plans. Overall, a clear link between infrastructure, regeneration and housing must be welcomed - this may have the unintended benefit of attracting real estate investors into the infrastructure investment space.
- Reforming….the planning system - well almost. There’s lots of commendable commitments including a faster planning system, with greater certainty, and appropriate flexibility. And it’s rightly about little steps rather than wholesale reform (albeit the Government’s intent to reform compulsory purchase is going to need careful watching come next year). All of the noises are good – and should reassure the industry that the Government remains pointing in the right direction on infrastructure matters - but the details really will give the full picture when they emerge - and with not many months until the General Election, the details are highly unlikely to make real headlines. So we can safely say that the aspirations are all good stuff, but let’s wait and see what the detail brings for the industry.
- Enabling….Government as an infrastructure enabler - This is a theme throughout the NIP14 – creating the conditions to allow private sector infrastructure investment and delivery, including:
- UK Government Guarantee Scheme – seen as a success and an enabler, but will this programme be extended?
- Changes to the Planning and consenting system;
- Improving client-side capability;
- World-class independent regulatory regimes promoting cross sector co-operation through the UK Regulators Network; and
- Potential for the Government to commission and sell new housing using public land – whilst not infrastructure, it is a potentially interesting policy approach and surrounding infrastructure will be needed to enable development.
- All roads North? - The creation of a northern powerhouse harnessing the potential of major northern cities is another key theme. The powerhouse is to be founded on significant improvements to road and rail networks - making better use of existing assets (managed motorways), as well as potential new capacity. The mooted acceleration of HS2 and initial planning for an east-west HS3 are designed to tantalise future devolved administrations.
- Interconnectors…..and the capacity market - There is likely to be more private investment in interconnectors as an asset class due to the very attractive risk profile. Once developed, "brownfield" interconnectors are likely to be very attractive infrastructure assets when bundled with the support of the capacity market. The potential impact on the development of CCGT plants, driven by capacity market payments, will need to be assessed against potential investment in interconnectors.
- New low carbon energy generation technology….and Contracts for Difference (CfD) - CfDs are used as a vehicle for promotion of new renewables technology, including an exciting tidal lagoon scheme.
- A less leveraged world? - The NIP14 provides a landscape for £79bn of project financing opportunities of which: Equity c.£33bn and Debt c.£45bn - not the old 90:10 models we remember. With significantly more debt and equity liquidity will there be enough deals to satisfy financial institutional appetite?
At BLP, we are excited by the wider narrative in the NIP14 – a National Infrastructure Plan that formally acknowledges the link and importance between infrastructure and urban regeneration/housing. We can only see benefits from established real estate investors moving towards infrastructure and mixed investment asset classes.
We are also very excited to see the importance placed upon the conditions for private infrastructure investment – our clients’ capital can be deployed across the globe so making the UK an attractive a destination for infrastructure development is great news for the UK.
Our whole-life approach to Infrastructure means we regularly advise and help our clients from concept phase, consenting, development, financing, refinancing, pricing regulation, asset management, disposal/exit and IPOs.
Our market leading real estate, construction and planning/environmental teams provide seamless advice on some of the most complex infrastructure development projects in the UK – a large number, we are proud to say, are highlighted in the NIP14.
We hope we can help you deliver your projects.