The UK’s new political landscape looks set to kick-start a number of opportunities for infrastructure investors. Labour has set its sights on ambitious targets, with decarbonising the electricity grid by 2030, and achieving net zero by 2050 at the forefront of the party’s agenda. Early steps, like the creation of Mission Control led by Chris Stark, and the establishment of Great British Energy, signal a strong commitment to achieving these objectives.
One notable highlight is the recent success of the sixth auction round under the Contracts for Difference (CfD) mechanism, which saw over 9GW of new capacity awarded across sectors such as offshore wind, solar PV (photovoltaics), and tidal stream energy. This competitive process demonstrated a return to significant capacity delivery, especially when compared to prior auction rounds that underperformed. The resurgence signals the potential for rapid advancements in renewable energy deployment.
The countdown is on: just five years to transform UK energy
The path to decarbonisation will not be without its obstacles. Over the next five years, the UK’s infrastructure sector faces immense pressure to ramp up development, especially if it aims to meet the 2030 grid decarbonisation deadline. Encouragingly, the foundations for growth, such as hydrogen and carbon removal business models, have already being laid. The UK is also exploring the role of biomethane in achieving decarbonisation targets across electricity, heat and transport. This breadth of focus suggests that the UK could become a pivotal investment hub for decarbonisation, backed by new government revenue support models.
Two significant headwinds
One of the more pressing concerns for infrastructure investors, however, lies in the ongoing paradigm shift in interest rates. Infrastructure has long been valued for its stable, reliable income, making it attractive during periods of low interest rates. As rates have risen significantly over the past few years, the sector’s relative appeal has diminished. While infrastructure investments have continued to deliver on their promise of non-correlated, sustainable income, the high-rate environment has been a considerable headwind. Investors and stakeholders now eagerly await a further reduction in rates, which would reinvigorate the sector’s allure.
Additionally, the issue of double counting of UK listed investment company costs continues to be another challenge. The perception of extra layered costs has, in some cases, driven investors away. Addressing these concerns will be crucial for restoring confidence and attracting investors back to the sector. You can read more detail on Baroness Sharon Bowles’s new Private Members’ Bill, which aims to resolve this issue here.
Charging toward a greener future
Despite these hurdles, opportunities abound. The biomethane sector is ripe for investment, and Gravis’s leadership in anaerobic digestion, which dates back to 2013, I believe positions us well to capitalise on this growing market. Similarly, new ventures in decarbonising agriculture and sustainable packaging present exciting prospects. The government’s support for these initiatives, paired with innovative market mechanisms, lays a strong foundation for future growth.
You can hear all about Phil’s thoughts in the video below.
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