Net-zero targets present £350bn investment opportunity

The bulk of that opportunity comes from the energy sector, the consultancy noted, as it increases investment in the technology and other assets needed to decarbonise the UK economy.

Existing renewables technology such as wind, solar and batteries, as well as the development of new technologies like hydrogen, amount to an investment opportunity of £12bn a year between now and 2050.

The consultancy set out two scenarios for the coming years. The first is a “business-as-usual” scenario that would see UK asset owners boosting their infrastructure investments by £70bn over the next decade, leaving a £100bn funding gap.

The second, “more optimistic” scenario sees up to £125bn invested over the same period, which, alongside investment by global asset owners and the government, will see the £350bn target hit by 2050.

LCP’s report picked a number of considerations that are key when it comes to assessing future appetite and opportunities, not least of which is how “the combination of political will, emerging technologies and a need for capital will offer a tremendous investment opportunity to investors able to embrace the vision and complexity of new assets needed for a greener future”.

Traditional renewables like wind and solar are likely to represent the main chunk of investment opportunity over the medium term, it noted, while newer and emerging technologies like battery storage improvement and carbon capture could take many years to become viable investment propositions.

Finally, the report noted that there is a significant amount of private capital hunting for good long-term investment that could be invested in UK energy infrastructure, and the industry should explore all ways of attracting that investment.

The government should do more to encourage investment in energy infrastructure, and should be open to new forms of public/private partnership while ensuring that the National Infrastructure Bank does not “crowd out” private sector lending, the report argued.

Commenting on the report, LCP investment partner Dan Mikulskis said: “We see something really big coming here — an infrastructure build out that few people have yet grasped the scale of.

“At the same time, the often heard ‘unlocking private capital’ cliché we think frames the whole thing the wrong way. We think there is huge untapped investment potential if the energy industry thinks differently about the assets.”

Mikulskis noted that UK asset owners have invested £45bn in infrastructure assets over the past decade, including in offshore wind, biomass and solar, alongside international asset owners, but to increase appeal the energy sector will need to “work with investors to bring forward enough of the right assets at the right risk-return levels and quantity to interest global asset owners”.

“The current levels of investment are often framed as a lack of demand from investors, but the problem has in fact been a lack of supply, with assets at the right risk-return levels,” he said.

“Asset developers need to better understand that investors have a range of interests and move away from the assumption that equity assets are the only game in town for investors, given that bonds, for instance, are by far the largest holding of corporate [defined benefit] pension funds.”

Kyle Martin, head of market insight at LCP, added: “The government’s energy white paper reaffirms that realising net-zero will require more than a one-size-fits-all approach.

“There is a broad diversification in both the technologies and assets that will be required, from existing technologies such as wind and solar that will need to be deployed more widely, to emerging technologies such as hydrogen and carbon capture that are still in their infancy,” he continued. 

“There will be a lot of eyes on the chancellor [this week] and whether he signals a kick-start to the boom of investment opportunities that will be needed over the next 30 years.”

Martin added that the infrastructure investment required to deliver the government’s net-zero pledge is unprecedented, meaning “there will be investment opportunities across a range of energy infrastructure projects”.