Budget 2021 - Energy and Infrastructure Highlights

In what has been touted as the most important Budget in a generation, the UK Chancellor, Rishi Sunak today announced his latest Budget statement. Whilst much of the focus was on economic recovery from the Coronavirus pandemic, the Chancellor made some notable announcements from a clean energy and infrastructure perspective, which develop on the promises to “build back green” and support investment to meet the Government’s target of net zero carbon emissions by 2050. 

At the same time as publishing the Budget statement, the UK Government also published a paper titled “Build Back Better”, outlining plans to boost investment in, and development of, green energy and infrastructure projects in the UK (though much of this reiterates the statements in the Energy White Paper, the National Infrastructure Statement and the 10-point plan published last year).

One of the key announcements was in relation to the establishment of a new UK Infrastructure Bank which will have an initial capitalisation of £12bn. The Bank will be based on Leeds and will support investment of at least £40bn in public and private projects which go towards meeting net zero targets. In terms of funding limits and products, the bank will be able to deploy:

• £12bn of equity and debt capital (with £5bn being made available as equity from HM Treasury and a further £7bn available as loans from the UK Government). Of this £12bn, £4bn will be allocated to local authority lending. From the summer, it will offer loans to local authorities at a rate of gilts + 60 basis points for strategic infrastructure projects of at least £5m;
• £10bn of guarantees (up to £2.5bn a year), as it takes over the UK Guarantee Scheme; and
• a range of financial products, including first-loss, senior and mezzanine debt which help to crowd in further investment.

The Bank’s core objectives will be to help tackle climate change and to support regional and local economic growth. Much like the previous UK Green Investment Bank, the new UK Infrastructure Bank will focus on intervening where it can make the biggest impact. This means addressing shortfalls in the provision of private finance to make projects happen that would otherwise not have had the necessary support. As such, the Bank will crowd in private investment to enable and accelerate the delivery projects in sectors such as sustainable fuels, Carbon Capture Usage and Storage (CCUS), and heat efficiency. When market lending conditions are more challenging the Bank will also ensure there is liquidity in the market to maintain momentum and provide resilience.

Pricing for the Bank’s products will in due course reflect the UK’s new subsidy control regime, which BEIS is consulting on. Until this regime is in place, pricing will be based on current BEIS guidance which reflects, for example, the terms of the EU Trade and Cooperation Agreement (TCA) and World Trade Organisation (WTO) rules.

The Government will review the Bank’s progress in 2024, but intends that it will remain part of the public sector, fulfilling a role in supporting investment, permanently (unlike the Green Investment Bank which was privatised in 2017). The Government will publish a framework document ahead of the Bank’s launch in Spring, setting out further detail on governance and the relationship with Government.

Other key energy and infrastructure highlights from the Budget include:

1. Freeports, which will be established in East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool City Region, Plymouth, Solent, Thames and Teesside. These Freeports will be special economic zones with simpler planning rules, infrastructure funding, cheaper customs and lower tax to encourage private investment. Some of these Freeports also overlap with the UK Government’s plans to develop SuperPlaces i.e. net zero industrial and energy clusters, which will become centres for industries such as CCUS and hydrogen.
2. The government will provide funding for new port infrastructure in Teesside and Humberside to support the next generation of offshore wind projects, which is in line with the UK Government’s plans to require greater UK content in offshore wind projects.
3. A new Green Gilt will be issued this summer with a further issuance later this year, allowing the public to invest to support green industry.
4. The UK and the City of London to be a centre for a high quality/innovative voluntary carbon offsetting market.
5. Funding for “help to grow” schemes, including funding for the hydrogen hub in Holyhead.