A recipe for avoiding disaster: how private capital could help save Britain

While the UK Government’s preliminary moves to contain the country’s energy crisis are to be welcomed, much more could be done to fund the clean energy generation capacity that the country needs. Early messaging from the government seems to indicate a short-term plan to simply turn on the taps and pump more gas.

However, one of the reasons the country is so exposed to high gas prices stems from a lack of investment in the green energy market. Some of this could be rectified by making it easier for institutional investors to participate in this market.

“Net zero must be fired back up to the top of the agenda, and it needs to stay there, until such a time when we are genuinely on track to reduce greenhouse gas emissions and achieve the net zero target,” says Chris Winward, CEO of Privilege Finance, which oversees lending to a range of biogas projects across the UK.

The implementation of strategies to reduce emissions and reach net zero has the potential to create jobs, boost the economy and reduce energy bills. It is completely possible for each community in the UK to have its own source of renewable energy generation. This would enable communities to influence their own energy prices, improve energy security and, most importantly, ditch fossil fuels.

But what is also needed is some form of cohesive plan from central government, which could play an active role in encouraging private capital to become more closely involved.

Last year, Switzerland changed pension fund rules to include a dedicated asset allocation to infrastructure of 10% with a focus on renewable energy, net zero.[1] The Treasury could create some creative tax breaks and incentives around this, perhaps around bigger offsets similar to R&D.

With a little encouragement and arm twisting, we believe that the UK Government could potentially procure another GBP 100 billion of energy infrastructure commitments from institutional investment groups beyond what has been publicly announced in forums such as COP26. According to the UK Government approximately GBP 6.4 trillion sits in UK pensions[2].

Several years ago, soon after the global financial crisis the UK Government introduced ‘innovative ISAs’ which encouraged investment into private markets in areas such as lending to small business. While there were some issues associated with several individual products either because of poor operators or fledgling regulation, this could now be repurposed with perhaps dedicated closed ended 5-7 year infrastructure vehicles with some form of UK Government backing to underpin a minimum yield and provide greater investor confidence and attractiveness. According to the UK Government approximately GBP 620 billion sits in ISAs.[3]

Soon after the start of the global pandemic, the UK Government owned British Business Bank created several small business lending schemes (CBILS / RLS / BBLS etc.) ultimately providing billions of pounds to millions of small companies.

While during the early days of these schemes the rules and criteria were untried with some well documented scandals, these have ultimately become highly effective tools for stimulating the economy (saving jobs/creating jobs) and proved to be invaluable to millions of small businesses up and down the country, with much of the loan capital provided by the private sector.

Expanding the UK’s biogas generation capacity does not need to mean tapping the taxpayer: there are vast reserves of private capital in the UK pension system alone.

[1] Swiss Pensionskassen continue to bump up infrastructure investments | News | IPE

[2] Pensions, savings and investments – Office for National Statistics

[3] Pensions, savings and investments – Office for National Statistics