Five years on from their initial report in 2018 the National Infrastructure Commission (NIC) have today released their refreshed analysis of the state of the UK’s transport, energy and utilities infrastructure needs over the next 30 years.
The National Infrastructure Assessment can be read as a damning condemnation of the last decade which has seen (due to successive Prime Ministers, policy changes and existential crises) a lurching from one idea to the next rather than consistent industrial, infrastructure and investment strategy. This in turn has led to frustrations from investors who are unhappy about this lack of a stable policy environment and feel ignored by decision makers.
This criticism is reflected in a number of examples including a recent Government auction which saw no new bids from private sector developers to secure subsidy to build new offshore wind projects. The report criticises the government for retaining a price cap of £59 per megawatt hour which does not allow for the massive inflationary pressures on construction we have seen in recent years.
A sudden change of direction in the water sector has also been singled out by industry insiders. The sector regulator, Ofwat, has spent the last 15 years focused on keeping customer water bills as low as possible, but sentiment has recently reversed on this and the water companies are being blamed for their lack of infrastructure investment in response to the public outcry over sewage spills storm drains.
Further criticism within the report is focused on the impact of the Government’s unmeasured approach on the likelihood, or lack thereof, of the UK hitting its sixth Carbon Budget (2030 – 35).
What does the NIC report mean for decarbonising energy?
The report makes clear that decarbonising the UK’s space heating infrastructure presents one of the biggest challenges to reaching Net Zero. However, in addition to the government funding, delivering a low carbon and secure energy system, will also require a big increase in private sector investment.
The NIC’s view is that hydrogen, in some quarters long considered the obvious successor to natural gas in British homes, has proved unsuitable for domestic heating. Local opposition from residents of Whitby, Cheshire, to a trial by Cadent has shown it to be unpopular with the public over safety concerns. The NIC indicates that hydrogen will only be fit for replacing natural gas in heavy industry and should remain out of domestic heat supply.
The NIC report calls for a renewed focus on heat pumps and heat networks, and shifts attention away from retrofitting housing stock. With only 55,000 heat pumps installed in the UK compared to a target of 600,000 per year by 2028 in the Heat and Buildings Strategy, the report calls for more and better funding for heat pump installation and development of heat networks. In this arena the UK is lagging behind comparable western European countries like Germany, the Netherlands, Italy and France.
The report calls for subsidies of £7,000 each for two thirds of UK households for heat pump installation while poorer residents should have them installed for free. Existing voucher schemes such as the Boiler Upgrade Scheme have had mixed success in part thanks to the Department for Energy Security and Net Zero’s lack of marketing tact. Businesses with greater customer acumen like Octopus and Centrica have been superior in this area.
The Assessment shows how policy has driven substantial growth in heat pumps sales in other European countries.
One policy that has been fruitful in the efforts to support distributed heat sector’s development is the government’s Green Heat Network Fund (GHNF).
Amberside Advisors are part of a consortium led by Triple Point that since March 2022 has awarded over £100 million in grants from the GHNF to commercially promising public and private sector heat network projects. We have also set up BHIVE, a dynamic purchasing system and procurement route which helps project sponsors to access commercialisation support and construction financing for heat networks. We have longstanding expertise in this area and have been engaged in deploying the GHNF forerunner, the Heat Network Investment Project (HNIP), since 2018.
With greater certainty on policy from the top level of Government the investment environment would be much more attractive to private capital including traditional streams like pension funds. Amberside is in talks on how to structure private investment in a number of distributed heat and electricity grid projects and is well-placed to help with commercial feasibility assessment for wide array of sustainable energy transition projects.
Our determination to help our clients thrive and, in the process, push the UK towards Net Zero remains unmatched.
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Neil Rutledge,
Director of Amberside Advisors