Rishi Sunak delivered his second budget to Parliament yesterday (3 March 2021). In this insight, our energy and infrastructure teams take a closer look at what it means for the sectors.
The Chancellor started by highlighting the economic difficulty currently facing Britain – the Office for Budget Responsibility forecasts that due to coronavirus, the UK economy will be 3% smaller in five years' time than it would have been – before detailing his proposals to deal with the unprecedented economic outlook, relying heavily on investments in energy and infrastructure.
National Infrastructure Bank
Mr Sunak highlighted the importance of green industries for leading the UK's recovery and announced the new National Infrastructure Bank (NIB) will be based in Leeds. The NIB, which will complement the Infrastructure & Projects Authority and National Infrastructure Commission, will have an initial capitalisation of £12 billion, and the government expects it to support at least £40 billion of infrastructure investments. The bank will prove important for the government's plans to 'level-up' as well as achieve net-zero by 2050 and aide the post COVID-19 recovery.
The NIB's £12 billion capitalisation will be supplemented by its ability to issue £10 billion of guarantees for projects. It will be able to raise further money by borrowing from the private markets, allowing it to act "as a cornerstone investor [leveraging] private sector finance into underdeveloped or challenging markets." It aims to invest earlier in a project's lifecycle and bridge the gap to the private market by de-risking the project for other investors. As well as providing debt and equity finance, and issuing project guarantees, the NIB will also fill a project advisory role for local authorities and project sponsors.
We can expect a framework document setting out further details on the NIB's operations later this year ahead of the bank's launch, but the Treasury confirmed yesterday that the bank's primary focus will be the sectors detailed in the National Infrastructure Strategy, which includes clean energy, transport, digital, water and waste. Investment decisions will be made independently of the government, but the government will set the investment principles.
The NIB's initial capitalisation comprises £5 billion of equity funding from the Treasury and a £7 billion government credit facility, of which the NIB can draw down up to £1.5 billion a year. Guarantees worth £2.5 billion a year can be issued, up to the £10 billion guarantee limit, and £4 billion of the initial £12 billion capitalisation is earmarked for lending to local authorities. It is intended that the cost of finance will be lower, with local authorities able to borrow money from the NIB at a rate of gilts + 60 basis points for strategic projects worth at least £5 million.
The NIB will be phased in with initial operations running by spring 2021 and operations slowly being scaled up and the bank eventually being put on a statutory footing. The Treasury will review the bank's progress by spring 2024, but it already intends for the NIB to remain part of the public sector. This marks a change from the Green Investment Bank that was sold to Macquarie Group at nearly five years old.
This is in addition to the announcement that the new Treasury North campus will be based in Darlington, with 750 civil servants across Treasury, BEIS, DfIT, and the Ministry of Housing, Communities and Local Government expected to be relocated. Darlington beat competition from Leeds and Newcastle, both reportedly favoured by senior civil servants due to stronger transport links and jobs markets.
The Prime Minister has previously spoken about his desire to make Britain the "Saudi Arabia of wind," and yesterday the Chancellor added some colour to this as he announced funding for port infrastructure in Teesside and Humberside to build the next generation of offshore wind projects.
Once the competition to upgrade the ports infrastructure at the Able Marine Energy Park on Humberside is complete, the government will make an offer in principle to support the next generation of offshore wind on Humberside. The government will also sign a Memorandum of Understanding with Teesworks Offshore Manufacturing Centre on Teesside to support a second offshore wind port hub.
This is good news for the industry, although a blow to the Port of Blyth, which supports much of the North Sea's offshore wind capacity. The ports of Tyne, Sunderland and Blyth also missed out on freeport status.
The Chancellor also announced the English locations of the much anticipated freeports: East Midlands Airport, Felixstowe and Harwich, Humber, Liverpool city region, Plymouth, Solent, Thames, and Teesside. They beat competition from approximately 30 bids across the UK. These freeports will have simplified planning rules, funding for transport infrastructure, cheaper customs duties, and tax breaks to encourage further investment.
Find out more with Gowling WLG's freeports webinar here.
The Chancellor also announced a variety of other investments into the energy and infrastructure sectors:
- £27 million in funding for the Aberdeen energy transition zone and a further £2 million for the North Sea Transition Deal.
- £5 million in funding for the Global Underwater Hub, also in Aberdeen, in addition to the £1.3 million pledged by the government in 2020.
- £4.8 million in funding for the Holyhead hydrogen hub to support the creation of hydrogen using renewable energy for use as HGV fuel, news that was welcomed by National Grid.
There were also several new schemes announced that are to be funded through the government's £1 billion Net Zero Innovation Portfolio, launched as part of the Prime Minister's 'Ten Point Plan for a Green Revolution' last year:
- Longer Duration Energy Storage Demonstration competition: a £68 million competition to fund new energy storage prototypes or 'technology demonstrators', which would exclude commercial solutions such as lithium ion. Applications will open in April 2021, and expressions of interest must be submitted by midnight 12 March.
- Floating Offshore Wind Demonstration Programme: a £20 million grant funding programme to support the development of floating offshore wind technology in the UK, targeting primarily mooring/anchoring, dynamic cables and floaters/foundations.
- Biomass Feedstocks Innovation Programme: a £4 million competition for biomass feedstocks to improve the production of green energy crops and forestry products, with up to £200k available per project. This is already open for applications.
In order to support the investments in these industries, the Chancellor also announced a new unsponsored points-based visa system aimed at attracting international talent across science, technology and research, as well as a new 'super-deduction' tax-break allowing companies to deduct 130% of their investment into qualifying plant and machinery assets from their taxable income (equivalent to 25p in the pound).
About Gowling WLG's Energy and Infrastructure teams
Our multi-disciplinary Energy team has a first-class reputation and operates seamlessly around the globe. We advise governments, regulators, project developers, network companies, financial institutions and investors, energy suppliers and traders, technology companies and the sector supply chain among others. We have strong experience across all generation types, including, thermal, energy from waste hydropower, wind, biomass, solar, new technologies (including storage) and nuclear.
Our Infrastructure team advises on the most challenging and complex infrastructure and PPP projects being undertaken internationally. Our lawyers are established advisers to government bodies, contractors, sponsors and funders, and have a strong track record of delivering strategically important and high value projects.
 Policy Design of the UK Infrastructure Bank