Fresh research has laid bare the “mammoth infrastructure investment challenge” the UK faces if it is to deliver the onshore and offshore wind, carbon capture and storage, electric vehicle charging infrastructure, rail electrification, new homes, and insulation upgrades required through to 2030.
A study commissioned for the Investment Delivery Forum – a group established by the Association of British Insurers (ABI) – this week found that the UK has secured little over half the £1.3tr needed to meet its infrastructure needs for this decade resulting in an investment gap of around £615bn. Most of shortfall – around £350bn – is expected to be bridged by the private sector.
The green infrastructure investment gap is equivalent to a £75bn shortfall a year until 2030, with the annualised gap in private funding more than £40bn.
Moreover, at the current rate of investment the gap is expected to widen from £615bn in 2030 to £1.5tr by 2050.
Clare Bousfield, sub-chair of the Investment Delivery Forum and deputy president of the Association of British Insurers, said the UK was facing a “mammoth infrastructure investment challenge”, as she urged the government to push through reforms that would allow the insurance industry to boost investment in low carbon infrastructure.
“The ongoing Solvency UK reforms are crucial in helping us to channel around £100bn into green and good infrastructure and narrow this investment gap,” she said. “We have established the Investment Delivery Forum to ensure that once unlocked, these funds can be deployed swiftly.
“We are working hard to lay this groundwork, but we want to hear from project owners as part of this process, as well as telling the infrastructure community what makes projects investable for the insurance and long-term savings industry.”
The research comes as government, regulators, and the Association of British Insurers are working to deliver Solvency UK regulatory reforms that should allow insurers to invest in a wider range of assets, including around £100bn in green infrastructure projects.
The proposed reforms include streamlining reporting requirements to reduce administrative burdens on insurers, moving towards a more “principles-based approach” to assessing firms’ internal models thereby reducing the number of detailed requirements firms must meet, and introducing a “mobilisation” regime allowing newly authorised insurers more flexibility in where they invest.
Insurers such as Just Group and Aviva are already key investors in the UK’s green infrastructure sector, with the former investing £42.5m to refinance Vantage solar UK, the owner of 24 projects across the UK with a generation capacity of 365MW, and Aviva funding transport projects to the tune of £3.2bn, including £110m for Connected Kerb to create 190,000 on-street EV chargers by 2030.
Earlier this year, the ABI established the Investment Delivery Forum to bring together leading insurers – including Aviva, Just Group, Lloyds Banking Group, M&G, Phoenix Group, Rothesay and Royal London – industry experts and partners across the UK to accelerate the sector’s efforts to help close the green investment gap.
The stark summary of the UK’s infrastructure funding challenge comes just weeks after the National Infrastructure Commission (NIC) claimed that around £20bn to £35bn of investment is needed from the private sector each year between 2025 and 2050 in order to deliver the increased renewable electricity capacity, greater grid flexibility, and new hydrogen and carbon capture and storage facilities required to decarbonise the power system, according to the report.
The NIC stressed that both economic growth and climate targets were achievable and affordable for the country, but only if the right policy steps are taken by the government to unlock tens of billions of pounds additional investment to transform the UK’s ageing infrastructure.
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