UK's Shortfall in Renewable Energy Investments Discussed by Phoenix's Greg Scott
Phoenix Group Investing in UK's Low-Carbon Gas Networks and Renewable Energy
Phoenix Group, a leading savings and retirement business, has made a strategic move by investing in gas distribution networks, recognising their importance for the flow of hydrogen and other low-carbon gases. The company has also set up a joint venture with Schroders, Future Growth Capital, focusing on a UK infrastructure strategy.
However, private investors like Phoenix Group face significant challenges in finding investable renewable infrastructure projects in the UK. Regulatory uncertainty, perception of high investment risk, and delays in planning and grid connections are some of the key challenges. The UK needs around £150 billion in low-carbon energy investment over 20 years, but investors are deterred by unclear government policies, sudden policy shifts, and an unattractive investment climate compared to other countries.
One of the major concerns for investors is regulatory risk and policy inconsistency. The UK government's history of sudden policy reversals, such as with the Carbon Reduction Commitment scheme, has caused a lack of confidence. Clear, stable, and long-term policy is lacking, causing hesitation in investment decisions.
Slow and unpredictable planning approvals for renewable infrastructure also stall projects, reducing investor confidence and increasing costs. Difficulties and delays in connecting new renewable projects to the electricity grid are a critical barrier to development, affecting project feasibility and timelines.
Businesses and investors consider the UK less attractive due to these combined issues, limiting capital inflow into renewable projects. Project viability under changing tax incentives also adds complexity, as evolving tax credit eligibility rules require adjusted plans and quicker execution.
To address these challenges, the government needs to provide clear, consistent, and long-term policy direction, make the planning process more timely and predictable, invest in grid modernization, and provide financial support and access to capital. Stable and transparent tax incentives that accommodate new renewable technologies can also encourage more project starts and minimise risk from changing rules.
Phoenix Group has exposure to early-stage climate solutions in its equity investments, targeting core and core+ infrastructure. Investments in emerging technologies for Phoenix Group's illiquid portfolio can be feasible with commercial insurance wrap, government support or guarantee, or structured to look through to an investment-grade corporate.
Despite these challenges, Phoenix Group is committed to investing in grid connectivity for net zero position, but is struggling to find viable projects. Government support for grid buildout enhancements is encouraged by Phoenix Group.
90% of Phoenix Group's renewable infrastructure investments are in the UK, which remains the company's core market. The company has allocated £10bn to the illiquid credit space since 2020, with £1.2bn invested in infrastructure assets, of which £450m is in renewables.
Phoenix Group's senior investment manager, Greg Scott, will be speaking at the Renewable Infrastructure Summit on 26 February. Registration for the summit can be done by clicking here, and the agenda can be viewed by clicking here.
The UK savings and retirement business Phoenix Group has a net zero target for its operations and investment portfolio, aiming to achieve carbon-neutral emissions in the investment portfolio by 2050. Phoenix Group is also committed to the Mansion House Compact, pledging to invest at least 5% in unlisted equities by 2030. The target for illiquid credit infrastructure assets is for 50% to 70% of asset originations to be in sustainable or transition assets.
However, criticism exists that, despite significant UK government investment in the net zero transition, funding is not always being allocated effectively or in the right places.
Investing in emerging renewable infrastructure, such as green hydrogen and carbon capture, is difficult for Phoenix Group in its illiquid portfolio due to credit rating requirements.
[1] Source: Carbon Trust, 2020 [2] Source: Department for Business, Energy & Industrial Strategy, 2020 [3] Source: National Grid, 2020 [4] Source: HM Treasury, 2020 [5] Source: Ofgem, 2020
