This article provides an overview and early assessment of the UK Infrastructure Bank (UKIB) following its establishment in 2021. It explores the Bank’s strategic objectives, funding capacity, sectoral priorities, and early deal activity across clean energy, digital infrastructure, transport, and water. The article also considers the pricing and risk characteristics of UKIB finance, its role in crowding-in private investment, and the challenges it faces in balancing public policy objectives with commercial discipline. Together, these insights offer a timely perspective on whether UKIB can fulfil its ambition to support net-zero delivery and drive long-term economic growth in the UK.
This article examines the UK Infrastructure Bank’s emerging role in supporting infrastructure investment and the transition to net zero. It reviews the Bank’s mandate, funding capacity, early deal activity, and sectoral focus, and considers the risks it faces as it seeks to mobilise private capital and contribute to long-term economic growth in the UK.
The UK Infrastructure Bank (UKIB), is a relatively new addition to the ranks of eminent institutions established in the country to accelerate investment in the UK’s infrastructure. Set up in 2021, the Bank’s mandate is to support the transition to net-zero carbon emissions by 2050.
Since its inception, the Bank has funded 18+ deals across various infrastructure sectors such as clean energy, digital, transport, waste, and water. The bank has a focus on green infrastructure projects and is consistently attracting private-sector investment both at home and from overseas investors to the country’s infrastructure projects.
UKIB has an investment-war-chest of £22 billion, as follows: £7 billion of debt; £5 billion of equity; and £10 billion for guarantees. UKIB’s money is available to private sector corporations, investment funds and local authorities.
Not only has UKIB a huge investment war-chest at its disposal for corporate and project finance: the money is cheap. UKIB’s accounts for the year ending March 2022, suggests an average interest rate close to 1% for the fortunate counterparties - although that may be misleadingly low as the reported values will reflect partial-year-loans. However, we noted the following cheap-money-infrastructure-deal examples by UKIB:
Until recently, the Bank has made ~£2 billion in total commitments since inception and few large deals have already been closed:
The Bank has already announced a total of 7 commitments in the clean energy sector, potentially investing over £800m in the sector. Fibre broadband infrastructure in the UK is also expected to benefit immensely from a total commitment of £775m by the Bank, across 6 deals in the digital sector.
UKIB faces several key investment risks such as regulatory risks, market risks, and credit risks. However, it is well-equipped to manage these risks and ensure compliance with international obligations on subsidy control and future domestic regimes.
The UK Infrastructure Bank presents an opportunity for the country to leverage its resources to mobilise investment. The Bank is already providing expertise and capacity to local governments and help them realize their infrastructure plans. The Bank is also expected to help build back better, fairer, and greener by supporting the transition to net-zero carbon emissions by 2050.
In conclusion, the UK Investment Bank is a new institution with the potential to play a major role in the UK economy. The bank has made some early progress in making funding deals, but it remains to be seen how successful it will be in achieving its mandate. The future of the bank will depend on a number of factors, but it has the potential to be a major force for economic growth in the UK.
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