Darryl Murphy assesses the implications and opportunities for infrastructure investors.

On October 18, the UK government launched the Net Zero Strategy: Build Back Greener1 document, which sets out its priorities to reduce emissions in power, transport, industry and buildings.

It makes a compelling case on the benefits net zero will provide to the economy

The 368-page document, purposely released just ahead of the COP26 summit in Glasgow, provides much-needed detail and a holistic perspective on the steps required to achieve net zero by 2050. Simultaneously, it makes a compelling case on the benefits this will provide to the economy in terms of green jobs, while acknowledging the challenge of how the associated costs will be socialised to consumers.

In all respects, the document is a big step forward from the government’s previous publications, Ten Point plan for a Green Industrial Revolution2 and the Energy White Paper,3 which were big on ambition but lacked detail. The document has even received a positive endorsement from the Climate Change Committee (CCC), the independent statutory body set up to provide advice to the government, which it has frequently criticised for a perceived lack of progress to date.4

In its assessment, the CCC described the strategy as “an achievable, affordable plan that will bring jobs, investment and wider benefits to the UK. It is also a strong example to bring to the COP26 summit of how to follow climate change targets with action.”

Ministers must deliver these goals and fill in the remaining gaps in funding and implementation

The CCC’s chairman, Lord Deben, praised the government for its ambition, albeit with a caveat. “Ministers have made the big decisions – to decarbonise the power sector by 2035, to phase out petrol and diesel vehicles, to back heat pumps for homes. And they have proposed policies to do it. I applaud their ambition. Now they must deliver these goals and fill in the remaining gaps in funding and implementation. My Committee will hold their feet to the fire, as we are required to under the Climate Change Act. This is the UK’s climate governance working as it should.”

The importance of private capital

The document is vital for infrastructure investors as they consider the opportunities and challenges from the transition to net zero. Positively, the government has stepped up its engagement with the financial investor community, particularly through the efforts of the Department for Business, Energy and Industrial Strategy (BEIS) and the Department for International Trade.

Private capital will provide the bulk of the additional investment needed

The strategy is clear on the importance of private capital, anticipating this will provide the bulk of the additional investment needed, which is forecast to increase to £50-60 billion per annum over the next ten years. It is not clear on the baseline assumption used in this calculation, although HM Treasury’s Net Zero Review5,6 suggests increased net-zero capital expenditure will be around one to three per cent of GDP relative to a recent average total investment of around 17 per cent.

The scale of investment required is already familiar to infrastructure investors. The National Infrastructure Delivery Plan in 20167 set out a plan for the public and private sector to invest £59 billion per annum on average to 2021, which was the target identified in the original UK National Infrastructure Plan in 2010.8 Although the priorities for investment have changed over the past decade, most of the overarching themes remain valid.

The UK has made considerable progress over that time and private investment into infrastructure has played a key role. However, we are moving to the next stage of the path to a low-carbon economy.

A big plus for the government is the growing amount of domestic and international capital available to support net-zero initiatives. Assets that have strong environmental, social and governance (ESG) characteristics, particularly those that align to a net-zero pathway, are in high demand. The big question is whether there will be enough quality assets to satisfy demand.

Short-term opportunities, longer-term questions

UK market activity over the past twelve months has been characterised by continued secondary asset acquisition activity and associated debt refinancings, but there has been little primary greenfield investment in assets that align to the government’s net-zero strategy. Core renewable investment remains small in advance of the next Contracts for Difference (CfD) auction, and while there are emerging opportunities in battery storage and early-stage investment into EV charging, the development of carbon capture storage and usage (CCUS) and hydrogen remain at a very early stage. Investors are keen to understand how this will change over the next few years.

The UK is aiming to be a world-leading net-zero financial system

The UK has stated a clear aim to be a world-leading net-zero financial system, with climate risk to be embedded into regulatory frameworks. Critically, the strategy acknowledges market failures mean the private sector alone will not deliver at the pace required. With investment required across all stages of commercial development, the government recognises this importance of the right policy signals to mobilise capital, with technologies in early-stage development needing greater government financing.

The Ten Point Plan set out the main sectors the UK wants to develop at scale, including offshore wind, hydrogen, CCUS and nuclear energy. The latest paper sets out a variety of targets and measures to achieve this, with the biggest immediate opportunities for investors in electricity generation. Electricity will play a critical part in achieving net zero and forecasts show a potential doubling of demand and consequently a four-fold increase in low-carbon electricity generation.

The energy trilemma has not entirely disappeared from the political lexicon

While the government’s intention is to decarbonise electricity by 2035 – which it estimates will require £280-400 billion of public and private investment – this is subject to security of supply. Recent events around the availability and price of gas, along with the impact to smaller energy suppliers, serve as a reminder that the energy trilemma has not entirely disappeared from the political lexicon. The biggest energy risk to any government remains the security of electricity supply, although there is increasing concern on the cost to consumers. This perhaps explains why the strategy goes into great detail on the overall positive impact of the net-zero pathway to the economy.

One of the biggest challenges facing the government is forecasting the future energy mix, which could vary from current projections due to economic factors and technological advances in the sources of electricity. While there is a role for a combination of renewables, gas and bioenergy with CCUS, hydrogen, interconnectors, storage and nuclear, there is no “silver bullet”. A range of technologies is needed to meet potential demand.

A sector-by-sector assessment

Here we assess the key sectors that require infrastructure investment, as highlighted in the strategy paper, and our perspective on the opportunities and challenges for investors.

Technology Net Zero Strategy commentary Opportunities and challenges
Offshore wind

40GW by 2030 requiring over £20 billion of private investment.


1GW floating offshore wind by 2030.


Offshore transmission review.

This is arguably the most accessible market for investors, who are familiar with the technology. The challenge is how the industry can increase the scale and pace to meet this ambitious target.


The offshore transmission review will consider shared infrastructure, which could have implications for future OFTO (offshore transmission owner) assets.

Onshore wind and solar

Increased focus due to CfD rounds.


Next Contract for Difference auction (Round 4) in December 2021.


Government to review frequency of auctions.

Resurgence of core renewables along with increasing levels of assets progressing on subsidy free basis.


Market will need to adapt to subsidy free environment, taking into account the availability of corporate power purchase agreement structures.

Green buses/trains

Transport sector needs around £220 billion of investment by 2037.


Government considering date to phase out non-zero emission buses and diesel only trains by 2040.

Zero emission buses likely to emerge via local authorities meeting green targets. Possibility of leasing models mirroring those seen in the rail rolling stock sector.
Sustainable aviation fuel (“SAF”) production Aim for ten per cent SAF by 2030.

Development of plants to produce SAF from waste feedstock. Investors will be cautious on the scaling up of new production technology and a commercial model needs to develop to support offtake.


Announcement of biorefinery to be built in Elsmere Port by Fulcrum BioEnergy.


Investment to 2037 likely to be £14 billion.


Clusters announced are Hynet and the East Coast with a commitment of one power plant by 2030 using a Dispatchable Power Agreement.


£1 billion CCUS Infrastructure Fund to provide industry with certainty to deploy at pace and scale.

The government is developing support frameworks using commercial CfD and RAB models to support investment.


Large-scale interest from industrial sponsors means financial investors will be looking at possible technical partners in need of capital. Large-scale financial investor appetite likely to emerge once plants are shown to be deliverable.


Hydrogen strategy under consultation and envisages both CCUS-enabled and electrolyser production. Clear intention to move to green hydrogen in the 2030s by providing the right signals to reduce the current high cost of production.


Total investment required of £20-30 billion. Government aims to de-risk early projects to unlock over £4 billion of private capital by 2030.


Contracts for electrolyser hydrogen in 2022/23 for 100MW and 400MW respectively, using a revenue support model.


First CCUS-enabled hydrogen from 2023 to deliver 1GW.


Ambition for 5GW low-carbon hydrogen production by 2030.

It will be some time before we start to see production at scale.


The sector is global but likely to be led by large industrial sponsors. Role of financial investors will develop as technology and market develops.

Technology Net Zero Strategy commentary Opportunities and challenges

Government seeks to pursue one large-scale plant in this Parliament (Sizewell C) using RAB model, subject to value for money.


Funding for research for small and advanced modular reactors.

Sizewell C will progress under the RAB model, although investors will seek clarity from the government on the ESG case for nuclear.
EV charging £1.3 billion to accelerate roll-out of charging infrastructure. Further details, including the role of private investors, will be published in the EV infrastructure strategy. Developing through 2020s. Build-out is comparable to early stages of broadband fibre albeit with demand building gradually as the uptake of EV cars increases. Large-scale interest from oil majors/car manufacturers with localised opportunities for smaller players. Financial investors likely to wait for market to mature to next stage. 

Biomass is stated as an important component of the UK’s pathway to net zero. May be eligible to be included in CCUS clusters – (“BECCS”).


Role of BECCS to act to remove greenhouse gases and offer negative carbon emissions. Biomass strategy will be published in 2022.

Investors will eagerly await biomass strategy to assess economics of future BECCS plants.
Waste-to-energy Emissions are noted as potentially a significant part of residual emissions in time. Government is exploring option to include plants in the Industrial Carbon Capture Business Model – further details promised later this year. Waste-to-energy plants are primarily a low-carbon method to treat waste. There are no signs of an increase in plants to generate electricity as the number of plants required reaches capacity. However, there will be greater focus on reducing carbon from existing plants and the future use of CCUS to potentially generate negative emissions.
Transmission and distribution  The ambition is to fully decarbonise electricity transmission and distribution networks, requiring £20-30 billion to maintain and reinforce the network.  Privately owned transmission and distribution companies will seek increased investment under existing RAB models. This will require co-operation and support from Ofgem to encourage the increased investment.
System flexibility

Deployment of new flexibility measures, including battery storage, to smooth out future price spikes.


This includes demand-side response measures and interconnectors.

Storage remains a challenging investment due to uncertainty predicting long-term revenues. Financial investors likely to see greater storage opportunities in existing renewable portfolios.


A number of interconnectors being developed by financial investors are soon to be delivered – i.e., Neuconnect and Greenlink alongside National Grid investments.

Domestic heating Support installation of 600,000 heat pumps a year by 2028 but role of hydrogen in heating to be deferred until 2026.

Commercial models being considered to support implementation.


Strategy on hydrogen key to existing gas distribution investors and in terms of setting demand for hydrogen production.

Harmonising public and private needs

As the table highlights, much of the investment required to achieve net zero will be in new or emerging technologies. This presents two major challenges to investors: technology and delivery risk and longer-term revenue and market risk. As a result, financial investors will be looking for a combination of the capability of industrial sponsors to bring forward these technologies alongside government policy incentives or capital.

In the government’s strategy paper, only offshore wind is considered “capital markets” ready, while low-carbon hydrogen, CCUS, advanced nuclear, long-term storage, electrification of transport and energy efficiency are not yet proven commercial propositions.

Much of the investment required will be in new or emerging technologies

The strategy sets out how different sources of capital change as sectors mature. The majority of institutional investor capital is seen to be capable of being mobilised as a sector moves to being delivered at scale (and ultimately to a mature state) when the public capital requirement becomes minimal or disappears. The strategy refers to “…providing the investment conditions to mobilise private capital into a portfolio of net-zero financing” but there is no further detail. This recognises there will be no “one-size-fits-all” approach, with each sector needing its own mix of policy intervention and possibly public finance.

The government is looking to its two main financing tools – the CfD and RAB models

In terms of policy incentives, there are multiple options. Increasingly, the government is looking to its two main financing tools – the CfD and RAB models – to attract private capital. This builds on the success of these models in the offshore wind and utilities sectors in attracting significant private capital.

While the strategy highlights the recently established UK Infrastructure Bank as capable of playing a pivotal role in being able to kick start new sectors, details on how it will seek to ‘crowd-in’ private capital will also be eagerly awaited by investors.

Key takeaways

  • The strategy sets out in greater detail the scale and pace of investment required in the UK to achieve net zero.
  • This will require considerable capital from financial investors. The majority of the estimated £50-60 billion of increased annual investment needed over the next ten years is expected to come from the private sector.
  • Much of the additional investment is required in sectors that involve early-stage technology or in markets where there is no defined demand. This will require financial investors to work collectively with industrial sponsors and the government to transform these markets from early-stage to mature technologies.
  • While the scale and urgency of the task is significant, change will not happen overnight. Investors need to be patient and spend the necessary time to understand the risk-return dynamics in these new sectors.

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