Budget 2021: What Does It Mean For The Energy And Infrastructure Sectors?

• Published date: 06 March 2021
• Subject Matter: Finance and Banking, Anti-trust/Competition Law, Energy and Natural Resources, Financial Services, Antitrust, EU Competition , Energy Law, Renewables
• Law Firm: Gowling WLG
• Author: Nath Curtis, Gareth Baker and Dan O'Donnell

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."¹ 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...