Hello everybody and welcome back to the next edition of C&F Talks. I have with me today, Tom Williams, who's the Head of Energy and Infrastructure at Downing. And Tom's going to be speaking at our upcoming conference, the UK Sustainable Infrastructure Summit, which is being held on the 12th of November in London. Tom, welcome.

Thanks very much for having me on.

Very good to have you with us.

The first question I'd like to put to you is around your role as a responsible investor and obviously one very interested in renewable energy in particular, but what are the key criteria that you use when you're evaluating potential investments?

Well look, I think the key is the balance of risk and reward and if I think about renewable energy, which is where we spend most of our time at Downing, we think about two main areas.

If you think about revenues, you think about long-term revenues, you think about quality of earnings and it's really about the nature of the revenue streams that are associated with your investment. Are they inflation linked? Is the pricing fixed or variable? Is it a long-term contract for that for those revenues or is there a sort of market-based element to it? And the blend of those different revenue streams really helps you understand the nature of the risk associated with achieving them.

And then of course there is the risk that you have to take in order to get to a place where you start earning revenues. So, is that asset operational? If so, what kind of operational risks are there? If it's greenfield, what does it take to get it built? Do you need to take development risk? Do you need to take construction risk? And this is probably where things get quite a bit more complicated as the nature of these risks are changing.

Perhaps I'll give you one example, so grid connections. We have generation projects coming through now, so a solar park for example, with non-firm connections facing grid constraints out to the mid to end 2030s. So if you want to build that asset, if you want to connect before 2035, 2040, then you're going to have to take some risk that you might be constrained in your ability to export.

So then you have to have a constraints analysis, you have to consider the behaviour of assets above you in the LIFO stack. I didn't really even know what a LIFO stack was five years ago and these are considerations that just didn't exist five to ten years ago. We've been investing in renewables for 15 years now and the risk has changed a lot over that period and we're in a very, very fortunate position.

We have 80 people in our energy and infrastructure business, including engineers, including specialists in grid infrastructure to help analyse and manage these risks, but many don't and it's an extremely challenging and very rapidly developing area.

It certainly sounds like that. I mean that delay for grid connections in particular, so much uncertainty.

I mean obviously the government's reviewing its national infrastructure strategy. What elements, you know, in that regard, what elements do you think need to be improved upon from an equity investor perspective?

Well, I think if the government has any hope of getting close to its renewable energy deployment targets, it really has to focus on grid and planning. I think it's very, very simple and I think that will solve the vast majority of the really knotty challenges that are out there.

I mentioned one example of grid, you know, just right now people are receiving connections in the 40s, so it's difficult to make a difference to 2030 targets if you're getting a connection that's 10 to 15 years after that. And planning has been difficult, particularly local planning where often you run into some very specific considerations at a local level which perhaps people look at and weigh more strongly than perhaps the national guidelines that central government hopes people are applying and that becomes quite difficult for people. Often these projects go to appeal or public inquiry, as we had one of our projects recently go to, where those things are looked at more in the context of what the national guidelines and the national planning requirements are.

But those things are very difficult, they take a very long time and they also take a very long time to fix. So the government is doing exactly the right thing by really shining a spotlight on those issues but it will take, I think it'll take some time to sort out.

Yes, I mean it very much sounds like that.

And I guess you invest globally or at least regionally, so when you look at UK projects given those problems say over grid connections and planning issues versus those located elsewhere in the world, how does the UK stack up from your point of view as an investment location if you like?

Yeah, well look over my career I've invested in most parts of the world and here at Downing we have just around about a billion pounds invested in renewable energy across northern Europe. So, we do see different regimes and different approaches and we do assess the relative attraction of different jurisdictions against one another. I think the strengths of the UK are really historically about the rule of law, about the legal system, about transparency, about easy doing business, about not being a very protectionist.  I think we've had historically consistent tax and regulatory regimes and historically, we'll come to weaknesses in a second, fiscal prudence and a sensible monetary policy.

Now on the weaknesses side I think often the specific policy direction around renewable energy has been a little bit uncertain and perhaps over the last few years particularly leading into the election a little bit politicised. I think the current government on the other hand has been much stronger on this and has made very definitive statements and policy goals which I think has been very welcome.

And it looks like we'll have some very clear direction of travel for the bulk of the heavy lifting to get to 2030 which is going to be in this current parliament. I think the trust budget did just an enormous amount of damage to the UK's international standing and there is just no getting past that, unfortunately, and I think what people sometimes lose sight of is that the vast, vast amounts of capital that's going to be required in order to fuel the energy transition in this country and this country is in competition with many other countries for that capital.

It's not all going to come from inside the UK and so we have discussions with very large multinational investors who really want to invest in the energy transition and a lot of the time it's not necessarily about do they want to invest in a solar park or a wind farm or a battery storage project or a hydroelectric power plant it's actually about well okay why should I invest in the UK you know why should I not invest in Germany or the US or it's those sorts of considerations that people have where they have a choice.

Absolutely so yeah.

And I think the last probably weakness really goes to my point about the planning and the grid which is an ability to deliver on the policy targets and to create a supportive environment that allows the private sector to get on with its job of delivering what the government wants it to.

Maurice

Yeah, so in a sense, I was going to ask you whether the government should assume more risk thereby making it easier perhaps given all the risks you described earlier for investors to invest in UK renewable energy projects but to an extent it can't take away those two fundamental risks, you know, obviously they're policy areas one is a policy area on planning but it's also partly cultural and the other one is physically how do you get those connections to the grid. Is there anything the government can do to alleviate some of the risks that investors face and do you think that would attract more investors to the UK?

Yeah, well look, I think in those specific areas now look they're very very specific if we consider the wider, you know, question of infrastructure but in renewables these are obviously really important topics, particularly about getting to net zero. I think they are doing something you know the there have been various different initiatives the creation of Great British Energy and bringing in the National Wealth Fund and the sort of folding in of UKIV into that, both entities which we're engaging with and you know are really open and receptive.

I think the on the grid side the recent reform to the grid looking at the kind of use or lose it concept of these kind of zombie grid connections out there that people might be able to remove from the queue and move you know projects that are proceedable further up the queue and get them built and get them producing energy.

So I think there are lots of good things that are happening and I think you know if you think about the broader context of just outside of those two particular issues you know about the balance risk and reward and what could the government do look, I think the answer that is quite fluid you know I really think there are areas of energy transition that are less proven perhaps with the technology that's less proven at commercial scale, so wave technology for example, or with certain with risks that are uncertain and therefore difficult to with for financial investors to take.

And I think there is a role there for government in in trying to bring technologies into commercial scale where once they're proven and once they're operating that then the private sector can do its job, or covering some of these risks until there is sufficient experience and time that has elapsed so that people better understand those risks and can better quantify them. So I think there's definitely a role there.

But then there could also be just some very practical ones. Take great energy for example, if they for example invested in development projects and made it clear to local planning authorities that they would automatically appeal any decisions that weren't made in contravention of that were made in contravention of national policy guidelines perhaps, but it doesn't necessarily have to involve pounds and pence I think it can just be a standing behind policy kind of four square which might encourage some behavioural change.

Yeah, that would certainly send a signal wouldn't it and perhaps that there'd be less time wasting in terms of getting these projects approved.

And finally, you know, and a very sort of broad question do you think there's currently a sense of renewed optimism about investing in the UK under the current administration perhaps following the budget yesterday?

Yeah, look I do think there is a sense of optimism as I mentioned before I think the tone is very different from with the change of government.

I think there is clarity, I think there is now consistency, I think there are concrete steps being taken to address the issues. I think time will tell how those how effective those steps are and but I think you know the creation of those two entities I talked about Great British Energy, the National Wealth Fund, I think they're really great initiatives. I think if they are managed well I think they can make a real difference.

I think the kind of difficult part of it starts now right which these are great initiatives and it's about what is made of them that is now the real challenge and will be the acid test of whether we will make it or even close to achieving those targets.

Well, we all look forward to seeing how that plays out. Now for our viewers, if you'd like to hear more from Tom and from our other speakers on related issues please do come along to the UK Sustainable Infrastructure Summit on the 12th of November in London.

Further information at our website www.cityandfinancial.com. Just remains for you to say, thank you so much, Tom for joining us today and I look forward to seeing you on the 12th.

Yeah, thanks ever so much, really great to have joined you and I'm really looking forward to it.