We consider what the new legislation could mean for energy and project finance matters.
What existing problems is InA 2015 seeking to address as far as it relates to energy and project finance matters?
According to the government, the ‘powerful new measures’ in InA 2015 ‘will drive investment, making it easier, quicker and simpler to get Britain building for the future’. One of the principal aims of InA 2015 was to cut red tape for NSIPs to boost investment. Although the UK is already a top destination for debt and equity investment for infrastructure projects, in part due to its highly regulated environment, the level of regulation and, in particular, the delays in the planning process for such projects was seen as a possible barrier to investment. InA 2015 seeks to speed up parts of the planning process for NSIPs with the aim of attracting future investment.
InA 2015 makes it easier for operators to tap into the UK’s shale gas reserves from a land access perspective and also requires greater collaboration between UK offshore petroleum operators to maximise economic recovery.
Will there now be an even playing field between independent connection providers and distribution network operators for connections to the electricity grid?
The provisions of InA 2015 could change the relationship be tween customers and network operators. InA 2015 has opened it up for the Secretary of State to introduce regulations whereby persons who had previously paid for grid connection infrastructure can now recover a proportion of their costs from third parties, where such third parties utilise the existing (paid for) infrastructure to enable a second connection to be made for their own use, regardless of whether a distribution network operator (DNO), independent connection provider (ICP) or independent distribution network operator (IDNO) made the first or second connection.
The Department of Energy & Climate Change (DECC) is still to release the regulations permitting third party cost recovery, for now we can only speculate as to what the regulations will contain and when these will be released. According to DECC, that will not be until at least 2016.
Are there any amendments in InA 2015 that would impact the project finance industry going forward?
In a February 2014 paper prepared by the World Bank for the G20 Investment and Infrastructure Working Group it was stated:
‘A clear trend that has emerged over the last years, underscores the need for new, long-term investors to participate in infrastructure funding. To date, debt financing by banking sector has contracted in many regions. As a result,the market is looking to mobilize financing from new types of investors who are well capitalized and seeking longer-term returns.’
A contraction in long-term debt funding by commercial banks, as well as constraints on public budgets, has led to both funding and financing gaps; new sources of finance are required for the funding of infrastructure projects. Institutional investors have been filling this gap, with 2014 seeing a rise in private sector investment in greenfield infrastructure. Infrastructure in vestments align well with the longer term liabilities of institutional investors. Domestically, there are a number of NSIP projects requiring financing.
In April 2014, the government published its response to a consultation on the review of the NSIP regime in which it identified measures to improve the regime.
Although the amendments to the NSIP planning regime are modest, these should have the effect of smoothing the path, particularly for making material and non-material changes once a DCO has been made. Whether these changes will have the effect of attracting private investment into UK NSIPs remains to be
Read about how the UK energy sector benefit from InA 201, as well as the full response to each above point.
This was first published on Lexis®PSL Planning on 30 March 2015.