Maurice:

Hello everybody and welcome to another edition of C&F Talks. Today I have with me Tom Williams, who's a Partner and Head of Energy and Infrastructure at Downing. Tom's going to be speaking at the Net Zero Finance Innovation Summit, which is being held as part of City Week on the 30th of June at the Royal Garden Hotel in London. Tom, welcome.

Thanks for having me again, Maurice, it's good to be here.

Good to see you. Let's turn to our first question.

As an investor in renewable infrastructure, what do you see as the UK's advantages and disadvantages as an investment location?

Look, I think the advantages are clear. We have a very exceptional rule of law and a legal services sector that we export all around the world. So, I feel that's a big plus for us. We're open to foreign investment.

We have a very strong and vibrant financial sector to structure investments for people. And so, I think those are all the things which make the UK attractive. I think that what we also, if we look at the specifics of clean energy and getting to net zero, I think what we also have is a very clear policy framework from the government and a very clear set of actions that they are taking in order to get there.

So, I think those are all the pluses and that has been a welcome constant since the election. I think where are the negatives? I think the negatives are that there is a loss of reform in the market. So, there is electricity market reform. There is grid reform. And those are very necessary steps.

They are steps that are largely welcomed by the investment community. But I think some of the market reform touch on a bit, but certainly they are very consistent with policy aims and everybody can understand the rationale for doing that. There is some nervousness around the scale and the pace of those reforms.

And then with that nervousness comes uncertainty. And with that uncertainty sometimes comes a heightened risk and a heightened cost of capital. And that's what we want to really avoid in this energy transition because what's very, very important is that this energy transition is delivered at the lowest cost possible to the taxpayer.

Absolutely.

And obviously, to catalyse this energy transition further, in fact, last week's spending review, the Chancellor announced further help for the national, further support, financial support for the National Wealth Fund and Great British Energy to help accelerate the transition. As a private investor, how do you see the role of these two organisations? And in what way would you like to be able to co-invest with them? What are the opportunities there?

We absolutely welcome the funding of those two organisations. I think those are hugely positive steps by the government. How do we see ourselves interacting with those two entities? We've been fortunate enough to have discussions with those two entities.

We see them as catalysing private investment into the sector. We see them very specifically as a catalyst and not crowding out investments. So, they are encouraging more investment to that. That's their mandate.

It is a difficult mandate because they particularly are trying to solve market failures or dearths of funding in particular sectors. And it's sometimes difficult to bring capital with you into those sectors when the capital has already looked at those particular opportunities and decided that the risk reward is not quite there.

And so actually, we see the way of these entities providing that catalytic role by perhaps taking certain elements of risk that other private investors may be unable to take. And in doing so, encouraging that investment into those sectors. I think that sometimes the effort has been to all be part of, to share those risks equally amongst the capital providers.

And I'm not sure that gets away from the fundamentals of the risk that people are finding it difficult to take. And that subtle difference, I think, is something that is worth perhaps focusing on. And if we can get that right, then I think that this really does open up a lot of capital into these sectors.

Yeah, absolutely.

Alongside those announcements about GBE and NWF, the government's committed more money to Sizewell C, small nuclear reactors, SMRs, and nuclear fusion. And these are areas where it is clear the government would like to try and find investors from the private sector. But I guess that the risks involved are quite a deterrent. How do you see those risks in this sector?

Yeah, well, look, first of all, our view is that nuclear has a place in the energy mix, and we welcome that.

But we also recognise that there are huge challenges in bringing that technology to fruition in a timely fashion. And yet again, this summer, it looks like we're going to face outages in the French nuclear fleet. So, there are risks associated with it.

When these sorts of things start to emerge, you lose very big chunks of your generation fleet. And that causes real problems. I also, I'm not quite sure I understand how we manage some of the risks associated, national security risks associated with small modular reactors.

The idea that perhaps there are many of these dotted around different locations in the country but still having the same kind of security arrangements that we have around, rightly so, nuclear materials in large power stations. I'm not quite sure I understand how we're going to manage those sorts of risks.

So, I think there are some practical concerns, perhaps, over and above just the technology itself that we have to have a bit of a think about and make sure that we are ready for that kind of risk and deployment.

Certainly, there'd have to be a sort of take-off of some of those risks if there's going to be private sector investment.

But of course, the government's also pushing hard to meet commitments to achieve 43 gigawatts of offshore wind capacity by 2030. And also, with a target of, what is it, some 30 gigawatts for solar as well.

Now, how realistic are these targets, given the problems with planning permissions and grid connections? And do you think the National Planning and Infrastructure Bill and Ofgem's proposed reforms are going to deal with those in a meaningful way?

Yeah, it's ambitious, isn't it? So Clean Power 2030, 43 gigawatts of offshore wind, 14 gigawatts more of onshore wind, 32 gigawatts more of solar, more than ever been deployed before. 20-something gigawatts of batteries, 1,000 kilometres of onshore transmission network, 4,500 kilometres of offshore transmission network. These are big numbers, 40 to 50 billion a year to take electricity's share of the final energy mix from 19 to 21%, with 30% still to reach in 2050. The scale of this is absolutely enormous.

Now, I personally believe that getting to those targets by 2030 is not as important as trying to get to those targets by 2030. I don't think an arbitrary year, an arbitrary deadline is particularly important.

What I think is that we are trying to hit that deadline, and if we get to 95% of clean energy in our electricity generation by 2035 instead of 2030, I think that will be an amazing achievement. So, I think that whilst I laud the government for setting that in the ambitious time frame that it has, I think that just the sheer amount of work, the scale of the transition is so incredibly impressive. I do think it is the industrial revolution of our time.

We are just reworking every part of our energy system and our economy. I think that it's okay that we shoot for the moon and maybe we fall a little bit short, but just trying to get there, I think it's fantastic.

I wouldn't want the narrative in a few years' time when all of this is underway and the scale of all of this is all unfolding, I wouldn't want us to feel disappointed that we don't hit that exact number by that exact date. I really don't think that's important at all. And what I think is important is that we do it in the most cost-effective way to the UK taxpayer, and I think that is critical.

Yeah, absolutely.

Finally, if there were one or two things that the government could do to make your role as an investor in renewables easier and smoother and increase the level of investment you make, what would those be?

I think it's to carry on with that consistent policy message. I think it is to do a little bit more to win the hearts and minds of voters around this transition and why we're doing it and why it is important and why a lot of the arguments that are being raised against it are spurious and actually downright unhelpful.

The concept that somehow we're going to reopen our oil fields in the North Sea and somehow we are going to find reserves that have not been found before, that are not economic, that the government's own, that the North Sea Transition Authority actually say is not there, and to somehow base our future energy policy in opposition on reopening those reserves, which I don't understand how you do that. I think those sorts of things; I think we should have those discussions. I think we should make people understand that we did reach peak oil production in 2000. In 2023, we were 30% of that 2000 production. By 2050, we're going to be 3%. If we grant new licenses, we'll be seven. A future where we base our energy policy on that is completely nonsensical. It's a complete fallacy.

And so, I think people just need to have these statistics. They exist, it's just that they're not shared widely and people don't necessarily understand it. I think when people do understand these kinds of things and they have this kind of debate, then they'll really understand why we're doing what we're doing, why the government is doing what it's doing and why it's in their interest to do it.

So, some clarity, some clear thinking and some clear messaging perhaps would be a good idea.

For our viewers, this is clearly a very, very important topic. We'd love for you to come and join us at the Net Zero Finance Innovation Summit. Once again, just to remind you of the date, it's the 30th of June, the Royal Garden Hotel in London. Further information available on the website, www.cityweekuk.com. We very much hope to see you there.

Tom, looking forward to seeing you at the conference. Thank you so much for your time today.

Thanks very much and looking forward to it.