The Qatar Investment Authority (QIA) is looking to deepen its exposure to British infrastructure and is touted as one of the potential buyers for US$7 billion worth of British electricity and natural gas transmission networks offered by the National Grid.
The move by the Qatari sovereign wealth fund comes amid an energy crisis that is fuelling UK gas and electricity prices caused by disruption to global supply chains, cuts in Russian LNG exports, and resumption of activity in the world economy. Additionally, there are specific factors related to UK capacity, which have forced 18 British energy suppliers to go out of business since September.
Additionally, QIA’s interest may have been piqued by the recent deal between the UK and Qatar to agree long-term supplies of natural gas, which represents 40% of the UK’s energy mix, and ensure security. The UK has pledged to reach net zero by 2050, but is unlikely to wean itself off gas in the medium-term.
QIA and its Chinese counterpart the China Investment Corporation (CIC) were part of a consortium that acquired a 61% stake in the National Grid’s spun-off gas pipeline network, now known as Cadent, in December 2016 for a whopping GBP13.8 billion (US$17.5 billion). It now appears to be seeking to snap up other assets owned by National Grid.
The National Grid deal is unlikely to be sealed by the end of this year, which has witnessed an estimated US$4.5 billion of SOI investment agreed for British infrastructure. Big UK infra deals included the sale of a third of Scotia Gas Networks (SGN) to a consortium of Ontario Teachers’ Pension Plan and Brookfield Super-Core Infrastructure Partners for GBP1.22 billion; ADIA bought a 16.7% stake in 2016. In September, Canada’s Public Sector Pension Investment Board (PSP Investments) nearly doubled its stake in Angel Trains, the largest train leasing company in the UK, from 16% to 30%; at the same time PensionDanmark and ADIA acquired shares in the company. At the beginning of November, AustralianSuper and the Dutch public pension fund APG teamed up with infrastructure giant Global Infrastructure partners to acquire German asset manager DWS’ 37.4% stake in the UK-based port operator Peel Ports Group.
State-owned investors have invested approximately US$37 billion in UK infrastructure from 2012 to date, of which 20% was devoted to oil and gas pipeline infrastructure. Airports represent the second most popular sector, representing 19% of total investment over the past decade. Other sectors include seaports (16%), water utilities (14%), renewables (13%), and rail (9%); the rest includes assets in the telecommunications and electricity generation sectors. China’s CIC has led SOI investment in British infrastructure, representing 14% of capital deployed over the decade, followed by QIA (10%), and PSP (9%).
In terms of the nationality of state-owned investors, Canadian public pension funds represent 37% of total SOI investment in UK infrastructure, followed by the Middle East (26%), China (16%), Asia (excluding China) (9%), Europe (8%), and Australia (4%).
The Future is Green
Interest in British infrastructure is not dimmed by the Covid pandemic or Brexit, which both pose risks and uncertainty. Although a majority of SOI capital has been devoted to carbon-intensive assets such as airports and pipelines, the opportunities going forward are likely to be found in renewables.
The UK’s aggressive climate action, backed by a consensus of political parties, will drive the decarbonization of the power sector with non-hydro generation set to take off. The target puts rocket boosters under the National Infrastructure Strategy unveiled in November 2020. SOIs are on the hunt for co-investors, including operators, as well as funneling money into green infra funds. They are also seeking exposure to cleaner energy through venture capital in pioneering tech and industrial firms involved in a range of segments, including improved battery efficiency, AI applications in power networks and improved engineering and materials.
Existing investors in the UK’s renewables sector include the Netherland’s PGGM and Canada’s CDPQ, PSP and OTPP. These public pension funds have focused on wind power projects in the UK, but are also among the renewables investment leaders in the SOI sector. With the UK enjoying significant offshore potential, they are likely to be studying opportunities provided by the seabed auction rounds which the government is hoping will help quadruple offshore wind to 40GW by 2030. The latest Offshore Wind Lease Round 4 allocated areas for nearly 8GW of capacity, although this is significantly lower than the 32GW secured in the third lease round in 2010. More auction rounds are likely, providing the basis for further growth.
Middle Eastern sovereign wealth funds are set take the lead in British renewables. Abu Dhabi’s Mubadala’s plans to invest up to GBP5 billion in the UK will include clean energy and infrastructure components and its Masdar subsidiary is likely to step in, as it stamps its mark on renewables investment across the world. This will form part of the growing economic relationship between the UK and the UAE, cemented by a Sovereign Investment Partnership signed this year.
Masdar’s interest in the hydrogen economy chimes well with the UK’s carbon capture, utilization and storage (CCUS) drive, which could provide blue hydrogen as a low carbon energy source. This is already being advanced in the UK by Norway’s Equinor with its 600MW Hydrogen to Humber Saltend project announced last year, producing hydrogen from natural gas, using CCUS facilities to eliminate carbon dioxide emissions.
Mubadala already has a long-standing interest in Britain’s renewables sector. Its biggest single investment to date is in the London Array, a 1,000MW wind farm in which it acquired a 20% stake via Masdar in 2008. The investment was valued at around US$650 million – around half the total the SWF has invested in the UK to date. Masdar also has a 25% stake in the GBP210 million Hywind Scotland, world’s first offshore floating wind farm with 30MW capacity.