UK's new SWF draws Australian pension support for clean energy
At the culmination of the recent International Investment Summit in the UK, the government announced the formal creation of its first sovereign wealth fund, to be called the National Wealth Fund (NWF).
The NWF will have a total of £27.8 billion ($36.3 billion) at launch, with the government bringing forward legislation to give the fund a broader mandate beyond just infrastructure.
Institutional investors, led by Australia's superannuation funds, are already supporting the initiative.
IFM Investors, with $150 billion in funds under management on behalf of 17 Australian industry super funds, has prepared a policy blueprint in collaboration with UK pension funds to help unlock investment and fast-track clean power in particular.
The paper contains targeted policy recommendations to mobilise pension capital and help deliver on the government's priorities of doubling onshore wind, tripling solar power, and quadrupling offshore wind over the next six years.
It urges the National Wealth Fund to support “the commercial development of higher risk net zero industries where it can play a valuable role bridging gaps in capital markets.”
Its other recommendations include a streamlining of the permit process for repowering existing onshore wind sites, support for hybrid renewable energy systems and prioritising the development of business models and markets for hydrogen and e-fuels.
The sovereign fund should also accelerate the delivery of energy storage solutions, “in particular long duration energy storage systems, through the development of revenue certainty mechanisms”, said the paper.
SIGNING ON
A diverse group of pension funds and investment managers have endorsed the policy blueprint. This coalition includes prominent UK entities such as Border to Coast, the largest Local Government Pension Scheme pool, and Nest, the country's biggest defined contribution fund.
Other UK signatories include LGPS Central and the North East Scotland Pension Fund.
The Australian contingent features several major superannuation funds, including Aware Super, CareSuper, Cbus Super, HESTA, Hostplus, and Rest.
The combined financial power of these signatories is substantial. Together, they represent pension schemes with a total investment portfolio of approximately $2.2 trillion across the UK and international markets.
“The enormous scale of energy transition and need for private sector capital should enable appropriate opportunities for generating strong, risk-adjusted returns for their investment portfolios,” said Deanne Stewart, CEO at Aware Super.
This ties in with the UK government unveiling commitments from the private sector to invest more than £50 billion ($65 billion) into the economy, across artificial intelligence, life sciences and infrastructure. This sum includes a £20 billion ($26 billion) investment from Australia's Macquarie Group that will focus on an electric car-charging network and offshore wind projects.
UK Chancellor
SOVEREIGN FUND VISION
Announcing the NWF, British Chancellor of the Exchequer Rachel Reeves said it will facilitate tens of billions of pounds of private investment for the UK’s clean energy and growth industries, including green hydrogen, carbon capture, and gigafactories.
John Flint, who will be the NWF’s first CEO, said “Building on the strong foundations we have laid as the UK Investment Bank, we will hit the ground running, using sector insight and investment expertise that the market knows and trusts to unlock billions of pounds of private finance.”
This will include the ability to test new blended finance solutions with government departments that take on additional risk to facilitate higher impact in individual deals and performance guarantees, said Flint.
Two new carbon capture sites in northern England, along with carbon capture, utilisation, and storage-enabled hydrogen projects, will create 4,000 new jobs and help remove over 8.5 million tonnes of carbon emissions annually, according to government figures.
Kristian Fok, CEO at Cbus Super said, “By setting clear objectives and streamlining processes, there’s a compelling opportunity for long-term investors to partner with the energy sector and accelerate the deployment of renewable energy infrastructure, with the aim of securing long-term risk adjusted returns for members.”
IFM Investors has a Memorandum of Understanding with the UK government, pledging to invest £10 billion ($13.05 billion) into the UK by 2027.
“There are a number of steps to unlocking this investment. But a pre-requisite is that the UK government should account for infrastructure assets more like a long-term investor and less like a commercial bank, holding equity as loan collateral to be sold in a fire sale,” said Gregg McClymont, director at IFM Investors.