• UK Economy Masthead 


    Uncertainty surrounding UK energy market reform created a challenging environment for investment in the sector during 2012. Alan White, Head of Energy, Infrastructure and Energy Finance, Lloyds Bank discusses.

    Uncertainty surrounding UK energy market reform created a challenging environment for investment in the sector during 2012.  Considerable investment in energy infrastructure is required over the coming decade. The London School of Economics has forecasted a total of up to £320bn if the Government is going to meet its targets for emissions reduction and security of supply by 2030. The challenge for Government is securing this level of investment in a market which is wary of changes to the energy markets and where investors have other potential investment opportunities available.


    The recently published Energy Bill lays out the Government’s plans to achieve sustainable decarbonisation as well as affordability, and security and performance of supply in the long-term.  Whilst there is still some way to go in terms of finalising the details of the legislation, the key themes within the Bill and the overall strategy of Energy Market Reform have been established. This will hopefully give some comfort to developers and investors that there is recognition within Government of the difficulties facing the industry.


    The Energy Bill also serves to give bankers an ability to assess the broader viability of projects seeking to raise finance as there is a continued requirement for lenders to be able to see a high degree of visibility in the forecast revenues of projects.  Whilst the final details are not yet known this does, for now, appear to be pointing in the right direction.


    Despite the challenges being experienced by developers in raising finance projects are still being funded, with banks having the appetite and ability to lend.  However, Banks are also facing challenges in relation to their own balance sheets. Their ability to lend for the longer term being constrained through the impending implementation of Basel III, making longer term funding more costly in terms of capital to be held in reserve. 


    During 2012 we have continued to support some of the UK’s most strategically important energy assets and continue to be a pre-eminent funder of the industry.  Specifically we have led the financing of the largest offshore wind farm in UK waters and the first CCGT project to be debt funded since 2008.  We have been able to do this through our experience in the sector, supporting our client relationships within the broader Bank and increasing the velocity of our capital by freeing up funds sooner than may have previously been the case.


    A key to securing the level of investment required over the next 20 years will be the ability of projects to open up appetite in the debt capital markets.  By aligning our Energy Finance and Debt Capital Markets businesses we have recognised the direct linkage between these market segments.


    One thing is certain; the UK’s energy mix will change dramatically over the coming years. Lloyds Bank will continue to seek to play its part in delivering the investment required to ensure that our clients receive best in class service, and support the UK energy industry in what will be a defining period. 


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12/3/2020 7:51:24 AM