Phoenix’s Greg Scott on the UK’s renewable investment gap

UK savings and retirement business Phoenix Group, which has around £290bn of assets under administration, has set a net zero target in two areas: operations and its investment portfolio, aiming to achieve carbon-neutral emissions in the latter by 2050.

Regarding its illiquid credit infrastructure assets, Phoenix's target is for 50% to 70% of asset originations in the portfolio to be in sustainable or transition assets.

Since 2020, Phoenix has allocated £10bn to the illiquid credit space, with £1.2bn invested in infrastructure assets, of which £450m is in renewables.

Speaking to Net Zero Investor, Greg Scott, senior investment manager at Phoenix, highlights that 90% of Phoenix’s renewable infrastructure investments are in the UK, which remains the company’s core market, with active investment in both debt and equity.

This is a topical point, with the UK chancellor, Rachel Reeves, urging private investors and companies to invest in the country to stimulate growth, her latest plea targeting investment bankers and asset managers. This comes as the Labour Party grapples with a sluggish economy since it was elected in July, while a bond market sell-off in January added significant pressure.

As part of its push for growth, the government has been backing renewables, removing barriers to offshore wind development and supporting sustainable alternatives, such as sustainable aviation fuel.

However, Scott remarks that despite Phoenix's desire to keep the UK as its core investment market in the infrastructure space, “there has been a lack of investible projects in the pipeline in the past years”.

This comes amid criticism that, despite significant UK government investment in the net zero transition, funding is not always being allocated effectively or in the right places.

Nonetheless, Scott explains that Phoenix is committed to the Mansion House Compact, pledging to invest at least 5% in unlisted equities by 2030. To support this, it has set up a joint venture with Schroders, Future Growth Capital, which includes a UK infrastructure strategy.

Scott will be speaking at Net Zero Investor’s Renewable Infrastructure Summit on 26 February, to view the agenda click here and to register click here.

Grid investment

Scott explains that government support is particularly needed in grid connectivity, as the Phoenix is struggling to find investable opportunities—not due to a lack of willingness to invest in grid assets, but because of limited viable projects.

“We recognise the amount of investment that the electricity grid requires to achieve a net zero position and are open to making future investments into grids if they achieve our internal economic hurdles.

“Government support for grid buildout enhancements is encouraged. The UK grid is already regulated, hence stable regulation across regulated periods ensures we are able to maintain confidence in the sector,” he states.

This comes as the UK energy regulator, Ofgem, announced last week that it will introduce a faster way to connect new power projects to the grid as it seeks to accelerate progress towards a goal to decarbonise electricity by 2030.

Despite this, the Phoenix has allocations to the space however through public bonds for electricity companies and gas distribution networks rather than private markets. “We are also invested in the gas distribution networks, which we recognise will remain important for the flow of hydrogen or other low-carbon gases,” Scott adds.

Emerging renewable infrastructure

Investing in early-stage solutions such as green hydrogen and carbon capture is also difficult in our illiquid portfolio, explains Scott.

The key challenge is that investments in emerging or early-stage solutions through its illiquid portfolio require the credit to be rated investment grade, either internally or externally, he says.

“For emerging technologies, this is only feasible if the issuance has either a commercial insurance wrap, government support or guarantee, or is structured to look through to an investment-grade corporate via an irrevocable and unconditional guarantee or through a CTL-type structure.”

The Phoenix does have exposure to early-stage climate solutions in its equity investments, targeting core and core+ infrastructure, which typically does not take on technology risk.

Greg Scott will be speaking at Net Zero Investor’s Renewable Infrastructure Summit on 26 February, to view the agenda click here and to register click here.