Achieving sustainable transportation is one of the great challenges to meeting the UK’s Net Zero targets. The role of investment is pivotal to decarbonising the sector. Through our immersion in this field, advising on many of the pathfinding projects which are turbocharging the transport sector towards sustainability, we are noticing significant shifts in the investment landscape.
We need to make sustainable transportation projects in our urban and rural environments attractive prospects for investors in an increasingly crowded field. This is a global issue, so we are not just competing for investment against other UK projects, regions and public authorities; we are competing against a myriad proposed projects worldwide.
At Interchange 2024, we took the opportunity to assemble a diverse and comprehensive mix of transport and energy stakeholders to unpack these challenges. Representatives attended from the public and private sector, including local authorities, lenders, investors and developers, offering a fascinating and frank range of insights. Here is a selection of takeaways showing how, by collaborating more closely, energy and transport can incentivise investment into our transportation projects.
What are the key challenges in attracting investment?
There were two overwhelming consensuses from the table:
1) This is a great time to invest in transport.
2) The economic case for investing in transport is going from strength to strength.
Private sector investments are delivering very strongly. However, we need to identify and encourage new investment streams to achieve the momentum needed to get to net zero. Relying upon the private sector alone will not get it done. If the funding is out there – what is needed to unlock this?
The impact of national and local government is crucial in attracting investment. But to do so, government needs to demonstrate stability, have clarity of vision and consistency of policies, and exude strong leadership in robustly taking the helm. And one size does not fit all: the different regions need locally effective approaches and solutions, depend on their specific transportation needs.
- Understanding why customers use transport
We can drive carbon out of the infrastructure but how far can we impose decarbonising transport solutions on individual users? We will never get rid of the car. Instead, we need to invest in transportation solutions reducing car use. One mooted solution was finding ways to turn the public back onto using buses – making them more attractive propositions both aesthetically and logistically.
Above all, we need to understand how and why people are using vehicles. In urban areas like London, for example, there is a clear shift away from ‘personal’ miles (ie jumping in the car to go to the shops) and an increase in online/mail order – which is increasing demand on deliveries/freight miles instead.
We will only incentivise workable solutions if we better appreciate travellers’ transport considerations. Lower carbon solutions are not uniform: those available to urban-dwellers are not often options for rural travellers. In the countryside, customers rely upon their cars. Rural transportation strategy needs to replicate the flexibility of the car with solutions connecting silos (such as commercial hubs, education, leisure facilities and medical centres.)
Attendees mooted bus franchising; dual transport systems (rail and bus); and multi-modal transport – the key being effectively connecting the component parts.
A recurring theme was the need to use data to build the business cases which will attract the investment needed to build them. (We explore this further down.)
Public and private sector need to be able to collaborate to attract investment
The stakeholders were very clear: there is plenty of finance available. The issue is collaborating to develop projects which:
- have a revenue stream that can be commercialised;
- banks can look at with certainty because they understand the revenue stream; and
- have a model which investors are comfortable with.
To differentiate from the herd of investor-seekers, project teams must consider/develop new and innovative investment models. A collaborative, outward-looking approach has greater chance of unearthing or devising the cutting-edge models which will give investors what they are looking for.
An obvious model is for greater collaboration between public and private sector. There was a general sentiment that the public sector is sometimes not making the private sector aware of many of the great opportunities available right now. One stakeholder raised a thought-provoking example concerning minibuses: The DfT is funding pilot minibus schemes. The schemes are very successful and cost-effective with huge uptake and demonstrable social benefit. Once funding stops, this could be a great potential private investment opportunity – if it can be incentivised.
This is not the only potentially fruitful collaboration option. With the soaring demand for EVs, energy is now an increasingly vital element of the transport business. By pooling resources and drawing on the greater interconnectivity between energy and transport, stakeholders could open up new ways to incentivise investment.
What we need from government
In addition to stability, clear vision and strong leadership, what else can government do to incentivise investors? Attendees had plenty of answers.
Sustainable solutions need a sustainable approach from Government. This means being consistent and supportive in policy terms and setting the right frameworks. For example, a train / bus operator considers costs across the whole life of an asset, so political uncertainty will mean less incentive to invest in rail or bus projects.
To increase electric mobility government needs to prioritise incentivising a comprehensive charging infrastructure and stabilising the price of electricity/energy. DfT pays bus operating grants outside London on amount of diesel burned – where’s the sustainable alternative?
There needs to be more effective data-sharing
Private sector investors need clarity of proposition as to what their return will be. Compelling data will help construct a strong business case to investors by helping them understand the demand for the proposed project. The amount of public sector data alone is staggering; but the data is too often stuck in silos. Can it be better shared or decentralised so it can be turned into information that will help project teams make bolder and better decisions, and spot opportunities to incentivise investors?
Strong leadership
So many projects/initiatives in this space are pioneering/pathfinding. The mechanisms to achieve them do not always exist – which means risk. Part of the challenge is facilitating trust building and synergy between the project team and investors. To achieve this effectively requires a different calibre of leadership: innovative, creative, informed risk-takers who relish the challenge of not having a map to follow – and who inspire the confidence in others to join them in also relishing that challenge.
Conclusion: How do we incentivise investment in sustainable transport projects?
The recurring thread was that, to attract the investment the UK needs to create a truly sustainable transportation system, we must create a more collaborative landscape.
This may mean greater collaboration between the public and private sectors, or between stakeholders in the transport or energy industries. It might manifest in better, more joined-up inter-regional collaboration. It might take the form of stronger cross-party consensus from central government, providing the frameworks, underwriting our future infrastructure or demonstrating the certainty in long-term political support for the sector that investors need. Or it might be constructive, collaborative intervention from government, working with the transport sector to support, not stifle innovation.
Whatever form the collaboration takes, one truth is inescapable: we face the same great challenges together – so we need to create the solutions together.