Don't butcher Osborne's cash cow

Over the past few years pension fund money has been touted by the Government as the mythical cash cow that will finance all of the UK’s infrastructure needs.

In particular, chancellor George Osborne believes direct investment from pension funds can plug the gaps in areas where public money has typically been invested, such as roads.

However, while many managed funds into which pensions invest do take stakes in firms like utilities, water companies and pharamaceutical giants, there has been precious little activity in terms of direct investment.

Which is what makes today’s news that Denmark’s national pension fund PensionDanmark has chosen to make its first direct investment in UK infrastructure in a biomass plant so interesting.

Its decision to, along with biomass and biodiesel plant build specialist BWSC, invest £160 million in the Brigg plant is one of the first substantial direct investments by a pension fund into a new-build infrastructure project in the UK.

The chancellor had better hope his colleagues at DECC spare him his blushes

PensionDanmark has to-date invested EUR 573 million in infrastructure, generally via managed funds. The only direct investments it has made have been in the wind sector, in projects in Denmark, Sweden and the US.

This therefore makes me more than a little curious as to why it has chosen for its first direct investment in the UK a technology (Biomass) with which it has little experience of investing.

Even more curious is the confirmation that the decision to acquire the project from its developer Eco2 was taken after the government had confirmed a 400MW cap on new-build biomass projects eligible for support under the Renewable Obligation (RO) scheme.

Brigg will be facing competition for RO support from schemes including RES’ 100MW Port of Blyth project, Helius’ 100MW Avonmouth project and the 300MW MGT Power Teesport scheme.

Presumably if the project failed to secure RO support its development would, like the Tilbury biomass plant, be deemed economically unviable?

Which would then see the investors pull out, and this would be more than a little embarrassing for Mr. Osborne and his championing of pension funds as infrastructure’s saviours.

The chancellor had better hope his colleagues over at the Department of Energy and Climate Change (DECC) spare him his blushes and hand Brigg support under the RO, confirming it as one of the projects to make the 400MW list.

The last thing he wants, I suspect, is for government energy policy to butcher his cash cow.