ICIF – Plus ça change, plus c’est la même chose

July 31st, 2016

This blog was written for the ICIF website but as is the way of things technological that is having a few hiccups so we are publishing here. Because it is a month since the original drafting I have taken the opportunity to refresh the content a little – the italicized words.

Feel free to enjoy the other blogs on this site too!

John

Some months ago when I agreed to write this, the EU referendum campaigns had not been started. Now, as I write, the campaigns are over, the ‘Leave’ campaign has prevailed. Still subject to much speculation is what ‘Leave’ (or ‘Brexit means Brexit’ to quote new Prime Minister Theresa May) will mean politically, economically and practically.

So, much has perhaps changed and much more is yet to change, but much has remained the same. I will not speculate (too much!).

What has remained the same?

The state of our infrastructure. The age, condition, ownership, utilization and fragility of our infrastructure is, allowing for a few days more wear and tear, some ‘ppm’ and a bit of ‘breakfix’, the same now as it was before the referendum. It has not collapsed overnight nor has it miraculously restored itself to prime condition. Electricity continues to flow through inter-connectors, gas continues to be shipped and piped in from various places. Renewables continue to vary with the wind, sunlight and waves, bio-mass continues to be shipped in for burning. The challenge of creating runway capacity in the South-East has not been resolved and the HS2 bill wends its way through the parliamentary timetable, late, over budget and subject to a possible short formation or cancellation.

Also unchanged is the need for optimization of and investment in infrastructure. Our population is more or less the same, demand is unabated, the asset deterioration models are as good as they ever were, the coal-fired power generation closure plans (actually perhaps accelerated a bit by a non-EU determined commitment to significant decarbonisation by 2032) are on track. And, as I refresh this, we hear that while EDF have confirmed the building of Hinkley C, the UK Government has put it on hold. Our energy production safety margin appears to be declining while demand fluctuates not just as a function of economic activity and population but also with changes in consumption technologies. We are using many more devices with individually lower power consumption – but what is happening in the aggregate? Our existing infrastructure systems face the same demands and challenges in supporting the UK population as they did before the referendum – though maybe the quantities change a little.

All those needs, challenges and opportunities identified since the CST ‘network of networks’ report in 2009 are, pretty much, the same!

 

What has changed?

The pound has been devalued by the markets, being either a ‘long overdue correction’ or a ‘reaction to Brexit’, depending on the writer. There is a short term impact from this, exports will be more competitive, imports more expensive. That will affect energy prices in the immediate future but also has implications for the skills, labour and materials that may be required for infrastructure investment. Will the cost of major projects such as HS2 and Hinkley C increase yet further? Will the investment risk increase significantly?

There is also likely to be an impact on the private property sector. Already UoB in Singapore is declining mortgages for investment properties in London. Some might argue that the upside of this is a potential increase in affordability for UK buyers. What hasn’t changed is the demand for places to live, the facilities for travelling to and from those places and the infrastructure networks that make it all possible.

Whilst the shift in the value of the pound has an immediate impact there are a number of events happening across Europe in the next 12 months or so which are likely to have an impact on the value of the Euro. There is reported demand for as many as 30 referenda in various countries, France and Germany both have elections in 2017, Spain has recently failed (again) to create a stable majority government and Austria has had its electoral result overturned. Meanwhile, whatever the intention of these things, the systemic effect of individual and collective EU country strategies around interest rates, sustaining the Euro, national taxation and social welfare regimes, and open borders, appears to be a significant migration of people to where the wealth is.

I make no comment as to whether this is a good or a bad thing, I simply state that it is happening perhaps as an effect of the combination of economic and political policies being adopted.

The effect of the effect (the systemic link) is to increase the demand for infrastructure (and the capacity for wealth creation to pay for it) in some locations and reduce it in others, while, over the next 12 months or so there is a high potential for other countries to produce similar shock events with potential for either amplification or attenuation of the impact of the ‘leave’ vote.

 

What should we do about it?

Infrastructure needs, by its very nature, to be considered in a long term light – with all the challenges and uncertainties that entails. The challenges to UK infrastructure that ICIF has been addressing – engineering, technological, business, social – are largely unaffected. The work done, the outputs and outcomes generated remain valid and applicable. The immediate term challenge may be more to do with the funding of further research than with the infrastructure itself. Over the course of the next 25 to 50 to 75 years – the life cycles of some infrastructure artefacts, the lifetimes of others -there will be many changes in political leadership, many fluctuations in interest rates, stock market values, exchange rates. There may be emerging new currencies and dying old currencies. All of these things might be anticipated, none can be prevented or controlled. They will affect costs and values – functions of the accounting element of the system – they will affect less demand and utilization – functions of the production and consumption elements of the system.

From a systemic perspective, the boundaries around the UK infrastructure system can be considered to have been redrawn – although they continue to be permeable, i.e. the distinction between the system and its environment is, often, fudged! However, some system elements that before June 23rd could have been considered ‘part of the system’ should probably now be considered ‘part of the environment’. The need has not changed or gone away, the societal, legal and political context in which the need arises has changed.

To that extent we need to deal with the affected elements differently, to recognize a likely change in relationships of hierarchy, engagement and control, to acknowledge the impact of those changes – and then carry on!

Perhaps, if we are to respond at all, it should be to focus our efforts on how we can ‘do more for less’; how, in economically and politically challenging times, we can have the same amount of infrastructure (meet demand) for a smaller amount of money?

We should then continue to apply our collective knowledge, intelligence and capability to addressing some key infrastructure questions:

How can we understand, manage, protect and exploit the capability of our infrastructure systems?

How might we sustain current assets and their performance at lower cost?

How might we meet demand through capacity utilisation and integration? (Thereby reducing demand for ‘new’ capacity)?

How might we acquire additional capacity where needed at lower than predicted cost?

How can we apply new technologies to increase resilience (bounce back) and reduce the risk of failure (point or cascade)?

How can we optimize the whole system?