UK Green Investment Bank: early success?

Rachel Parkes

The UK has become the first nation with a state-backed investment bank aimed specifically at financing the clean-tech sector, with the official launch of the UK government’s flagship Green Investment Bank (GIB).

The bank, which has been initially capitalised with £3 billion of Government funding, was granted state aid approval from the European Union in October, and was declared “open for business” on Wednesday by Business Secretary Vince Cable.

The Government is hopeful that its cash injection will also mobilise private capital to invest in the green economy, especially offshore wind, and lift the country out of the economic doldrums.

Speaking in Edinburgh at the bank’s launch, Cable predicted that the bank would encourage private and public investment of £15 billion in low-carbon initiatives by 2015, and highlighted the fact that Britain is “unique in having a state-backed bank devoted to green economy projects”.

Cable said: "The Green Investment Bank is now a reality. It will place the green economy at the heart of our recovery and position the UK in the forefront of the drive to develop clean energy. Three billion pounds of government money will leverage private sector capital to fund projects in priority sectors from offshore wind to waste and non-domestic energy efficiency.”

Significantly, the UK government has headquartered the bank in Edinburgh, in an effort to further seal Scotland’s ties with the rest of the UK ahead of a referendum on independence in 2014. “Having the headquarters in Edinburgh is a powerful vote of confidence in the Union, and a testimony to our commitment to helping Scotland lead the green revolution," Cable said.

The business secretary also revealed that the GIB had made its first investment since becoming operational, committing an initial £8 million to an anaerobic digestion (AD) project in the North East of England that will generate energy from waste. This will attract a further £8 million of matching private sector funding.

The plant, which will be located in Teesside, is the first of six planned over the next five years, making it the largest single AD project in the UK, the Department of Business Innovation and Skills (BIS) said. The investment, made through fund manager Greensphere Capital, is part of a £80 million investment programme by GIB in small waste projects.

In addition, GIB will invest £5 million to retrofit the UK industrial facilities of construction firm Kingspan with systems and services that will reduce its energy consumption by up to 15%.

In the period before state aid approval for the GIB, investments were made on commercial terms by BIS’s UK Green Investments team (UKGI). To date, UKGI has committed £180 million to specialist fund managers to co-invest equity in smaller waste infrastructure, energy from waste, and non-domestic energy efficiency projects. Assets built up by UKGI have transferred to the GIB.

The opening of the scheme was broadly welcomed by the renewables industry. “We are pleased that the first investment is a bioenergy project,” said Gaynor Hartnell, chief executive of the Renewable Energy Association (REA).

“We hope that biomass and waste-to-energy – as well as offshore wind – will form a significant component of the Bank’s activity. It is important to get as much leverage as possible from the initial £3 billion and investment in a diverse portfolio of renewable technologies will be helpful.”

But RenewableUK, which represents the wind and marine sectors, warned that the bank needed to send a clearer message on wave and tidal, which will be key development areas for the UK.

“The Green Investment Bank has still not identified marine energy as a priority sector, even though the UK is the world leader in developing wave and tidal energy projects,” said Maf Smith, RenewableUK’s deputy chief executive.

Investment management firm Climate Change Capital, meanwhile stressed that the £3 billion capital investment by the government remained “relatively small”, and warned that the government has yet to give the bank borrowing powers, which could limit its effectiveness.

"The immediate priority for the GIB is clear: catalysing institutional investor investment into offshore wind and domestic energy efficiency by helping the market structure and issue green asset-backed bonds," said Ben Caldecott, head of policy at Climate Change Capital. "Over time there will be many other opportunities for the GIB to spur investment into the modernisation of the UK energy system, but in the near-term it must focus on what's possible given its relatively small £3bn capitalisation.”

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