Commentary Financing energy
Bigmistake
The scale of the challenge to deliver Britain’s low-carbon future is rightly identified in a new report from the Green Investment Bank Commission. But, says Jo Butlin, there is too much focus on the utility companies
T
he Green Investment Bank (GIB) Commission’s new report, Unlocking Investment to Deliver Britain’s Low
Carbon Future, provided a welcome sense of urgency to UK efforts to transform its energy landscape. It correctly identifies the scale of the challenge ahead, estimating required investment of up to £550B by 2020, dwarfing even Ofgem’s recent estimate of £200B. Yet, with a focus on large, utility-scale project financing activity and no mention of energy market reform or the independent SME sector, the GIB Commission seems in danger of falling into the same trap as previous energy market incentives: thinking big is beautiful and handing over yet more public money to large multi- national utilities.
The report states that “under the current structure of the industry” the bulk of projects will be managed and led by the large cap utili- ties. But our reliance on these utilities has failed to meet our needs. DECC says that renewable energy accounted for just 3.1% of UK require- ments in 2009. Considering this needs to rise to 15% by 2020 it is clear we cannot rely solely on this group to deliver. In a global market, multi- national players will not invest in the UK if there are more attractive returns abroad. The report continues its utility-centric focus
22 | Sustainable Business | August/September 2010
by correctly identifying that “the scale required is a barrier to new entrants” for large offshore project. Yet it makes no mention of the amount of projects that have been delivered so far and what proportion is SME scale versus utility. The smaller scale projects are faster to market and proven to deliver – a stated priority of the GIB – yet totally overlooked in the report. Creating a genuine, stable supportive invest- ment environment would incentivise other sec- tors to make up the shortfall. As the biggest consumer of electricity in the UK, the industri- al and commercial sector could be given the encouragement to invest in on-site renewable generation. It would help reduce business costs, energy demand from the grid and increase renewable supply. The motivation is certainly there provided the commercial rationale and a stable investment framework can be guaranteed. Similarly, there are numerous SME scale energy projects that have been consented but which cannot move forward due to lack of cred- it finance. Each project may be relatively mod- est in output, but with a far higher number of potential developers and project sites, the aggre- gate results can plug a vital gap in our energy supplies at a far quicker pace than the larger, slower projects favoured by utility developers. Each of these projects acts as a multiplier in
Big is beautiful? The GIB Commission is in danger of falling into the same trap as previous energy market incentives
the wider economy, helping to address not just the energy crisis but the economic one too. The report defends its ‘big is beautiful’ stance by saying that “to maximise their effectiveness and the time of their investors, banks focus on larger projects”. This is true. But then shouldn’t the role of a publicly-funded Green Investment Bank be to bridge this gap and ensure that these projects do get delivered and overcome the bar- riers facing smaller scale investors? As the GIB consultation develops, it must be opened to all of those who could play a role in our energy future. No sector can tackle this alone. If we are to truly decentralise and decarbonise our energy supply, we must accelerate the decentralisation of ownership and generation first.
Jo Butlin is vice president of Smartest Energy
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