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The Green Investment Bank (GIB) was created by the government in 2012 with the specifi c aim of speeding the UK’s transition to a green economy. Chief executive Shaun Kingsbury explains the challenge.
T
he targets faced by the UK to decarbonise its economy are clear and legally binding. By 2020 greenhouse gas emissions must be cut by 34%, at least 15% of all energy consumed must be generated from green sources and the amount of waste sent for landfi ll must decrease.
Yet the value of investment in infrastructure and technology required to hit these targets is less clear. According to Kingsbury, it could range anywhere from £200bn to £330bn depending upon precisely what you include in the calculation.
Capitalised with £3.8bn of government money, GIBs task is to breathe life into the market through investment in renewable energy and low carbon assets.
“The role of the bank is to try to crowd in more money,” explains Kingsbury. “We have to invest in projects that are both green and profi table - if we fi nd schemes that are a bit short of debt we’ll bridge the debt or if they are short of equity we’ll bridge the equity. And by identifying projects that are green, profi table and ready we will crowd in that private capital that was ready to invest and help to grow the size of the market.”
In short, the numbers and challenges are big. Over the next decade around £34bn a year needs to be invested. But right now investment stands at just £15-16bn a year.
Tricky economic conditions have, to a degree held back the rate of investment. That said, in 18 months the bank has completed 25 transactions to support 60 co-investors, using £750m of its own money to mobilise £3.2bn into projects that were previously stuck.
“We have a signifi cant pipeline with around £4bn worth of opportunities in it,” says Kingsbury. “Historically we have provided one part capital to three parts from the industry which would suggest that we have £16-20bn of total projects. So we are getting up towards the desired level.”
European Commission rules on state aid mean that the bank must invest 80% of funds in offshore wind, waste recycling, waste to energy and non-domestic energy effi ciency with the other 20% focussed on biomass, carbon capture and storage and wave and tidal power.
Although the process of negotiating this agreement is underway, it means that, the GIB can only invest in about 25% of the green market - a substantial obstacle, not least given that offshore wind remains a diffi cult investment proposition.
However, one area that can be targeted by the GIB is energy effi ciency and last month saw the roll out of a new Green Loan scheme being pioneered by Glasgow City Council that will see 70,000 streetlights start to be converted to low energy as part of the city’s preparation for the Commonwealth Games, paving the way for all local authorities across the UK to follow suit and pay to replace lighting out of the savings they make.
© 2014 KPMG LLP, a UK limited liability partnership, is a subsidiary of KPMG Europe LLP and a member fi rm of the KPMG network of independent member fi rms affi liated with KPMG International Cooperative, a Swiss entity. All rights reserved.
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GREEN INVESTMENT
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