Written evidence submitted by WWF-UK
SUMMARY
WWF-UK urges the Government to move ahead with the
establishment of the Green Investment Bank as soon as possible.
It should have a mandate to invest in energy efficiency,
including improvements to the domestic housing stock, as well
as renewable energy infrastructure.
The Government must ensure the Bank is capitalised
by at least £4-6 billion over the next four years, in order
to address a series of sources of market failure which threaten
to block the achievement of statutory targets on carbon emissions.
GENERAL POINTS
1. WWF believes the Green Investment Bank (GIB)
should be set up as a matter of urgency to support energy efficiency
and renewable energy development and welcomes the Government's
commitment to establish a GIB. The Bank should have a mandate
to invest in energy efficiency and renewable energy infrastructure—both
large scale projects and also smaller scale and community-led
schemes.
2. The Government must ensure the GIB is capitalised
by at least £4-6 billion over the next four years. Over time
this could leverage over a hundred billion more in investment
from the private sector. This finance is vital in the context
of required investment as high as £50 billion per year
to deliver a low carbon transition.
3. The overall success of the Bank will largely
depend on the establishment of a favourable regulatory and market
environment aimed at delivering an efficient, sustainable low-carbon
transition and securing a near zero carbon power sector by 2030
as recommended by the Committee on Climate Change. The broader
electricity market reform process must explicitly set out to deliver
such a framework, with specific interventions such as an emissions
performance standard for power plant and mandatory company reporting
on carbon emissions.
4. Clarity is required as to which sectors would
be eligible for green funding. WWF believes that the many environmental,
economic, and security problems surrounding nuclear power disqualify
it from inclusion as "green". Nuclear power is already
a mature technology in the marketplace and there is also a risk
that the inclusion of nuclear power in the GIB may discourage
many private investors who would otherwise want to support and
invest in renewable energy.
5. It is also important that the Bank concerns
itself not only with energy supply, but also with the demand side
- particularly with financing improvements in existing housing
stock. The renewable power sector and building renovation and
improvement sector includes many small and medium-sized enterprises.
In order to support innovation and efficiency, the Bank needs
to be structured so as to respond to the needs of businesses of
all sizes, rather than restricting itself to funding large infrastructure
firms.
6. WWF agrees with the conclusion of the recent
report by the Green Investment Bank Commission that the GIB should
be "established and become[s] active as soon as possible".[8]
While we would support the immediate establishment of a "shadow"
institution to move the process forwards, we believe that the
GIB must urgently be established as a statutory body. The creation
of a specific mechanism to lever initial investment in green enterprise
and technology will prove a crucial stimulus to a low carbon economy
as part of a sustainable and secure economic recovery in the UK.
7. There is also scope for the GIB to play a
catalytic role in encouraging and developing the UK's role as
a global centre for green financing, helping to move our financial
system as well as our energy system away from a dependence on
fossil fuels.
BARRIERS AND
MARKET FAILURE
8. There are many barriers and sources of market
failure which the Green Investment Bank should address. In particular,
we identify the following:
Many renewable energy technologies and other low
carbon solutions are perceived to be too risky for big investors.
It is far more efficient for Government to focus its resources
in reducing risk profiles and assuring secure returns on investment,
thereby freeing up massive private investment; rather than simply
increasing subsidies.
Utility companies do not themselves have the ability
to raise money at the scale and cost needed for a sufficiently
rapid transition.
Capital markets are nowhere near to having recovered
from the financial crisis, so project and debt finance is difficult
and expensive to secure.
New technologies can take a long time to mature and
most investors find them too risky. The GIB can help bring new
technologies to market and bring them to scale.
There are numerous renewable projects and energy
efficiency measures, many of which are small-scale. These types
of project are unable to access the capital of very large investors.
The GIB can aggregate these opportunities and thereby unlock this
financing from the biggest investors.
OBJECTIVES AND
ROLES
9. WWF supports the Commission Report's view
that the roles and objectives of the Green Investment Bank should
include:
Addressing market failure and unlocking private finance
- investing alongside the private sector, providing guarantees
and mitigating risks, reducing uncertainty of returns and raising
rewards.
Adding coherence to policy framework around low carbon
transition.
Advising government and helping to align public and
private financial interests in key projects.
Helping to co-ordinate UK climate finance investment,
including internationally.
10. The GIB should co-invest with the private
sector rather than simply funding risky projects with public money.
It should seek additionality, seek commercial rates of return
for banking operations and ultimately be self-funding. It should
operate at arm's length from government and be off the UK balance
sheet.
INVESTMENT PRIORITIES
11. The GIB should both support areas where the
UK has existing green technology strengths, in order to bring
them to scale rapidly and at the least cost; and also provide
capital and technical assistance for innovation of new technologies
and business models.
12. It is important that the Bank concerns itself
not only with energy supply, but also with the demand side - particularly
with financing improvements in existing housing stock. The renewable
power sector and building renovation and improvement sector includes
many small and medium-sized enterprises. In order to support innovation
and efficiency, the Bank needs to be structured so as to respond
to the needs of businesses of all sizes, rather than restricting
itself to funding large infrastructure firms.
13. Investment to improve the housing stock should
also include water efficiency measures that lead to a reduction
in energy demand through reduced hot water usage.
GREEN BONDS
14. The UK's pension funds, insurance companies
and other institutional investors have an appetite for long-term
investments that deliver a stable return, which means they could
channel savings and investments into long-term infrastructure
projects - given the right environment and incentives. These investors
have had an increasing appetite for bonds recently, and could
provide demand for billions of pounds each year of Green Bonds
issued by the GIB.
15. Green Bonds could be used both to raise funds
for the GIB itself, and also to lower the cost of debt for specific
projects. This is particularly important in the current financial
environment. Lowering the cost of finance is crucial, for example,
in providing a Green Deal delivery mechanism that offers sufficient
finance at a cost which is attractive to the consumers - without
whose support it will not succeed.
14 October 2010
8 Unlocking investment to deliver Britain's low
carbon future, Report by the Green Investment Bank Commissions,
June 2010. Back
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