Written evidence submitted by One NorthEast |
This paper is submitted to the Environmental Audit
Committee in response to its inquiry into Government plans to
establish a Green Investment Bank ("GIB"). It has been
prepared by and is submitted on behalf of a number of key stakeholders
("We") within North East England ("NEE").
Full details of the parties involved in preparing this response
are listed below.
1. Contributors to this response
One North East.
Tees Valley Unlimited.
National Renewable Energy Centre (Narec).
Energy Leadership Council for North East England
- comprising of private sector, academic and public sector partners
(a full membership list is available upon request).
2. Key messages/short summary
2.1 In producing low carbon and affordable energy
there are specific challenges. A current and persistent market
failure is access to upfront capital costs which can and has led
to the delay and cancellation of projects. Better access would
fundamentally catalyse the deployment of low carbon technologies.
The GIB should thus provide such upfront capital for large low
carbon projects such as Offshore Renewables, Smart Grids and Carbon
Capture and Storage (CCS).
2.2 We support the recent study produced by the
Aldersgate group which called for the GIB to be strong, powerful
and effective. Crucially, it must have access to significant financing
of up to £6 billion over the next four years if it is to
make a significant positive impact. This focus and funding should
be protected during the Comprehensive Spending Review.
2.3 The speed of establishment of the GIB is
critical. Although the Government has established a Regional Growth
Fund, this will not cover the significant shortfall in capital
for low carbon projects following wider cuts in public sector
spending. The GIB should be operating by March 2011 in order to
contribute to projects in the new financial year.
2.4 The location of the GIB should be given careful
consideration. It should be based in an area committed to leading
the way in low-carbon technology development and deployment. Therefore,
locating the GIB in North East England would send a signal that
the move towards development of a low carbon economy will benefit
the whole of the UK and aligns closely with the Government's agenda
to devolve certain spending and financing functions away from
Whitehall and the City of London. Locating the GIB in NEE would
also be a positive affirmation that the government is serious
about assisting areas hardest hit by public sector cuts and narrowing
the gap between the North and the South. Both the affordability
and quality of premises and staff on offer in NEE would ensure
value for money in a challenging financial climate.
2.5 An advisory panel or Board should be established
with a remit to scrutinise GIB spending decisions and priority
areas. This will avoid duplication with other financial incentives
designed to mitigate market failure such as the Green Deal for
energy efficiency and low carbon technologies in homes and businesses.
2.6 The GIB should be open to the potential for
investment which focuses upon climate change adaptation, as well
as climate change mitigation, provided the commercial case is
3. Why is the GIB necessary?
3.1 There are three key drivers for the UK government
supporting the development of a low carbon technological revolution:
3.2 Reducing UK carbon emissions - In
the April 2009 budget, the UK set a legally binding target to
reduce carbon emissions by 34% by 2020. A longer term framework
has been established to reduce CO2 emissions by 80%
3.3 Increasing energy security - A lack
of investment in energy infrastructure over the past decade means
that an energy gap is forecast over the next five years. The UK
Renewable Energy Strategy of 2009 and the subsequent DECC 2050
Pathway Analysis released in July 2010 under the coalition government
outlined the mix of low carbon technologies needed to diversify
and decentralise energy production and reduce price volatility
linked to world oil trading.
3.4 Social issues - The UK Government
has a statutory target to eradicate fuel poverty in all households
by 2016. However, there are currently over six million householders
in the UK living in fuel poverty. NEE has the highest levels of
fuel poverty in the UK with over 300,000 householders (27.3%)
3.5 It is clear that in order to meet a target
to reduce CO2 emissions by 80% by 2050, whilst providing
affordable and secure energy, innovative financial models such
as the GIB will be required.
4. What should the GIB deliver and what will
success look like?
4.1 It is recommended that outputs relating to
CO2 reduction, jobs created and jobs safeguarded, as
well as outcomes where opportunities exist for investment to lever
multiple benefits (eg mitigation and adaptation), form the foundation
of criteria to secure GIB funding for low carbon projects. Other
key criteria against which investment propositions should be tested
to improve the ability of people, business and organisations
to participate in a resilient low carbon economy. This will involve
working across a range of technology sectors from marine renewables
and CCS to energy efficiency, demand side participation and smart
to establish a number of viable and replicable financial
models for project delivery;
to fully engage with local supply chains in delivering
to build on the platform of existing programmes of
activity, utilising established mechanisms for delivery where
to facilitate the best possible solution for each
individual, property, street, community or district in terms of
both a return on investment, energy efficiency and carbon reduction
and the incremental costs of adaptation where appropriate (eg
where whole house energy retrofits through the Green Deal could
also flood or heat proof a building at marginal cost).
5. The Green Investment Bank's investment
priorities, and whether and how the bank should support and foster
areas where the UK has emerging green technology strengths
5.1 The sectors which GIB should seek to fund
Renewable energy (with a particular focus on Offshore
Renewables including Offshore Wind and Wave / Tidal developments).
CCS - investing through the project development process.
Smart Grid technologies (for low carbon economy)
- including network interconnection with Europe.
Energy Efficiency/conservation - including demand
5.2 Other activities which contribute to the
decarbonisation of electricity by 2030, as recommended by Committee
on Climate Change should also be within the GIB scope.
5.3 It should be noted that reducing demand is
the most cost effective measure in tackling CO2 emissions.
Therefore, loans should be available to enable cutting demand
as well as supporting new supply infrastructure.
5.4 There is some evidence that the most important
area in terms of GIB investment is the initial working capital
to allow projects to get through planning and permitting. Typically,
large scale FEED studies, for example in developing a viable CCS
project, may be in the region of £30 million. Provision of
financial assistance utilising the full range of investment products
would greatly improve the chances of getting projects established.
Clearly this is a high risk area and the loan would necessarily
be at higher than normal rates, but it would however result in
a project which is considerably de-risked when it does seek capital
in the markets.
5.5 The GIB should also be aware of emerging
projects connecting key stakeholders throughout Europe. For example
the North Sea Offshore Grid Initiative is an example of the potential
to jointly support projects with European Institutions. Included
within this would be forming a strong relationship with the European
Investment Bank with a view to co-investing.
5.6 At the same time, it is important for the
GIB to have sufficient flexibility to also fund smaller community
scale enterprises as well as larger companies, where appropriate.
6. NEE Capabilities
6.1 Energy Technology is of vital importance
to the current and future economy of NEE. The emerging capabilities
and potential of NEE are gaining significant National and International
recognition and are now attracting major investment from both
the public and private sectors. It is also highlighting the real
potential to generate a sustainable manufacturing and industrial
future for the UK as a whole.
6.3 The National Renewable Energy Centre (Narec)
is now established as one of Europe's leading facilities for the
development of Offshore Wind technology, and a key UK asset. It
is working with most of the international turbine manufacturers
and has developed unrivalled capabilities in such areas as blade
testing and marine/ tidal device development and testing. We also
have a range of companies already operating effectively within
the offshore wind supply chain including JDR Cables and Tees Alliance
Group. The possible cancellation of the £60 million to upgrade
ports in preparation for a rapidly expanding offshore wind sector
leaves a major gap which the GIB would need to have capability
of responding to. In NEE
alone there are five excellent port locations which could play
a role in the development of a thriving offshore wind industry.
6.4 As an area of highly energy intensive businesses
across the power generation, manufacturing, process and petrochemical
industries, all of which are within close proximity to each other
and the North Sea, it is well recognised that NEE represents a
unique location for the development of CCS. Projects are ongoing
in order to strengthen the commercial investment proposition around
CCS demonstration projects in NEE.
6.5 NEE is a world leader in the development
of Ultra Low Carbon Vehicle solutions, principally Electric and
Fuel Cell Vehicles as well as the production of Biofuels. Major
new investment in manufacturing and development is being sought
to build on the success of attracting companies such as Nissan
and Ensus to base vital operations in NEE.
6.6 The Centre for Process Innovation (CPI) is
a world leading Research and Development Centre responsible for
the development of key UK assets such as the Industrial Biotechnology
facility. CPI is vital to enabling a sustainable transition towards
a low carbon economy, particularly within the chemical sector,
so crucial to the UK economy. CPI also manages the Printable Electronics
Technology Centre (Petec), another key national asset.
6.7 NEE is home to five major Universities, each
excelling in various strands of developing the low carbon economy.
The recent creation of the Newcastle Institute for Research and
Sustainability and Durham Energy Institute demonstrate the integrated
approach being taken to develop the holistic understanding of
a low carbon economy. A range of Colleges are also offering specialist
training in key low carbon sectors.
7. NEE approach to investment propositions
7.1 NEE is taking a holistic approach to meeting
its ambitions for carbon reduction. This will include measures
to improve Energy Efficiency, to promote a step change in the
use of Low Carbon Vehicles and to encourage and support the development
of Smart Grids.
7.2 Each of the 12 Local Authorities in NEE have
now submitted Sustainable Energy Action Plans (SEAPs) to the EU
(Covenant of Mayor's Office), providing detailed quantitative
data showing how their 20% reduction commitments will be achieved.
Together they provide a complete and robust basis for a coordinated
7.3 In order to catalyse a major scale up in
the demonstration, infrastructure and testing of low carbon technologies,
NEE is developing a series of comprehensive business cases to
support investment bids. The GIB should be open to receiving collaborative
bids from within well defined economic areas which can enable
the growth of the private sector.
8. The funding and governance structures required
to create an effective and accountable body
8.1 The £1 billion Regional Growth Fund
will be provided by the UK government through the Department for
Business Innovation and Skills (BIS). Its objective is to support,
in particular, those areas and communities that are dependent
on the public sector, to make the transition to private sector
led growth and prosperity. There is a strong emphasis on the role
of the private sector in the development and submission of proposals
and whilst it is clear that Local Authorities have a role, bids
must have private sector financial backing. Proposals are to be
linked to priorities, ideally articulated within an agreed vision
for sustainable economic development.
8.2 However, it should be made clear that this
funding represents a significant cut in public sector funding
previously available to contribute to economic growth projects.
The Regional Development Agencies previously held a budget of
between £1.5 billion to £2.4 billion per annum. In comparison,
the Regional Growth Fund offers £500 million per annum for
the next two years. This reduction in funding comes at a time
when OFGEM have reported that up to £200 billion of investment
will be required in order to meet ambitious CO2 reduction
targets over the next ten years.
8.3 Therefore, it is imperative that the GIB
is both well funded and established rapidly in order to support
the growth of the private sector required to leverage such massive
8.4 Specifically, we recommend that the GIB is
established by March 2011. Initially, this may be a "shadow
model" which has the capacity to provide finance, but with
a view to increasing its size and capability over the following
six month period. Furthermore, we specifically recommend that
the GIB should hold funding of at least £6 billion over the
next four years, in order to be strong, powerful and effective.
This recommendation follows the report by the Aldersgate group,
published in September 2010.
8.5 We would also seek clarity on which Institutions
may be integrated into the GIB. For example, the role of TSB,
ETI and Carbon Trust, as well as other Institutions should be
made clear within the GIB framework. This will be important in
terms of shaping the scope of the GIB. As an example, should funding
for energy efficiency measures in the domestic sector be cut from
other Institutions and programmes in order to support the initial
financing of the GIB, then it is vital that financial products
are quickly made available from the GIB to address the gap (eg
financial products to support the deployment of innovative solid
wall insulation products).
8.6 We recommend that an advisory panel or Board
should be established with a remit to scrutinise GIB spending
decisions and priority areas. In the current spending climate
it is imperative that available funding is optimised and that
duplication is avoided. Key tasks for the advisory panel would
Preparation of a roadmap showing prioritisation of
technologies and coverage of them through various GIB funding
Provide guidance on coverage and potential for climate
change adaptation projects. A recent study into the economic implications
of climate change in NEE highlighted that without both adaptation
and mitigation projects, the resilience of the economy to withstand
shock and grow sustainably is negatively impacted.
Provide some level of technical support to innovative
approaches to delivering projects such as joint ventures/Energy
Services Companies (ESCOs).
Reassure the investment community by providing a
clear commitment to guarantee subsidies/incentives for schemes
that are supported by the GIB.
Provide a very clear communications message to clarify
the remit of the GIB. For example, the detail around whether GIB
will be offering loans to develop front end feed study work (eg
in the development of Carbon Capture and Storage) and how it will
interface with other current UK and European funding schemes (eg
the JEREMIE fund in NEE).
15 October 2010