The Green Investment Bank - Environmental Audit Committee Contents

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 clearly demonstrated.

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% by 2050.

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%) affected.

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 include:

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 grids;

to establish a number of viable and replicable financial models for project delivery;

to fully engage with local supply chains in delivering interventions;

to build on the platform of existing programmes of activity, utilising established mechanisms for delivery where appropriate; and

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 would include:

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 side participation.

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 regional action.

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 investment.

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 include:

Preparation of a roadmap showing prioritisation of technologies and coverage of them through various GIB funding routes.

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

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