The Green Investment Bank - Environmental Audit Committee Contents

Written evidence submitted by the UK Business Council for Sustainable Energy

1.  The Council works with leading companies in the energy industry to speed the transition to a low carbon economy consistent with the delivery of secure and affordable energy.

2.  We welcome the opportunity to make this submission to the Environmental Audit Committee on the important area of investment in the transition to a low carbon economy.


3.  It is widely acknowledged that significant investments are required to deliver the low carbon technologies and supporting infrastructure needed in the UK and a figure of £200 billion by 2020 has been suggested.

4.  Energy companies stand ready and willing to invest - and they are likely to make a large part of the investments due to their technical expertise, management strength, balance sheets and track-record.

5.  However, the scale and pace of investment needed in major low carbon plant, means that even if the economics are attractive, projects may be impacted by shorter term capital constraints.

6.  In particular, in the long period before revenues start to flow, additional sources of equity investment may be required to fund development, construction and early-stage operation.

7.  Attracting such equity may be harder in the current climate. Banks and pension funds may provide debt-funding for certain "settled-down" operating assets, but are less likely to take on development or construction risk.


8.  A long-term, stable policy framework is essential to attract investment to the UK.

9.  Effective incentive arrangements to support secure, low carbon generation should predominantly be put in place through the Government's Electricity Market Reform work.

10.  Significant risks posed by planning and transmission must also be addressed.

11.  Some form of Green Investment Institution could potentially play a role in handling residual risks - particularly in relation to the development, construction and early operation phases of projects as well as perceived policy and regulatory uncertainty.


12.  There are three areas where a "Green Investment Bank" (GIB), or similar institution, could potentially play a role:

13.  Equity co-investment in low carbon technologies—GIB involvement could help in terms of meeting the volume of sensibly priced capital required, supporting projects through the more risky construction phase and investing in new types of asset where commercial markets are not yet comfortable. Some form of guarantees by a Government supported GIB might help in reducing policy and regulatory risks, particularly as Government would then itself be exposed to the potential upsides and down sides of its decisions.

14.  Seed funding for Green Deal—GIB could also offer support for downstream investments, such as higher cost measures for households and infrastructure better suited to long term rewards. In particular, it could provide seed funding for the Green Deal. This would enable private investors to see the concept in practice and evaluate the potential scale of opportunity and risks of investing.

15.  Innovative delivery—Some areas of the low carbon economy, such as district heating infrastructure, are well suited to attracting forms of "patient capital" and the GIB could potentially provide an innovative route to market for such funds which could in turn support the wider deployment of long term heating infrastructure in the UK. This in turn would play an important role in decarbonising the UK's heating sector.

Setting up a new institution?

16.  Clarity is needed on the governance arrangement for any "bank" - such as what it can invest in, what sort of returns it should seek - and how it would be capitalised - including the extent of public funding and its relationship to the PSBR (Public Sector Borrowing Requirement).

17.  If there is some form of public stake in schemes, via the GIB, this could help in building investor confidence and reducing policy and regulatory risks. We hope there will be announcements on this alongside the Comprehensive Spending Review.

18.  A coherent, consistent approach to supporting low carbon at various stages is needed. Proposals to rationalise funding streams as set out in the Wigley report (2010) do not fully reflect the complexity of existing funds and institutions, and in some cases are significantly inaccurate. Removing or changing already committed funds will impact on investor confidence.

19.  A new financial institution to support the transition to a low carbon economy will need to be both useful and credible. It should be ore than "just another player" but, if established, offer the capacity to "make a difference". This timely inquiry by the EAC is therefore particularly welcome.

21 October 2010

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