Green Investment Bank
Written evidence submitted by the Co-operative Group
(GIB 04)
The Co-operative Group
The Co-operative Group is owned by more than five million consumers and is the UK’s fifth largest food retailer following the acquisition of the Somerfield supermarket chain in March 2009 and operates one of the largest and most diversified financial mutual businesses comprising The Co-operative Bank, The Co-operative Insurance and Britannia. We are also a leading provider of travel, pharmacy services and funerals. Our annual turnover is £14 billion, and we employ more than 120,000 staff, operate over 5,000 retail trading outlets and handle more than 20 million weekly transactions.
We have widely-recognised leading environmental and energy initiatives. 99% of the electricity for our trading outlets is sourced from good quality renewables, through wind and water-power. We have provided £2m in grants to install photovoltaic systems in schools across the UK. The CIS Tower in Manchester became Europe’s largest vertical solar array when it was clad in energy generating solar panels in 2005. In 2003 The Co-operative Insurance (CIS) became the first institutional property investor to transfer all contracts for its £2billion investment property portfolio to green electricity. In 2006 the Coldham Wind Farm was launched as a joint venture between The Co-operative Group and Scottish Power and supplies approximately 4% of The Co-operative Group’s energy requirements (equivalent to 9,000 homes). The windfarm is now set to expand with local community backing. The Co-operative Enterprise Hub is a grant giving and education initiative that allows for new co-operatives to be set up to deliver on energy, environmental and community priorities. One example is Energy4All, which via funding from The Cooperative Group has set up further community energy projects, each owned by members of a local co-operative.
Renewables are also central to The Co-operative Financial Services’ commercial strategy, from asset finance to institutional investments renewables. The Co-operative Bank has committed more than £400m to be invested in renewable energy and low carbon energy technologies including combined heat and power (CHP) plants and district heating schemes. We have financed several hydro schemes including one serving our food store in New Mills; we are currently in the process of funding several anaerobic digestion and biomass projects; and we are also entering the microgeneration and energy efficiency sectors.
Summary
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The Co-operative Group welcomes this opportunity to respond to the Environment Audit Committee inquiry into the Green Investment Bank
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The Co-operative Group supports the creation of a Green Investment Bank in the UK that focuses on targeted support in existing markets and that does not compete with providers in a way that would harm business
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There is not enough green investment in the UK but there are also many other delivery challenges including connections and planning delays
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A Green Investment Bank could help establish a ‘pre-development equity fund’ to help overcome the early barriers for renewable schemes
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A Green Investment Bank’s focus should not be too narrow and could deliver on large infrastructure projects as well as community-scale energy
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There is a role for a Green Investment Bank in helping to deliver on other government priorities such as the Green Deal but that this should not detract from the wide range of projects that can be supported with little risk to public finances
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A Green Investment Bank should not be set-up for the express purpose of merging a variety of existing grant and loan schemes. It would need a clear governance structure, defined aims and the ability to make sensible investment decisions in agreed priority areas with government in order to both be effective and to deliver certainty for the markets
Inquiry response
The significance of any barriers or 'market failures' requiring the establishment of a Green Investment Bank, and any risks of not getting this done quickly
1.
The Co-operative Group supports the creation of a Green Investment Bank in the UK that focuses on targeted support in existing markets and that does not compete with providers in a way that would harm business
2.
Clearly there is not enough lending to the renewable sector in the UK and a Green Investment Bank will help to create a more positive environment for banks to increase their lending, where applicable, backed by government guarantees.
3.
Many of the delays in terms of delivery are not necessarily financial, with planning decisions often taking many years for large schemes and the length of time and complexity of connecting to the grid being other reasons why we do not see the level of delivery in the UK that we perhaps could. As part of the government’s Localism agenda, there is a strong case for streamlined planning, particularly for community-owned and led renewable schemes.
4.
The risk of not getting on top of these challenges is simple – that the UK will miss its targets, will not tackle energy security issues and allow competitor economies to grow in green industries, further disadvantaging the UK despite some of its natural advantages in terms of potential renewable energy generation.
The objectives and roles the Green Investment Bank should assume, the areas it should operate (and not operate) in, and how its lending and investment decisions should balance green benefits against financial risks
5.
A Green Investment Bank should not seek to provide direct lending to schemes in a way that competes with existing lenders as this would have the consequence of creating an uneven market.
6.
A Green Investment Bank’s primary role should be to intervene where the market either cannot current operate (such as with emerging renewable technologies) or in areas where the financing risk is currently too high (such as with schemes that are stuck at feasibility stage and cannot progress to a point where a bank would provide debt financing).
7.
Its role should be one of support to business and lenders through ‘de-risking’ funds that can act as a guarantee to lower the risk to lenders. This will enable more lending to flow into renewable schemes that at present without creating a huge draw on public finances. One way to achieve this would be a ‘pre development equity fund’.
8.
The Co-operative Group believes that there is a strong case for a Green Investment Bank to stimulate delivery in the small and community-scale renewable sector. At present there are a high number of schemes, with community or small business backing, that are in the pipeline, working hard on their feasibility studies – be that testing wind speeds or in examining connection costs. Small-scale schemes have high up-front costs that represent a risk for lenders meaning that a complex range of early funding has to be found even before banks will examine the scheme. A Green Investment Bank should be playing the role of an institution that can lend to viable schemes and help to cover the risk with established lenders that will enable schemes to come forward. Given the UK’s challenging renewable targets, it is imperative that the Green Investment Bank looks to having an ‘enabling’ role that encourages communities to come forward with their own energy solutions. A pre-development equity fund would help to achieve this.
9.
The Co-operative Group believes that a Green Investment Bank should not focus on a very narrow set of areas or technologies, such as purely on off-shore wind. It is right that there are a mix of schemes supported through a Green Investment Bank, including both large and community-scale projects.
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
10.
The Co-operative Group believes that a Green Investment Bank can deliver both quick wins in terms of unlocking community renewable schemes, alongside encouraging more sustainable capital markets to support the UK’s future major energy investments.
11.
One priority for a Green Investment Bank should be the sub- £20m renewables sector. Government support for small-scale renewables through mechanisms such as Feed-in tariffs remain very important for those schemes that are being delivered. Communities that can take control of their own energy solutions are likely to make further in-roads into other vital areas such as energy efficiency and retro-fitting. Alongside funding support, there is an important role for a Green Investment Bank to facilitate advice and support for communities wishing to deliver a decentralised energy scheme.
12.
A Green Investment Bank should support priorities both in energy generation, but also in energy efficiency, such as de-risking schemes that deliver renewable heat. Such schemes can have added benefits in terms of reducing fuel poverty. The Co-operative Bank has worked in partnership with local authorities to make better use of heat in social housing and believes that this is a model that can be rolled out across the UK. Therefore The Co-operative Group believes that local authorities, the public sector and partner organisations should be able to access funding through a Green Investment Bank.
13.
A Green Investment Bank could help to deliver the government’s stated priorities for the Green Deal. Energy efficiency is vitally important for the UK as through generation alone the UK will struggle to meet its targets. However, as with off-shore wind, a Green Investment Bank should not be pulled into a narrow focus – by enabling a range of renewable schemes, there will be many positive knock-on effects such as educating and enabling communities, the public sector, schools and small business to make further improvements as to how they use and save energy.
The funding and governance structures required to create an effective and accountable body, including the role of 'green bonds’
14.
How a Green Investment Bank is structured from the outset will determine its role in the market and the level of initial investor confidence. As such The Co-operative Group believes that should the initial set-up of a Green Investment Bank purely exist from a culmination of current funds and grants from across government, this would do little to re-assure the markets that it has a serious role to play in delivering green investment.
15.
A Green Investment Bank should look to have a streamlined structure, covering market engagement, specific government backed funds and an advice and support function. The Co-operative Group believes that it would gain greater credibility to be set-up apart from government but that government must play a role in its governance in some way in order to ensure that its remit does not end up too narrow. It should though be free to make investment decisions that are focused both on the UK’s renewable targets and on interventions where the market has stalled such as in the public sector or within communities.
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