Green Investment Bank

Written evidence submitted by WWF-UK (GIB 08)

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 G IB 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 requ ired investment as high as £50b n 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"  [1] .  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