Green Investment Bank

Written evidence submitted by the Local Government Association (GIB 14)

Summary

· The Local Government Association (LGA) believes that local government is essential for meeting national CO2 reduction targets, national and European Renewables targets, and improving the green infrastructure of the UK.

· Through the Local Government Offer on Climate Change [1] , the LGA has set out its proposals for a single source of funding for green infrastructure programmes.

· The previous system of time-limited and size-limited grants has led to the stop-start of programmes, and the inability for councils to identify local opportunities for reducing carbon and delivering them.

· The LGA asserts that access to streamlined external funding and revenue-creation programmes on climate change facilitated by the Green Investment Bank, will enable councils to deliver against their local carbon reduction delivery plans and drive carbon reduction and renewables programmes themselves.

1. 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

1.1 A significant challenge to the local government sector in acting on climate change in the past has been that resources have been spent chasing small pots of time-limited grant funding, administered to meet the targets of central government and its agencies, not the local opportunities available for carbon reduction or the needs of the people they serve.

1.2 The LGA has long advocated that the suite of funding pots for energy efficiency, and other carbon reduction programmes, be brought together into a single pot, originally called by the LGA in its 2009 ‘Kyoto to Kettering’ [2] publication a "National Community Energy Fund". As national policy has developed, we see that there could also be opportunities to raise funds through the Green Investment Bank as a single source of funding. Whilst the scope of the Green Investment Bank is still debated, the LG Group is recommending that funding is available to councils through the Green Investment Bank, at the rate it enjoys through prudential borrowing [3] , for local evidence-based programmes with a good business case supporting it.

1.3 In 2009, the LGA estimated that there was around £7 billion available for home energy efficiency programmes, but this amount was spread over a myriad of funding pots and grants, making it difficult to councils to access and make the best investment decisions.

Table 1: LGA (2009) Kyoto to Kettering

1.4 Past mechanisms for accessing funding has been through applying for grants with strict criteria, looking to achieve a certain set of objectives. This is applicable to Government-led funding, such as the Social Housing Energy Saving Programme [4] (SHESP) and private-sector led funding, such as the Community Energy Saving Programme [5] (CESP). This has meant that councils have had to fold their projects to meet these national and short-lived objectives, rather than responding to local needs, opportunities, priorities and best value for money. The stop-start nature of CERT funding, as energy suppliers meet their targets early or wait for further direction from Government, has also made it difficult for local programmes to maintain continuity and keep valuable jobs in the insulation sector in place.

1.5 SHESP, whilst providing some funding for social housing energy efficiency improvements, only gave councils 4 weeks to develop their proposals, over the summer holiday period. This meant that only councils who were prepared, and pre-warned, were able to benefit. 70% of this funding was given to London Boroughs. The Local Low Carbon Transition Programme will help councils develop their local evidence base for future funding, but such ad hoc funding is not helpful to the sector

1.6 Many programmes, such as the CESP, provide private capital for local programmes, but require significant match funding. Leading councils are trying to use of European funding, through programmes such as ELANA [6] and the European Investment Bank [7] (EIB), to provide this match funding for UK green programmes. A UK-based programme with similar objectives, but routed in national policy direction, would enable councils to have better access to such match funding, ensuring the success of these programmes.

1.7 Finding match funding was cited as a barrier by 60% of respondents to the 2010 LGA Survey of Councils on Climate Change [8] , and was reported to be the single biggest barrier to the funding of programmes, with 41% of respondents being concerned that there would be a decrease in internal funding for climate change in the next two years.

1.8 As part of a wider LGA campaign, we want to ensure that, should councils determine that local energy programmes are a good investment for prudential borrowing, or other forms of borrowing, there should be no restrictions on them going ahead with this investment. We understand that the Office of Government Commerce [9] (OGC) considers prudential borrowing for carbon reduction programmes as a good use this resource, and it would give confidence to the sector to have a public statement to this effect.

1.9 Crucial to the success of funding carbon reduction programmes from a Green Investment Bank is the ability to raise revenue from these programmes, and hence repay any investment loans. The LGA welcomes the introduction of the Feed-in Tariff (FiT) and the ability of councils to sell electricity, as a way to secure borrowing against an income stream that can be expected from local renewable energy deployment. We also hope that Government will be able to progress the Renewable Heat Incentive (RHI), which will further enable investment in low carbon heat technologies. Securing repayments through the Green Deal finance package would also allow councils to generate a small income to help repayment of loans.

2. 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

2.1 A key objective of the Green Investment Bank should be to provide a mechanism for councils to access and raise the funds to realise their local carbon reduction opportunities, particularly through infrastructure improvement and development programmes. These programmes can be based on the carbon reductions they will generate, as well as value for money and local support and buy-in.

2.2 These investment opportunities will include energy efficiency improvements of public and private sector buildings in their areas; energy generation and supply, particularly combined heat and power (CHP), heat networks, wind power and solar farms; local sustainable transport initiatives; and reducing waste and energy from waste plants, particularly Anaerobic Digestion plants. Many of these opportunities are likely to be of interest to the private sector and local communities, offering opportunities for local partnerships and bringing in funding from a range of sources. However, due to the perceived immaturity of the technology, or long-investment periods, these projects can be more difficult to raise finance for, or private sector finance requires significant public sector investment and support. The Green Investment Bank provides an opportunity for councils to access capital that supports investment in local green infrastructure that meets national carbon reduction objectives.

2.3 The local government sector also needs a consistent approach to accessing sufficient funds for local carbon reduction programmes that require significant match funding, particularly where there is private sector investment.

3. 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; and the funding and governance structures required to create an effective and accountable body, including the role of ‘green bonds’.

3.1 The Green Investment Bank’s priorities should focus on small to medium scale programmes that reduce carbon, and are community-back. It should not only be for large-scale national programmes that national government is struggling to fund. It should also seek to support the carbon reduction and green economy objectives emerging from the Local Enterprise Partnerships.

3.2 For more information on the LG Group’s proposals for the raising of Municipal Bonds to deliver local infrastructure priorities, go to: http://www.lga.gov.uk/lga/aio/13757366

3.3 By focusing the Green Investment Bank’s support on local programmes, that cumulatively deliver significant carbon reductions and save people money, the Bank will be delivering tangible improvements for people, in their homes and local spaces.