The sale of the Green Investment Bank Contents

1The effectiveness of the Green Investment Bank

1.On the basis of a report by the Comptroller and Auditor General, we took evidence from the Department for Business, Energy and Industrial Strategy (the Department), UK Government Investments (UKGI), the UK Green Investment Bank plc (GIB) and the Macquarie Group (Macquarie) on the creation and sale of the GIB.1

The objectives of the Green Investment Bank

2.The government established GIB in October 2012 to help address a lack of private investment in the green economy needed to meet the UK’s climate change obligations. GIB was designed to provide public money, and encourage private investment, into green infrastructure projects such as windfarms and waste and bioenergy projects. Its role was to help accelerate the flow of private capital into green infrastructure and accelerate the UK’s transition into a greener economy.2 Government intended that GIB would achieve this by addressing market failures in green investment, including a shortage of private investors prepared to invest in green energy projects.

3.The government set up GIB as a public company, with the Department for Business, Innovation and Skills—now the Department for Business, Energy & Industrial Strategy (the Department)—as the sole shareholder. GIB’s remit was limited to investing in areas where market failures had been identified in order to ensure it didn’t crowd out private investors.3 GIB was also required to invest in projects that furthered its five Green Purposes:

GIB’s contribution to the green economy

4.Government gave GIB the authority to invest up to £3.8 billion of public money in green infrastructure. By the end of March 2017, GIB had committed £3.4 billion of this capital to 100 projects.5 GIB attracted £8.6 billion of private capital alongside its investment, meaning it secured around £2.50 of private capital for each £1 of its own capital committed to projects. Its investments were spread across the four primary sectors GIB targeted—offshore wind, waste and bioenergy, energy efficiency and onshore renewables—but the extent to which GIB invested in each varied by sector (see appendix for details). GIB invested significantly more in some sectors, such as offshore wind and waste and bioenergy, than others, such as energy efficiency.6 GIB told us that the much smaller average size of transactions of energy efficiency projects meant GIB wasn’t able to commit as much capital to the sector as it would have liked.7 GIB also told us that investment opportunities in other technologies were not sufficiently developed for them to be suitable, commercial investments. For example, GIB told us it wasn’t able to invest in carbon capture and storage or tidal energy projects, as during the lifetime of GIB no such projects were sufficiently advanced or had the structure in place needed for it to invest.8

5.The Department asserted that GIB had largely addressed market failures in some sectors, but accepted that GIB’s record in other sectors was “mixed”.9 The Department hired independent economic consultants, NERA Consulting, to conduct a survey of investors and developers. NERA found that in the offshore wind and waste & bioenergy sectors, GIB had provided the market with the financial backing that it needed to invest in projects and was demonstrating that such projects were financially viable and suitable for investment. However, NERA was less certain of GIB’s impact in other sectors, such as non-domestic energy efficiency and onshore renewables.10 The Department did not develop its own criteria for judging whether GIB was successfully achieving its green objective, and addressing market failures. The Department told us that it considered its existing evidence base on the success of GIB was sufficient and needed no improvement.11 However, the National Audit Office found that there were further steps that the Department could have taken to improve its evidence base on GIB’s impact, and therefore increase confidence that GIB’s intended mission had been completed. For example, the Department did not publish the NERA evaluation before or during the sale. This would have enabled taxpayers and Parliamentarians greater scrutiny and challenge prior to making decisions about GIB’s future. Instead, the Department published the evaluation over two years after NERA reported its findings.12

1 Report by the Comptroller and Auditor General, The Green Investment Bank, Session 2017–19, HC 619, 12 December 2017

3 Q 20, The European Commission initial approval allowed GIB to invest in three priority sectors (offshore wind power generation, waste infrastructure and non-domestic energy efficiency) and five non-priority sectors (biofuels for transport, biomass power, carbon capture and storage, marine energy and renewable heat)

4 C&AG’s Report, para 1.7

5 C&AG’s Report, para 8

6 C&AG’s Report, Figure 7

7 Qq 3–5, 19

8 Q 6

9 Q 3

10 Qq 8–10, C&AG’s Report, para 2.10

11 Q 12, C&AG’s Report, para 1.16

12 C&AG’s Report, para 2.15

14 March 2018