Banking on the GIB: boom or bust?
The Green Investment Bank is due to launch next month. Rolf Stein argues that there needs to be strict investment criteria to ensure it fulfils its objectives
The Green Investment Bank (GIB) was finally given European State Aid approval last week, after months of consideration, in the same week that the Enterprise & Regulatory Reform Bill cleared the Commons after its third reading and report stage.
The Bill will now move onto the House of Lords for consideration before securing Royal Assent. GIB will begin making commercial investments from October 29 with an initial fund of £3bn. The timing of the bank’s launch coincides with the presentation of the Energy Bill to the House of Commons, which aims to deliver secure, affordable and low carbon energy.
This represents the largest modification of the energy market in a generation, which will require £200bn of investment. The legislation will need to encourage this investment, support the development of new renewable energy technology and provide a root to market.
The GIB will complement the aims and ambition of the Energy Bill; it represents an important step forward in realising the Government’s ambitions for technological innovation and carbon-reduction in the UK market place and industry is fully supportive of these developments.
The specific remit of the GIB has been defined as providing additionality and green impact with a focus on delivering finance to areas where there is evidence of market failure – primarily offshore wind, non-domestic energy efficiency and waste infrastructure.
The GIB has a critical role to play in a challenging project finance market. The sluggishness of the economy has hindered the growth of the renewable energy market and this has been exacerbated by the investment hiatus created by the delay to the feed-in tariffs for solar and the Renewables Obligation (RO) bandings.
Furthermore, the market is already anticipating the successor to the RO system – the feed-in tariff with a contract for difference, which will create another investment hiatus until the details become clear under the Energy Bill.
One crucial role of the GIB will be to inject confidence and therefore unlock additional private funding to help the market secure the £200bn of investment required. Much of the additional investment and innovation required will come from independent developers and generators, who will depend on the GIB to unlock funding and capital flows. The GIB will only be able to accomplish this if it is allowed to act as a bank and borrow on the capital markets.
An area of potential concern is the criteria upon which investments are made. It is vital that, as part of its mandate, it will allocate significant resources to funding projects which involve emerging, high-efficiency technologies, particularly in the waste sector.
The RO banding consultation initially proposed varying levels of support according to the efficiencies of waste-to-energy technologies. When the banding outcome was announced in July of this year, DECC removed the differentiation between advanced gasification technologies and the more primitive ones. This lack of distinction risks the proliferation of rudimentary technologies because it removes the incentive to invest in technological innovation and improvement.
The remit of the bank’s operations should focus on supporting the most efficient and carbon reducing technologies through to commercialisation. By investing in the most innovative technologies, the GIB can ensure that they achieve commercialisation thereby maximising its impact.
In the energy-from-waste market, the UK has the potential to become a world leader in advanced gasification technologies and it is important to identify unintended consequences of domestic policy which might run contrary to that objective.
Rolf Stein is chief executive officer at Advanced Plasma Power