The launch of the Green Investment Bank in the UK

The UK has set up the world’s first investment bank solely dedicated to greening the economy. The initiative is part of the Government’s commitment to setting the UK firmly on course towards a green and growing economy, while also delivering long-term sustainable growth.

The  Green Investment Bank (GIB) will be a key component of the progression towards a green economy, complementing other green policies to help accelerate additional capital into green infrastructure.

Business Secretary Vince Cable declared the GIB officially open for business. The institution has been funded with £3 billion of Government money and will mobilise additional private capital to make a significant contribution to the development of a green economy.  It is said that the GIB has been inspired by the effectiveness of the state-owned KfW Bank in Germany.

Consider the non-domestic sector.  The GIB website gives some good information of the direction it is taking.  Estimates show that there is potential for emissions to be reduced by 10-14 per cent in the business and public sectors. However non-domestic energy efficiency (NDEE) projects have been affected by issues that include the following:

• Lack of project deal flow: energy efficiency investment tends not to be the highest priority for non-domestic energy users even though the returns from such investment can be relatively attractive.
• Lack of experience and understanding about the sector resulting in most investors overestimating the risk involved with larger scale NDEE projects, and underestimating the potential benefits.
• Many organisations wishing to improve their energy efficiency find it difficult to access finance for this. This is largely because banks are unwilling to lend for energy efficiency projects since they do not see energy efficient equipment as having any recoverable value.
• High cost due of diligence, and lack of the necessary in house capacity needed to better understand the risks and rewards of NDEE projects.

Existing financial support

The Co-operative Bank finances around £100 million of the UK’s National Health Service energy infrastructure projects. The Siemens Financial Services and Carbon Trust partnership provides up to £550 million in energy efficiency loans over three years.

However, these projects do not come close to addressing the finance needs of the sector which is likely to require at least £9 billion investment by 2020 (60 per cent of the estimated £15.5 billion needed).

Existing Policies

Policies that encourage private sector take-up of non-domestic energy efficiency measures include:

• Pricing measures, which improve the financial case for implementing energy efficiency measures either by increasing the cost of energy or by providing financial incentives to offset the cost of more efficient equipment or practices. These include Climate Change Levy, Climate Change Agreements, EU Emissions Trading System, Carbon Reduction Commitment Energy Efficiency Scheme.
• Regulatory measures: the EU Energy Performance of Buildings Directive requires the provision of a building energy efficiency rating of A to G at the point of rental or sale of a building. Various building regulations also set minimum levels of energy performance for new buildings and major refurbishment. In addition the Ecodesign Directive creates minimum standards for appliances, motors, lighting and other equipment.
• Support measures, which facilitate the provision of advice, finance or other support to organisations, e.g. the forthcoming Green Deal.

Although these policies have encouraged some organisations to take NDEE measures, they are not achieving the necessary rate of increase to enable the UK to meet its emissions targets. Similarly they do not target the market failures resulting in a lack of finance for NDEE projects.

The full range of functions of the GIB are to be found on its website.

EiD will be following the progress and impact of the GIB.