Concerns about level of ambition of UK’s Green Investment Bank

Sustainable energy policies are taking a battering in Britain these days. Pilita Clark provides a good article in the Financial Times about the level of ambition of the Green Investment Bank.

Green Investment Bank accused of behaving like commercial lender

When the Conservatives decided to scrap a welter of green energy policies after winning May’s general election, the party was prepared for an angry response from environmental campaigners.

But the government’s flagship Green Investment Bank has now been drawn into the row as investors accuse it of helping to scupper the home energy-saving scheme known as the Green Deal, one of the main casualties of the cutbacks.

Critics say the entity David Cameron hailed as “the world’s first green investment bank” has behaved too much like a typical commercial lender and has not done enough to boost the low-carbon economy.

At the same time, decisions to end onshore wind and solar subsidies early have raised concerns the government’s plans to partly privatise the Green Investment Bank are doomed to fail because potential investors will be deterred. “You have got to ask, who is going to find this an attractive investment given the changes in the policy environment?” said Nick Mabey, chief executive of E3G, a think-tank that developed early blueprints for the bank.

The Green Investment Bank was launched in late 2012 to accelerate moves to a greener economy. It was given £3.8bn of public money and has since committed nearly £2bn to about 50 projects worth more than £8bn, from offshore wind farms to council schemes to install more energy-efficient street lighting.

But some investors say the bank was happy to put money into safer projects already up and running — such as the Sheringham Shoal wind farm off the Norfolk coast, in which it bought a £240m stake last year — while some of the riskier ventures that needed proper backing to get off the ground were shunned.

Shaun Kingsbury, the bank’s chief executive, rejected such concerns and said the safer deals were part of a strategy to encourage the growth of offshore wind power, a relatively new and expensive form of renewable energy.

Companies selling their offshore wind stakes to the bank all agreed to build new wind farms at sea, he said, and the purchases were then used to raise money for a world-first offshore wind fund. “It is a double recycling of the money,” he said. “If we went out at the beginning and said, ‘who would like to invest and take construction risk in offshore wind?’, it would have been a big fat raspberry.”

The bank’s critics also point to the collapse of the Green Deal — which ministers once hailed as the biggest home improvement scheme since the war — as emblematic of its overcautious approach.

The deal offered loans to help homeowners insulate their lofts and make other energy-saving improvements. The loans were repaid through energy bills, which should have been lower because of the changes.

But fewer than 11,000 households have finalised Green Deal loans since its launch in early 2013, even though the former climate change minister, Greg Barker, said he would have “sleepless nights” unless 10,000 signed up by the end of the first year.

The low take-up was blamed on the complicated nature of the scheme, but also the relatively high 7 per cent interest rate charged on the loans.

The bank provided a £125m credit line, part of an arrangement that also required the body set up to run the Green Deal to organise more than £40m in separate equity funding from private investors, including big power utilities.

Some investors say this made the overall cost of financing so expensive that it forced up the interest rate on Green Deal loans and the Green Investment Bank should not have required such terms.

“If they had not insisted on it and had taken more of a start-up risk, the interest rate on the Green Deal would have been 2 or 3 per cent lower, which would have increased the likelihood of its success,” said one private investor, who declined to be named.

“They behaved just like any commercial bank. It almost guaranteed the disaster that then followed.”

After it became clear that demand for Green Deal loans was far lower than anticipated, the Green Investment Bank decided last year not to extend its credit line, leaving the Department of Energy and Climate Change to add more funding — which it has now decided to end.

Another person close to the scheme said the bank’s actions were disappointing for a body that people had expected to “step in where the market feared to tread”.

“But they turned out to be just like any other bank,” he said, “so you have to ask, what is the point of them?”

Mr Kingsbury said the bank’s terms were entirely appropriate for a scheme that was so new nobody knew how successful it would be, and no other bank had been willing to offer the support he had provided for the venture.

“It would have been dead before it started,” he said, adding that he was not in a position to offer looser terms for such projects. “My job is not to provide subsidised financing or take crazy uncommercial risks.”

He added: “Imagine I had lent them cheap money with very limited security. Then the taxpayer would be looking at me, quite rightly, and saying, ‘have you just squandered my money?’ ”

As for the charge that the Green Investment Bank’s broader strategies have been too cautious, Mr Kingsbury said: “This is the joy of my job. If I invest in some things people say, ‘that was too risky, what are you doing?’ and if I invest in other things people say, ‘well that’s not risky enough, anyone would have done that’. And of course the key pragmatic question [for those people] is, where were they on the date on which we signed the deal?”