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Cable reports Green Investment Bank progress

06 June 2011

Towards the end of last month, business secretary Vince Cable turned his attention towards the proposed Green Investment Bank (GIB), providing more detail on the governance and business model of an institution first mooted in last year’s Budget statement. The GIB’s mission, according to Dr Cable, will be to accelerate private sector investment in the UK’s transition to a green economy; one of its key roles will be to address the market failures that are currently holding back private sector investment. The first sectors likely to be eligible for this intervention include offshore wind, non-domestic energy efficiency and waste.

The bank will need to be approved by the European Commission before it can finally be established, and the government has quite a task ahead of it to see this new institution enshrined in legislation once approval has been granted. Initially, the plan is to make direct, state-aid compliant investments in green infrastructure projects from April 2012 until these investments can be transferred to the GIB. Dr Cable is also setting up an advisory group of independent finance experts under the chairmanship of Sir Adrian Montague (a past chairman of British Energy) in order to provide strategic guidance for the bank.

Adrian Montague describes the GIB as a genuinely radical innovation. He reminds us that while the use of government credit support for nationally significant projects has been around for a while, it is usually as a response to some crisis rather than as a policy tool of more general application.

In his role as a Treasury adviser during the late 1990s, Sir Adrian was responsible for nurturing the reconstruction of the Channel Tunnel Rail Link (now HS1, whose proceeds will, in what he describes as "a nice twist of fate", part fund the GIB) by using government guarantees to rescue a failed private sector concession.

According to Sir Adrian, the GIB brings essentially the same toolkit to bear on what he believes to be the most important strategic sector in the UK today - that of marrying the vitally needed new investment in the nation’s energy infrastructure with the Government’s commitment to develop Britain into a leader in the worldwide green economy.

At the time of writing, the makeup of the advisory board was still at the planning stage, but a balance of energy industry credentials, hands-on financing experience, an understanding of the new technologies and some background in starting up new credit institutions was being sought. "It’s a tall order to bring together a good slate like that," he said in his first blog post as chairman, "but we’ll see what we can do. The GIB needs the best people in order to get off to a flying start."

Steve Radley, director of policy at the Engineering Employers' Federation (EEF) welcomed Dr Cable's statement on the operation of the GIB, but noted that the big question of what will be its funding priorities had yet to be answered. "Manufacturing can play a major role in the low carbon economy and in efforts to reduce carbon emissions by improving energy efficiency and developing new low carbon products," he says.

“With a modest amount of funding to start with, the GIB should focus on developing innovative low carbon manufacturing as well as energy infrastructure and decarbonising existing manufacturing. There is an opportunity for the Bank to provide a carrot for such investment in innovation to balance the sticks from other green taxes and regulations.”

CBI director-general, John Cridland said the GIB must deliver the certainty investors need to commit to low-carbon projects with a real timeline for delivery. Speaking on the eve of Dr Cable's announcement, Mr Cridland spelled out a number of 'wants'. “I want it delivering growth – large-scale, mainstream economic growth,” he said. “I want it delivering the low-carbon infrastructure, leveraging the £450bn we need by 2025, that’ll bring jobs and opportunities to the UK. Investors want certainty. The GIB must have teeth if it’s going to deliver our new infrastructure.”

Mr Cridland warned that the GIB  “…certainly won’t work if it needs the Treasury’s permission to blow its nose. The bank needs to be able to get into the markets itself and do what it’s intended to do."

PricewaterhouseCoopers (PwC) partner John Gibbs also welcomes the general thrust of Dr Cable's report, as he sees it beginning to bring some clarity to the debate, particularly in terms of its sector focus, products and timetable for implementation. "The emphasis on mobilising additional investment through mitigating risks and facilitating refinancing of senior debt has the potential to make a real difference, particularly in the immediate term to offshore wind, the sector of highest priority in the UK," he says.

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Les Hunt

Reader response:

From Mr Maurice Shakeshaft:

Why on this good Earth would a UK GIB need EC approval!!

Does this activity signal a change to a more rational economic approach
for UK. Are we now to be focussing on something in addition to
'Services'? ie manufactured goods that are 'efficient' and developing a
set of technologies, processes and manufacturers to produce goods and
'green' capital equipment.

UK GIB investment in local technologies is paramount. Wind power imports
goods and services. UK PLC should invest in Tidal, Wave and Solar power
development. All the Earth is impacted by the Sun and Moon on regular
cycles. Water covers about 2/3 of the Earth's surface. UK is surrounded
by water for energy and desalination. UK all but stopped investigating
coal gasification in the 80's and the time is ripe to reconsider these
and associated processes - isn't it?



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