As the United Kingdom moves deeper into the first phase of establishing its first ever Green Investment Bank, many in the private sector are still skeptical over whether it will really have any substantial benefit for the country.
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There is a lot of concern from potential investors over the bank’s long-term funding ability. Andrew Raingold, executive director of the Aldergate Group, an alliance of political and business leaders, believes that the bank should be able to “borrow from the start” and have “the power to raise revenue by issuing its own green bonds.”
Raingold wants to see a growth plan which ensures that the UK has a “more balanced economy that makes things instead of imports them,” adding that, “This would put the bank at the heart of the chancellor’s plan for growth and not wait until the UK is overtaken in the key green industries by competitors.”
In its 2011 budget, the UK government has already committed to fund the bank with £3 billion ($4.86 billion) until 2015, according to the country’s department for business, innovations and skills. The bank will be capitalized to an extent that it will not need to borrow money before the 2015/16 fiscal year.
To speed up progress, the government plans to make direct, state-aid compliant investments in green infrastructure projects until April 2012, until these investments can be transferred to the bank.
Vince Cable, the UK’s secretary of state for business, innovation, and skills, said in an oral statement to the House of Commons, that well designed, long-term, stable state policies are “needed to provide the incentives for businesses to invest in new green infrastructure, which by its very nature often only repays the investment over many years.”
It’s anticipated that the bank will be one of the methods used to generate financing for the country’s offshore wind, non-domestic energy efficiency, and waste sectors.
The Aldergate Group is concerned that the initial £3 billion won’t be enough money when looking at the projection that the electric generation industry would need £200 billion over the next few decades to renew its systems.
In testimony before Parliament’s Environmental Audit Committee, Ben Warren, a partner with Ernst & Young, said, “We estimate that the UK energy sector is short about £340 billion between now and 2025. If that amount of money is not invested, we will not decarbonize our energy sector.
“We will continue to remain very energy dependent on fossil fuels, which do not produce indigenously in the UK and our lights will go out.”
Another apprehension is that “offerings from the Green Investment Bank have to stand up to scrutiny against other investment opportunities that are presented to pension funds,” said David Patterson, head of corporate governance of the UK’s National Association of Pension Funds, in his testimony.
“The risk at the moment is the credibility of the bank’s offerings as a new entity with a completely unknown track record,” added Patterson.
Ingrid Holmes, program leader of low carbon finance at E3G (a non-profit group promoting global business transition to sustainable development), advised in her testimony that, “If the bank buys operational assets that it can then refinance quite quickly and prove itself as savvy, you can then go and get your rating and your away.
“If you go for early investments in projects that need to go through planning, construction, and then an operational phase - which might happen with offshore wind - it could take 10 years to exit that investment. What the bank chooses to prioritize in the early years will be critical to determining how quickly that track record is established, and how quickly you can establish an off balance sheet bank.”
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