UK green bank turns two; targets world domination

The Green Investment Bank mobilised £5 billion of investment in two years and is taking its model around the globe

The London Array is one of a handful of major offshore windfarms to get GIB finance (Pic: Flickr/Bilfinger SE)

The London Array is one of a handful of major offshore windfarms to get GIB finance
(Pic: Flickr/Bilfinger SE)

By Megan Darby

The UK’s Green Investment Bank mobilised more than £5 billion (US$8 billion) towards low carbon projects in its first two years.

Its 37 projects will prevent an estimated 3.6 million tonnes of greenhouse gas emissions – the equivalent of taking 1.6 million cars off the road.

On its second birthday, experts are talking about expansion, including links to the UN’s Green Climate Fund.

Prime minister David Cameron wished the fund a happy birthday. He said it had helped make the UK “one of the best places for green investment anywhere in the world”.

Public/private

Launched with £3.8 billion of public money in October 2012, the GIB claims to be the first fund of its kind in the world.

The bank has directly invested £1.6 billion and attracted more than double that sum from the private sector.

Its aim was to lead commercial lenders into territory they would be wary of going alone, that may involve complex new technology.

With average returns of 9%, the GIB portfolio is expected to make operating profits of around £10 million a year when all the projects are up and running.

“We have set out to be an innovative but always commercial investor,” said chief executive Shaun Kingsbury. “All of our investments have been both green and profitable.”

The projects range in scale from an £800,000 energy efficiency makeover for a factory to the £990 million conversion of a coal-fired power station to run on wood pellets.

In between, there are several waste-to-energy schemes and offshore windfarms.

Global network

The Green Investment Bank has inspired a range of similar institutions worldwide.

Australia has the Clean Energy Finance Corporation, Japan launched the Green Finance Organisation, while New York’s Green Bank made its first investments this month.

China is understood to be considering the concept, possibly as an arm of the People’s Bank of China.

In a collection of expert opinions by think-tank the Aldersgate Group, there was broad agreement the Green Investment Bank can go further.

But it needs powers to raise more cash through green bonds, consumer savings accounts and borrowing in the market, they concluded.

And it should broaden its scope, which is currently restricted by Brussels spending rules, to cover more of the green economy.

James Cameron, chair of Climate Change Capital, said it should “go global” and become a “trusted intermediary” for the UN’s Green Climate Fund.

In July climate minister Greg Barker announced the government was exploring ways in which the GIB could work with the GCF, using money from the UK’s £3.87bn International Climate Fund.

Report: UK outlines new international climate finance strategy 

The UN fund is aiming to raise US$10-15 billion of start-up capital from wealthy governments at a pledging conference next month.

By the end of the decade, developed countries have promised to mobilise US$100 billion of climate finance.

This will go to help poorer nations develop their economies in a low carbon way and adapt to the impacts of climate change.

Jonathan Grant, director at consultancy PwC, agreed the GIB should influence the UN’s flagship finance scheme.

“It would be good if the Green Climate Fund followed the GIB’s lead, because you need to combine public and private capital in a way that is both green and profitable,” he told RTCC.

Devolution

E3G recommended the GIB set up regional offices to help cities and devolved administrations develop their green investment plans.

Associate director Ingrid Holmes explained: “We live in politically turbulent times and there is a big push for more devolution… A lot of it is about pipeline development.”

This could involve more finance for community energy projects, she said, as well as “a hell of a lot more offshore wind”.

Green Party MP Caroline Lucas, meanwhile, wanted to see stricter lending criteria.

The decision to fund a major coal-to-biomass project at Drax, Yorkshire, was a “mistake”, she said.

“There are serious concerns about the harm to nature and dubious carbon savings from imported wood and the decision perpetuated the life of one of the UK’s most polluting power stations.”

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