Banking on green growth

The first lucky renewable energy firms are due to find out whether they will benefit from the initial wave of money to come from the longawaited Green Investment Bank.
It may not have a place to call home in Edinburgh yet, but the UK Government plans the first hand-outs from this month – up to £200m out of its estimated £3bn start-up costs.
With promises of investment worth billions of pounds and the creation of thousands of new jobs, its supporters believe it is poised to kick the nation’s green industries into life.
Indeed, the bold claim is that the Green Investment Bank will make Edinburgh, and Scotland with it, a centre of excellence for renewables, and attract worldwide business.
Owen Kelly, chief executive of Scottish Financial Enterprise, compares the potential impact of the bank to that of Toulouse in France, which is a base for Airbus.
“Edinburgh could become for renewable energy what Toulouse, where half the world’s airliners are produced, has become for European aviation,” says Kelly. “This is a really big prize.”
Vince Cable announced in March that the new bank would be mainly based in Edinburgh – after a bid, which had been backed by business, councils, the Scottish Government and both MPs and MSPs, beat competition from 31 other locations across Britain. Five key priority sectors have already been identified for investment: non-domestic energy efficiency, commercial and industrial waste processing and recycling, offshore wind, energy from waste, and support for the government’s Green Deal – which aims to make homes and businesses more energy efficient.
The first two sectors from that list have been selected to receive the first chunks of cash, but further details of exactly what shape the bank will take are not likely until the autumn, when the UK Government expects to have confirmed the bank will be eligible for state aid from the European Union.
A project board chaired by Sir Adrian Montague is now overseeing the formation of the bank, which will bring about 40 “high quality” jobs to Edinburgh. Although the majority of its functions and headquarters will be in Scotland’s capital, the bank’s main transaction team will be based in London.
However, not everything will come at once.
As well as waiting until the autumn to confirm that it will receive European state aid, George Osborne has said it will not have full borrowing powers until April 2015 and even then only if the economy is moving in the right direction.
The bank would still be able, though, to leverage investment from elsewhere.
Kelly says: “The right time to get borrowing powers is a matter for whoever is in charge of the public purse. But we still think there is an awful lot of good work that can be done in harnessing private investment to run in tandem with public funding.
“Our priority is to make sure the Green Investment Bank is given the best possible reception here in Edinburgh.
“The bank has been operated behind the scenes by the Department for Business, Innovation and Skills (BIS) for some months. They are not coming to this from a standing start, the discussions we have had with those in charge of setting up the bank have been very positive. I think they should be able to hit the ground running.
“This new bank is going to benefit all of Scotland. There are benefits to having an institution like this on your own doorstep. I don’t want to overstate this, because it is obviously a UK institution serving all of the UK, but we do think that it will be easier for Scottish universities and services to engage with a bank here than those further away. There is a geographic element.
“But, there is also an argument that with this institution coming to Edinburgh there is an opportunity for Scotland to have a centre for excellence in Europe for green development. It is the overlaying of financial expertise, renewable expertise, academics, support from the public sector and politicians.”
The total price tag attached to investment needed for renewables across the UK has been estimated at £200bn, but he adds: “It think it is very difficult in the current economic climate to be firm about this. I think the £200bn is very ambitious, but I think we should be ambitious.”
Although the UK Government has said the new institution is to be at arms length, some still fear the lack of borrowing powers straight away could see it become a glorified government grant fund. Friends of the Earth is among those groups warning that the bank should be given borrowing powers immediately and not wait for three years as stipulated by BIS.
Francis Stuart, Friends of the Earth Scotland’s policy and parliamentary officer, says: “The Green Investment Bank will bring much needed low carbon investment to Scotland, offering the opportunity to kickstart our economy, create jobs, and put us on the path to a long-term, environmentally sustainable future.
“If the bank is to fulfil its potential, several unresolved issues need to be addressed. Most importantly it needs to have full borrowing and lending powers from day one.
“The risk is more that it ends up as a government fund, instead of a proper bank.
George Osborne is requiring that the debt be reduced by 2015, there is even a risk that by 2015 this will not be met, given economic trends and current government policy.” He adds: “If it is just a government fund then it lies on the vagaries of a chancellor who in any given year can say he is going to cut its budget. A proper bank is more flexible and independent.”
The UK Government has not budged on the issue of borrowing powers and says the initial £3bn will be enough for now. A BIS spokeswoman said: “We have said that the Green Investment Bank will be given borrowing powers from April 2015 subject to public sector net debt falling as a percentage of GDP.”
The Office for Budget Responsibility said in March that public sector net debt was expected to rise from 67.3 per cent of GDP this year to a peak of 76.3 per cent in 2014/15, but would fall after that.
“On this basis,” the spokeswoman added, “our position has not changed and of course a decision will be taken by the government when it is known whether or not the test has been met.” The same environmental groups want the establishment of the bank to kickstart much more than just a boom in Scotland’s renewable industry. They want it to herald a new approach to banking in general.
The Royal Society for the Protection of Birds’ Kelsie Pettit says: “There needs to be a broader scope for investment, not just renewable energy, and it must only fund those projects that do not cause environmental damage. Helping nature to help us could result in savings to the public purse, for example from natural carbon sequestration and less money spent cleaning up air and water pollution, as well as health benefits for example from access to quality green space.”
Politicians are united in their belief that basing the centre in Scotland’s capital is good news not just for the Lothians, but the country as a whole.
Lib Dem Edinburgh West MP Mike Crockart said the bank would help turn investments that would once have seemed risky into something far less scary for other potential firms.
“Big investors are looking for a good return.
They are looking for a vanilla investment. If we can turn risky technical investments into vanilla flavour, then we can attract others.”
Gavin Brown, Lothians MSP and Tory finance spokesman in the Scottish Parliament, says the priority now is to get premises set up for the bank in Edinburgh as soon as possible and to foster a good relationship between the offices in the two capitals. But he says that the fund would be more than “just the government doling out grants” despite the calls for borrowing powers sooner than April 2015.
He says: “We are talking about £3bn, which is a quite significant sum that can make a big difference.
“The bank is run as a commercial operation and will eventually have to wash its own face.” With detailed plans for the bank still not set in stone, the numbers on how much the bank could be worth to the economy and the employment opportunities are still necessarily vague.
Scotland’s Energy Minister Fergus Ewing talks in terms of the nation seizing the opportunity to create “tens of thousands” of new jobs: “In terms of green energy, the UK needs Scotland’s target of 100 per cent of Scottish electricity demand coming from renewables by 2020 in order to achieve Westminster’s targets under the Renewable Energy Directive – Scotland is estimated to contribute 30 per cent of the UK’s renewables target.
“It makes every sense to locate the Green Investment Bank headquarters in Edinburgh, and now we must all get to work on the crucially important job of channelling investment into low-carbon projects to move the sector onto a strong commercial footing.
“Now that this welcome decision has been made, I look forward to the establishment of the headquarters in Scotland, and to receiving details of the number of new jobs it will bring and the bank’s structure.”
Last month Spanish company Gamesa announced they had signed a deal with Forth Ports and were investing £125m in a factory in Leith, producing turbines and generators. It has been held up as an example of the kind of benefits the Green Investment Bank could bring.
Edinburgh North and Leith MP Mark Lazarowicz said: “A development like Gamesa is providing 800 jobs, this is a very good example of the real jobs that the green economy can bring.” The Labour MP, who had been one of those to lead calls for the bank to be based in Edinburgh, is keen to stress that it was his party – and former Chancellor Alistair Darling – who had put forward the initial plans to set up the bank.
He said he hoped it would branch out into issuing green savings bonds as it developed. And he added: “It is not a government grant-giving agency. Its growth will depend on the success of the projects it invests in.”