Utility Week

UTILITY WEEK | MAY 2021 | 15 Countdown to COP vate capital available in the City of London, says Heath: "We have one of the strongest and most liquid markets in the world. "It has to be doing something di• erent – further detail will be important." Reaching the parts other banks can't Part of the problem with the GIB was that it wasn't allowed to o• er subsidised ‚ nance because of EU state aid rules, says Howard: "They didn't do cut-price loans for projects on more preferential terms than other banks would do. "At the same time, they had to demon- strate additionality in some way, which meant doing things that other banks wouldn't have done. This le‰ them in a slightly tricky place where they could do things just behind the market or the same. As a result, they ended up doing an awful lot of o• shore wind." The trick for the new bank will be identi- fying precisely where it should be targeting its resources. Molho says: "Ultimately it is essential that it [the NIB] has a very clear mandate, which needs to be closely linked to meeting net zero and not contributing to investment that will get in the way." Michael Watson, partner at solicitors Pinsent Masons, says the scale of invest- ment required to meet net zero is so huge that it is still needed despite the liquidity of the market. "It's big enough to make a good start," he says, adding that the NIB can help to plug the gap le‰ by the withdrawal of the European Investment Bank (EIB), which also played an important role in getting the UK's o• shore wind industry o• the ground. The new bank should have a more focused remit on infrastructure than the EIB, which also invested in social projects like housing and schools, he says. Lawrence Slade, chief executive of the Global Infrastructure Investor Association, believes that the government has got the bal- ance right. "They have used the NIB to crowd in public ‚ nance and resisted the temptation to crowd out private investment," he says. The most useful role that the NIB may play is to help ‚ nance companies caught in the "Valley of Death" for emerging technolo- gies, where the market is not well-equipped to deliver the investment that will enable the transition from start-up status, says Howard. "The NIB's distinct role could be pulling through projects at that stage, which other- wise wouldn't go anywhere because people see them as risky," he says. "There is quite a large gap in the middle where there is poten- tially a role." The new bank's state-backed status means it should be able to o• er cheaper rates than those on o• er elsewhere in the market, says Marshall: "If the bank can lend at an attrac- tive rate, which it should be able to do, they should be able to undercut existing banks. "The targeted co-investment of a public backed ‚ nancial institution could make a huge di• erence in same way GIB did in previ- ous decade with o• shore wind." Examples of areas ripe for this kind of support include ™ oating o• shore wind, hydrogen, carbon capture and storage and electric heavy goods vehicles, he says. There is the rationale for the bank to per- form a similar role in areas like direct air capture and hydrogen where upfront costs are high and uncertainties surrounding new technologies, says Heath. "Those areas feel strategically important for the transition to net zero but clearly the bank will have to take a view about the quality of investment proposals coming forward." The bank could also help to develop mar- kets for technologies that are proven but yet to be commercialised, Howard adds. "There are some areas where the technology is mature but the market structures are compli- cated and we are not getting enough private investment into them, and the intervention of a bank with public backing could make a di• erence." The new bank could also make a di• er- ence in industrial and building decarbonisa- tion, says Marshall. "It seems like the most sensible way to address that market failure." The NIB could play a role as a co-investor, helping to de-risk projects for more cau- tious investors like insurance companies, says Watson. "It will take a risk on part of the ‚ nancial structure to encourage other ‚ nanciers." The bank could also create a centre of expertise for other would-be investors in the emerging green economy, says Burke. "The real value is creating expertise that can better price the cost of capital for consum- ers, a bunch of people experienced in mak- ing judgements and therefore able to lower the cost of capital for things conventionally thought riskier." The knowledge the bank gleans from the ‚ nancial coalface could be useful for policy- makers and regulators too, Molho says. "A bank putting money into projects is ideally placed to provide empirical evidence when government is making policy and regulatory interventions." The new bank will certainly have its work cut out but it is to be hoped that it has a longer shelf life than its predecessor. David Blackman, policy correspondent "If the NIB goes around funding things lots of others would have otherwise, you wonder what the point is." Richard Howard, head of research, Aurora Energy "The government can commit £27 billion to roads we don't need and only £12 billion to a national infrastructure bank that could make an enormous diff erence." Tom Burke, founder and chair, E3G "They have used the NIB to crowd in public fi nance and resisted the temptation to crowd out private investment." Lawrence Slade, chief executive, Global Infrastructure Investor Association

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