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UTILITY WEEK | 15TH - 21ST SEPTEMBER 2017 | 21 Finance & Investment Analysis H e may no longer even be an MP but George Osborne's legacy lives on. The former chancellor's privatisation of the Green Investment Bank (GB), which has been sold to the Australian investment bank Macquarie for £2.3 billion, only com- pleted last month. Opposition politicians and environmental groups have condemned the sale. They argue that the bank has been sold for too little and that it will be broken up and asset stripped, leaving its environmental mission in tatters. The government insists private ownership will allow the bank to expand its support for green energy by giving it access to more capital. Under the terms of the GIB's sale, the government has given a golden share to a government-formed Green Purposes Com- pany, which will have the power to reject any changes to the bank's green mission. However, the picture is more compli- cated than the government paints, says Nick Molho, executive director of Aldersgate. He raises question over whether the GIB will be prepared to invest in more cutting-edge tech- nologies like geothermal and wave power. "Where this become more complicated is what happens for new energy technologies. The whole reason we set up the GIB as a pub- licly-backed institution was to back novel green infrastructure that the private sector could not get involved in immediately. "It leaves a strategic financing gap for the most novel technologies. There are big ques- tion marks over how new technologies will be funded." The other big gap potentially le by the privatisation of the GIB surrounds the flexi- ble energy projects, which may contain a mix of different generation, storage and demand response elements. Each of these elements will be subject to different regulatory regimes and policy frameworks, making it more complicated to secure private backing, says Gareth Miller, chief executive of consultancy Cornwall. Molho says the government should address the funding of innovative renew- able energy technologies when it publishes its clean growth plan. "The government will have to develop a green financial strategy for novel technologies to plug the gap le by the privatisation of the GIB," he says. "Decar- bonising the grid will require a reliance on technologies that are in their infancy." In the meantime, what are the options for securing green energy investment in the post-GIB privatisation landscape? The Green Investment Bank Despite the gloomy headlines, Macquarie's re-badged Green Investment Group is far from out of the green energy investment picture. Macquarie has been given a £3 billion target for investment in green energy projects over the next three years, which means it will not be able to turn its back on its new acquisi- tion's founding mission. Given the GIB's traditional strengths in biomass and energy-from-waste projects, Hugo Coatzee, partner at CMS Cameron McK- enna, expects Macquarie to remain active in both these fields as well as offshore wind. However, he rejects as overblown predic- tions that the privatisation of the GIB will imperil the UK's ability to meet its climate change targets. "They [the GIB] were very selective about what they would fund." And Cornwall's Miller is optimistic that the new-look Green Investment Group will have an incentive to invest in cutting-edge green infrastructure. "It has greater freedom to focus on areas of need where the risk pre- mium is going to be highest." He believes that its expanded interna- tional remit, which he says is better suited to the cross-border nature of energy invest- ment, will also provide spin off benefits for UK projects. "Doing challenging transactions in other markets can only be good when they come back to this market. I don't see it being as bad as some people paint it." The European Investment Bank Besides the GIB, the other big public-backed player in the green energy investment field in recent years has been the European Invest- ment Bank (EIB). CMS's Coatzee says the EIB is able to charge even lower rates of interest and take bigger risks than the GIB. However, the UK's access to future EIB funding looks bleak following the UK's vote last year to withdraw from the EU. The EIB does lend to non-EU member states but around 90 per cent of its loans are to mem- bers of the trading bloc, meaning the UK's access looks set to be restricted Miller argues, though, that the indus- try's future financing gap is unlikely to be the kind of big ticket infrastructure, such as offshore wind projects, which the EIB has played such a key role in bankrolling. The chief financing headaches of the future instead will be smaller but more complicated flexible energy projects, he says. The British Business Bank Aldersgate's Molho says the government could stimulate investment in renewable technologies by widening the remit of the British Business Bank (BBB), which was set up in 2013 to help SMEs. "It could have a role for funding new energy efficiency projects or complex energy infrastructure," he says. However, he says, the BBB currently lacks a remit to fund energy projects or expertise in the area. The UK Guarantee Scheme Ingrid Holmes, director of consultancy E3G, says the Treasury's National Productivity Investment Fund (NPIF) and the UK Guaran- tee Scheme could both play a role in financ- ing green infrastructure. The NPIF is a £23 billion fund, announced last autumn, to invest in infrastructure pro- jects. The UK Guarantee Scheme, which has been up and running since 2012, since when it has underwritten £1.8 billion-worth of loans, including the Thames Tideway Tunnel. Holmes argues that both fund structures could be used either as equity slices or to develop "credit enhancement risk-sharing tools". However the NPIF's remit is primar- ily to help housing development. And CMS's Coatzee predicts that the UK Guarantee Scheme's role is likely to be limited, given that it has only been used to support nine projects in five years. The future of green funding With the privatisation of the Green Investment Bank and the UK's imminent withdrawal from the EU, where will future renewables projects go to find funding? David Blackman reports.