Formation of Green bank is vital, says Ernst & Young

A fully capitalised Green Investment Bank is pivotal to the UK hitting its low carbon targets, according to a study released today by consultants Ernst & Young. Capitalising the Green […]

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By Kelvin Ross

A fully capitalised Green Investment Bank is pivotal to the UK hitting its low carbon targets, according to a study released today by consultants Ernst & Young.

Capitalising the Green Investment Bank states that a dedicated investment vehicle is needed to deliver the initiatives that will secure a green economy for the country.

But Ben Warren, head of Ernst & Young’s Energy and Environmental Infrastructure Advisory team, said that the time frame and scale of the necessary low carbon investments represent an enormous challenge, especially at a time of austerity and deficit reduction.

“With investment in green business essential for delivering jobs and future economic growth, the UK’s developing low carbon industry needs every last penny of government support,” he said.

“If we allow the financing structures to evolve organically, access to capital is likely to take longer, be less efficient and less cost effective. The upcoming Comprehensive Spending Review is therefore an opportunity for the chancellor to deliver a green investment bank that is backed by between £4bn and £6bn of capital up until 2015.”

The study highlights offshore wind, carbon capture and storage, micro generation and energy efficiency measures as investment priorities.

Mr Warren said: “There are significant barriers to investing in these sub-sectors, including a shortage of capital and financial products that can attract capital providers. These are also the sub-sectors that could significantly impact the UK’s low carbon agenda, if appropriately supported.

“A number of properly targeted financial products tailored to each sub-sector could mitigate these investment barriers more efficiently than on a single project by project basis. These structured products could be provided by a green bank.”

The report considered three potential structural options for the bank. These included the bank providing all the funding and risk products within itself; the bank providing limited credit guarantees to funders to cover specific risks up to a pre-agreed amount overall risk capital products; and the bank being set up with three or more vehicles that perform separate functions and activities with these separate vehicles providing different products.

Mr Warren added: “A number of institutional capital providers should be engaged to implement the next phase of the bank, in terms of product and structure design, and its policy and governance framework. This needs to be undertaken in conjunction with the relevant UK government departments.

“Government must also now seek to reduce red tape and make it easier and quicker for institutions, the private sector and individuals to invest in the clean technology and infrastructure projects that will accelerate the transition to a low carbon economy.”