Budget: KPMG unclear on Green Bank intentions

Leading consultancy KPMG says there is a lack of clarity over the government’s plans for the Green Investment Bank. In today’s Budget, Chancellor George Osborne unveiled another £2bn of funding […]

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By Kelvin Ross

Leading consultancy KPMG says there is a lack of clarity over the government’s plans for the Green Investment Bank.

In today’s Budget, Chancellor George Osborne unveiled another £2bn of funding for the bank, which he said would be up and running next year.

He also said that in 2013 the UK would introduce a carbon price floor of £16 per tonne, which would rise to £30 per tonne by 2020.

But while KPMG welcomed the extra cash for the GIB, it was unsure about what the government was aiming to achieve with the bank.

KPMG’s head of climate change and sustainability Vincent Neate said: “Is this subsidised investing in otherwise uneconomic projects or a necessary intervention that will nevertheless generate a return?

“The market is looking for mechanisms to invest, more than for funding itself, lack of which isn’t the key issue when it comes to low carbon project development. The real challenge is making green investment relatively more attractive to increase the appetite for it, altering standard investment models.

He added: “So, robust incentives on the back of the Green Investment Bank would be a valuable additional measure for moving the UK towards meeting its renewable energy targets, which a further £2bn of funding is unlikely to greatly influence given the scale of the investment required.”

On the carbon price floor, KPMG joined other energy industry experts in stating that one of the biggest winners of this new legislation would be the nuclear industry.

“The private sector, which is being asked to fully fund billions of investment to get new nuclear built and set the UK firmly on the road to low carbon energy generation, will be pleased with today’s announcement,” said KPMG’s energy partner Andy Cox.

But he added that the delivery of new nuclear required certainty and “the industry will want to have a clear understanding of how the step up to £30 per tonne by 2020 is made when committing major capital investment”.

He added: “Moreover, any substantive changes required by the safety review could well destabilise the precarious balance.

“Beyond nuclear, the carbon price floor also has an impact on other forms of energy generation. This announcement certainly feels weighted towards building new nuclear and will put upward pressure on prices. In coal, for example, our analysis shows that at a carbon price floor above £25, coal starts to look difficult. Of course the knock on impact of this policy change on investment into other technologies – such as offshore wind – remains unclear and will be better understood once the conclusions of the wider energy market reform are announced later this year.”