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Committee warns of green energy investment shortfall

The UK could lose out on hundreds of billions of pounds of vital investment in green energy projects if the Government waters down its plans for a Green Investment Bank (GIB), MPs have warned.

A new report by the Environmental Audit Committee has called for the GIB to be able to raise extra funds by borrowing like a bank, rather than simply distribute government cash.

Committee chair Labour MP Joan Walley said: The UK desperately needs a game-changing injection of private sector investment if we are going to meet our climate change targets and move to a green economy. Setting up a Green Investment Bank without the power to borrow would be a bit like trying to buy a house without first getting a mortgage offer. George Osborne has got the deposit, but if he doesn’t allow the Bank to raise extra capital, the sums are going to fall far short of what is needed.”

The Coalition Agreement promised to establish a Green Investment Bank and the Chancellor George Osborne pledged £1bn to capitalise it in the Spending Review, plus unspecified proceeds from the sale of government assets.

However, the committee said that have been reports of disagreement within Government as to whether it should be a fully fledged investment ‘bank’ able to borrow money and raise further capital or simply a ‘fund’

The committee considers what the Bank’s priorities should be and concludes that it should concentrate on new fledgling environmental investment where the market has yet to be established.

Walley said: “New nuclear power stations that would be built anyway should not be bankrolled by the Green Investment Bank. It should be used to support fledgling green technologies that are struggling to get off the ground.”

Many new clean energy projects are viable, but can’t find funding because their novelty deems them risky in the eyes of banks and investors.”

“A fully fledged Green Investment Bank would be able to kick-start green growth in the UK by offering government backed ‘green bonds’ that would attract big investors.

Evidence presented to the committee by energy companies, NGOs and financial institutions suggests that between £200bn and £1tn of private sector investment is needed over the next 10-20 years if the UK is to meet its climate change and renewable energy targets.

Accountants Ernst and Young told the inquiry, however, that traditional sources of private sector capital are only likely deliver £50 - £80bn of investment in green infrastructure by 2025 – leaving the UK with a massive investment shortfall. The report argues that establishing a proper Investment Bank is crucial in order to lever in the unprecedented levels of private sector investment needed.

If the Office for National Statistics (ONS) classifies the Bank as ‘public sector’ its borrowing could appear on the Government’s balance sheet and so undermine its deficit reduction strategy, but the committee urges the Government to start talking immediately with the ONS about maximising the Bank’s impact on investment levels whilst minimising its impact on the deficit.

The Institution of Civil Engineersurged the government to “take a longer term view and set up the GIB in a way that allows it to grow into a permanent institution with powers to issue debt and raise funds on capital markets”, even if these powers were initially restricted.  

ICE director general Tom Foulkes said: “The current state of public finances has clearly created concern within Government about creating an institution with powers to borrow on the public sector balance sheet, but as the EAC rightly points out, a Green Investment Bank without these powers will struggle to generate the huge scale of investment required and could reinforce a negative impression about the UK’s approach to infrastructure development.”

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