The UK Coalition Government’s proposed Green Investment Bank (GIB) needs “every last penny of support”, according to an analysis by consultants Ernst & Young.
The report, Capitalising the Green Investment Bank, warns that unless the GIB is fully capitalised it will fail to deliver the estimated £370 billion needed to transform the UK into a low carbon economy by 2025.
Ernst & Young says that the GIB is needed to make up the shortfall between the total £450 billion required for the transformation and the £50-80 billion available from traditional sources of capital such as utilities, project finance and infrastructure funds.
“If we allow the financing structures to evolve organically, access to capital is likely to take longer, be less efficient and less cost effective,” warns Ben Warren, head of Ernst & Young’s energy and environmental infrastructure team.
“The upcoming Comprehensive Spending Review is an opportunity for the Chancellor to deliver a GIB that is backed by between £4 billion and £6 billion of capital up until 2015,” he adds.
Offshore wind development, carbon capture and storage, microgeneration and energy efficiency measures would particularly benefit from the GIB, but investment in power and gas infrastructure and renewable heat and gas should also be supported.
The GIB would be able to overcome barriers to investing in these sectors, in particular the shortage of capital and a lack of attractive financial products, says Warren.
The report outlines three options for targeting investment in the sector. The GIB could provide either all the funding and risk products itself or credit guarantees to cover specific risks up to a pre-agreed amount.
Alternatively, the GIB could set up three or more vehicles to carry out different functions and provide different products.
“A number of institutional capital providers should be engaged to implement the next phase of the GIB,” says Warren, “…in conjunction with the relevant UK government departments.”
But he warns that the Government must reduce red tape and make it easier for institutions, the private sector and individuals to invest in clean technology and infrastructure projects.
The report is just the latest in a series of calls urging the Government not to derail the UK’s transformation to a low-carbon economy by cutting funding for green initiatives in the spending review.