Report: Cut price Green Investment Bank would harm low carbon economy

The UK will fail to build a successful green economy by 2025 unless the government's upcoming spending review pledges to provide "every last penny of support" for its proposed Green Investment Bank (GIB).

That is the stark conclusion of a study published today by consultancy giant Ernst & Young, which examines the potential remit of the GIB and how much money will be needed to fund it.

The report, entitled Capitalising the Green Investment Bank, concludes the UK needs a dedicated investment vehicle to plug the estimated £370bn gap between the amount of investment needed for green energy projects and incentives and that currently available.

On the back of the report, Ben Warren, partner and head of Ernst & Young's energy and environmental infrastructure advisory team, urged the Chancellor George Osborne to deliver a GIB backed by between £4bn and £6bn of capital until 2015 in the comprehensive spending review.

"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 report suggests three possible structural options for the GIB, through which the investment could be provided.

First, the GIB could provide all the funding and risk products itself.

Second, the bank could provide projects and investors limited credit guarantees to cover specific risks up to a pre-agreed amount.

Finally, the GIB could set up with three or more vehicles that perform separate functions. Under this model, a so-called 'GIB 1' would act as a 'risk bank' providing short term risk capital and guarantees, 'GIB 2' would act as an asset manager for projects during their less risky operational phase, and 'GIB 3' would act as an aggregator for other 'small-scale renewable' and 'energy efficiency assets'.

Investment priorities identified in the study included offshore wind farms, carbon capture and storage (CCS) plants, and micro generation and energy efficiency measures.

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

The study echoes concerns raised by a wide range of organisations in recent days that the spending review will cut funding for a raft of green initiatives, including the proposed GIB.