Has the Green Investment Bank selected the right target?

Last week's report from the Green Investment Bank (GIB) Commission, Unlocking Investment to Deliver Britain's Low Carbon Future, provided a welcome sense of urgency to UK efforts to transform its energy landscape.

It correctly identifies the scale of the challenge ahead, estimating required investment of up to £550bn by 2020, dwarfing even Ofgem's recent estimate of £200 bn.

Yet, with a focus on large, utility scale project financing activity and no mention of energy market reform or the independent small and medium enterprise (SME) sector, the GIB Commission seems in danger of falling into the same traps as previous energy market incentives: thinking big is beautiful and handing over yet more public money to large multinational utilities.

The report states that "under the current structure of the industry" the bulk of projects will be managed and led by the large cap utilities. However, our total reliance on these same utilities has failed to meet our needs. DECC reported last week that renewable energy accounted for just 3.1 per cent of UK requirements in 2009. Considering this needs to rise to 15 per cent by 2020 it is clear we cannot rely solely on this small dominant group to deliver. In a global market, multinational players will not invest in the UK if there are more attractive returns abroad.

The report continues its utility-centric focus by correctly identifying that "the scale required is a barrier to new entrants" for large offshore project. Yet it makes no mention of the amount of projects which have been delivered so far and what proportion is SME scale vs utility. The smaller scale projects are faster to market and proven to deliver – a stated priority of the GIB – yet totally overlooked in the report.

Creating a genuine, stable supportive investment environment would incentivise other sectors to make up the shortfall.

For example, as the biggest consumer of electricity in the UK, the industrial and commercial sector could be given the encouragement to invest in on-site renewable generation. It would help reduce business costs, energy demand from the grid and increase renewable supply. The motivation is certainly there provided the commercial rationale and a stable investment framework can be guaranteed.

Similarly, there are numerous SME scale energy projects which have been consented but which cannot move forward due to lack of credit finance. Each project may be relatively modest in output, but with a far higher number of potential developers and project sites, the aggregate results can plug a vital gap in our energy supplies – at a far quicker pace – than the larger, slower projects favoured by utility developers.

Each one of these projects acts as a multiplier in the wider economy, helping to address not just the energy crisis but the economic one too.

The report defends its "big is beautiful" stance by saying that: "to maximise their effectiveness and the time of their investors, banks focus on larger projects". This is true. But then shouldn't the role of a publicly funded Green Investment Bank be to bridge this gap and ensure that these projects do get delivered and overcome the barriers facing smaller scale investors?

As the GIB consultation develops, it must be opened to all of those who could play a role in our energy future. No single sector can tackle this alone. If we are to truly decentralise and decarbonise our energy supply, we must accelerate the decentralisation of ownership and generation first.

Jo Butlin is a vice president at Smartest Energy

SmartestEnergy is the leading purchaser and supplier of electricity from the
independent generation sector in the UK, with over 40 per cent of the independent
generation market share