Governments Launch Green Banks to Boost Private Clean-Tech Investment
In November the U.K. government opened Green Investment Bank, which lends to and advises investors in clean-technology projects. Although GIB is the first such national entity, Australia plans to open one this year and the state of Connecticut did so in 2011.
Clean energy just got a generous new friend. In November the U.K. government launched the Green Investment Bank, the first national entity devoted to investing in clean-technology infrastructure and pushing private capital to do the same. The Edinburgh, Scotland–based bank’s organizers hope it can fill some funding gaps that they say are thwarting green industry.
John Bromley, CIO of Triodos Investment Management’s €320 million ($426 million) Ampere Equity Fund, likes GIB’s chances. “Where there may be a lack of capital and some additional support is required, I think being able to turn to the Green Investment Bank might be very beneficial to the sector,” says Bromley, whose Zeist, Netherlands–based fund primarily invests in clean-tech projects. In December, Ampere announced that the bank would refinance its 24.8 percent stake in the U.K.’s offshore Walney Wind Farm, which it bought in December 2010 with Dutch pension administrator PGGM.
GIB is one of several such government-backed green investment banks, which are gaining traction around the world. It seeks to attract and support investors in clean technology by giving them advice and access to long-term, affordable senior bank debt. Because GIB’s directors are all experts in the energy and clean-tech space — CEO Shaun Kingsbury was previously a partner at U.S. private equity firm Hudson Clean Energy Partners — “it very much helps when the team from the Green Investment Bank can sit at the table with commercial banks and understand the realities of how these deals are put together,” Bromley says.
Britain’s Climate Change Act of 2008 aims to cut greenhouse-gas emissions at least 80 percent from their 1990 levels by 2050, and its Renewable Energy Directive calls for renewables to supply at least 15 percent of national energy consumption by the end of this decade. Planning for GIB began after a 2011 government report noted that hitting those targets would require between £200 billion ($317 billion) and £1 trillion in the next 20 years — and that by 2025 traditional sources of capital would probably contribute only £50 billion to £80 billion.
Through 2015 the bank will deploy £3 billion in public funding to clean-tech projects, with a focus on five areas: offshore wind; energy from waste; waste recycling and processing; nondomestic energy efficiency; and the Green Deal, a U.K. loan program that makes homes and businesses more energy-efficient. So far, besides the £224 million Walney refinancing, GIB has made loans of £100 million to help North Yorkshire’s coal-fired Drax Power Station convert mainly to biomass fuel and £30 million to support Milton Keynes–based Shanks Group’s new waste treatment, recycling and waste-to-energy facility.
Australia is expected to open its own green investment bank in July. Reed Hundt, former chairman of the U.S. Federal Communications Commission, wants his country to take action too. Hundt is now founder and CEO of the Washington-based Coalition for Green Capital; his nonprofit helped draft a green-bank bill that was rejected by the U.S. Senate after it passed the House of Representatives in 2009. In July 2011, Connecticut became the first U.S. state to launch a green bank. Last month New York Governor Andrew Cuomo announced that his state would follow suit.
Opinions vary on how green banks should operate. Ethan Zindler, head of policy analysis at research firm Bloomberg New Energy Finance in Washington, thinks their best bet is new clean technologies that still need major funding. But Connecticut’s Clean Energy Finance and Investment Authority will focus on proven technologies with an eye toward lowering consumer rates for clean-energy and efficiency upgrades. Either way, green banks could boost the clean-tech industry. “This is a case where the technology innovations are ready to roll and the financial innovation needs to start,” Hundt says.