The Green Deal is to rise from the dead

[Note: This is an updated and partial version of the article published last week on The Fifth Estate website.]

The UK Government’s sale of the Green Deal Finance Company, which finances energy efficiency retrofits, has slipped through almost unnoticed – and the Green Deal is to be relaunched by the private sector.

The GDFC’s new owners, Greenstone and Aurium, have stated their intention to commence the financing of new Green Deal loans by the end of the current quarter.

The sale

The sale was ordered by the Conservative MP George Osborne when he held the post of Chancellor of the Exchequer in an attempt to reduce government debt.

Like the Green Investment Bank, the Green Deal Finance Company was set up in 2012 (this was the year when the Conservative-Liberal Democrat alliance wanted to be “the greenest government ever”). It was a not-for-dividend company whose job was to provide low-cost financing to households for energy efficiency improvements to their homes.

It failed.

Originally, its 55 members came from the public and private sector and included energy companies, trade associations, local councils and potential green deal installers. They provided some of the start-up cash, with the rest provided by the Green Investment Bank and the European Investment Bank.

It had expected to deliver around £300 million of financing for Green Deal Plans before 2014. But it was an abysmal failure, and I have documented why here.

Last year it was lambasted by the Public Accounts committee, whose chair, Meg Hillier MP, said: “This blinkered approach resulted in a truly dismal take-up for Green Deal loans and a cost to taxpayers of £17,000 for every loan arranged. Savings in CO₂ were minimal.”

The Energy and Climate Change Department (DECC – since abolished) oversaw the Green Deal and believed that the Green Deal Finance Company would provide loans of over £1.1 billion by the end of 2015. The actual figure was £50 million!

The finance company incurred large financial losses as a result of the low demand resulting in DECC writing off £25 million of the cash it loaned to it. It stopped offering new Green Deal Plans in July 2015.

The new owners

The board of the GDFC last week announced the sale of its wholly-owned subsidiary, GDFC Services, for £40 million.

The new co-owners are Greenstone Finance, which invests in organisations focused on financing in renewable energy and energy efficiency, and Aurium, which describes itself as “a structured finance boutique with a focus on renewable energy”.

They say they will continue to service the existing Green Deal loans and will commence financing of new Green Deal loans this quarter.

Richard Twinn, policy advisor, UK Green Building Council, welcomed the sale, commenting that “the limitations of the Golden Rule mean it will only be attractive to a specific part of the able-to-pay market. But in the absence of a policy alternative from government, the possible reignition of a pay-as-you-save mechanism could provide a viable option for households on moderate incomes to make improvements to draughty homes.

“However, one of the big failures of the Green Deal the first time around was the lack of incentives from government to drive uptake. Unless government grasps the nettle this could well become a problem once again.”

The Green Deal was established to address the fact that the UK has some of the most thermally inefficient housing in Europe. Its loans let customers, including landlords, improve their homes by installing energy efficiency products.

The loans are repaid as part of a customer’s electricity bill, which may (critics say: only if heating was provided by electricity) be reduced by the savings generated from the measures the loan financed – a “Pay-As-You-Save” scheme. The loan remains with the property – ensuring the payments are made by the person who benefits from the energy saving.

Kilian Pender, founder and chief executive of Greenstone Finance, commented on the acquisition and the relaunch by saying, “We believe that the concept of repaying your loan as you save on your energy bills is an excellent one and with the significant private investment that we have secured, we’re looking forward to rolling the Green Deal finance scheme out across the country. We will provide homeowners a cost-effective way to improve their homes and quality of life.”

Energy assessment company Elmhurst said it looked as if the new organisation was willing to breathe new life into the pay as you save model, observing that “the private rental market is certainly an opportunity for Green Deal”.

It said that some commentators believed that the legislation on Minimum Energy Efficiency Standards – which make it unlawful for landlords to grant a new lease on properties that have an energy performance certificate rating below E, from 1 April 2018 – actually allow some landlords to avoid bringing up their properties to the required E rating. But “with the re-launch of the Green Deal, this loophole looks like being closed”, it said. “The first task for the organisation will be re-launching the loan scheme and getting traction in the market place. This is definitely one to watch this year.”

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David Thorpe is the author of:

• Earthscan Expert Guide to Sustainable Home Refurbishment
• Earthscan Expert Guide to Energy Management in Buildings
• Earthscan Expert Guide to Energy Management in Industry
• Earthscan Expert Guide to Solar Technology
• The One Planet Life
• Best Practices and Case Studies for Industrial Energy Efficiency Improvement (with Oung, K. and Fawkes, S., UNEP)

The UK's Green Investment Bank should be given an IPO

[Note: This is an updated and partial version of the article published last week on The Fifth Estate website.]

The UK Government’s sale of the Green Investment Bank (GIB) – potentially to Australian financial services group Macquarie Group – is unraveling, with Parliament told the bank has a “dismal and terrible environmental record” and an “appalling track record of asset-stripping”. 

The government is soon expected to announce the winner of a bidding contest to buy the Green Investment Bank. Australian bank Macquarie is understood to be the preferred bidder, although the terms of the arrangement are shrouded in secrecy.

But controversy over the sale has led to reports suggesting it could be abandoned and the bank floated on the Stock Exchange instead.

The Financial Times has quoted an unnamed Whitehall official as admitting that an IPO (initial public offering) was possible but not imminent.

“It’s jumping numerous steps to suggest a decision has already been made,” he is reported as saying. “It’s jumping several hurdles and issues.”

Meanwhile, many others are calling for the sale to be abandonned.

Background

The GIB is a taxpayer-owned “for profit” bank created in 2012 and allocated £3.8 billion of funding from the UK government with a mission to accelerate the UK’s transition to a greener economy. It has done well. The bank invests in a range of renewable energy projects, including energy-to-waste, anaerobic digestion, biomass, offshore wind – and it launched a €100m green bond at COP 22 in Marrakesh in 2015.

The Conservative Chancellor of the Exchequer George Osborne’s plan was always that it should eventually be able to operate independently of Government, although many on the left opposed this. The sale was ordered by Osborne when he held the post of Chancellor in an attempt to reduce government debt.

Controversy

The widely-touted possibility that Macquarie – which has offered £2 billion – could end up winning a competition to buy the bank has raised concerns.

“This preferred bidder, Macquarie, not only has a dismal and terrible environmental record, it also has an appalling track record of asset-stripping,” said Green MP Caroline Lucas during a recent parliamentary debate.

This view was echoed by former Tory Energy Minister Gregory Barker who said on Twitter that he was “increasingly alarmed that sale of #GIB will now see it broken up so much it threatens its future as [an] enduring institution”.

And Labour MP Ian Murray tabled an early day motion calling on the government to halt the proposed sale of the bank.

Furthermore, it has just emerged that Patricia Rodrigues, the former investment banker who helped set up the state-owned bank, is now working for the bidders as managing director at Macquarie Infrastructure and Real Assets.

On Wednesday 25 January the sale was debated in the House of Commons. Business Secretary Nick Hurd tried to reassure MPs the bank would not be sold to an asset stripper but was tight-lipped on the sale procedure.

Macquarie themselves have also fought back against the accusation that they would hollow out the bank but admitted they would dramatically restructure it.

This has not reassured Green MP Caroline Lucas who Tweeted yesterday:

The opposition business secretary, Clive Lewis was quoted by City AM as saying, “The government should never have wasted valuable time and money prepping the GIB for privatisation in the first place.

“With our economy stalling because of the government’s incompetent handling of Brexit, the GIB needs a laser-like focus on developing future low-carbon technologies. Instead it’s had to deal with uncertainty generated by this ideological and ham-fisted privatisation process.”

It has been widely criticised for not being sufficiently visionary or for not backing community energy, but it has been a success all the same, particularly in supporting the difficult-to-finance offshore wind industry.

According to the bank’s chief executive, Shaun Kingsbury, this industry has now “come of age” as a mainstream asset class, driven by rapid improvements (and falling costs) in technology, installation, supply chain, operational maintenance and financing.

Just a few days ago the bank issued a report showing that its Offshore Wind Fund has exceeded its original £1 billion investment target. It has invested in five offshore windfarms with a combined capacity of 1447 megawatts.

Having backed 85 projects to the tune of £2.7 billion, GIB is in need of a capital injection. With the UK government lacking cash even for the ailing National Health Service, those funds are not likely to come from the taxpayer.

Confusion

It is in this context that a previously shortlisted bidder – Jonathan Maxwell, chief executive of Sustainable Development Capital Ltd (SDCL) – threw a spanner in the works two weeks back, offering to match Macquarie’s bid.

He has urged the Tory energy minister Nick Hurd to reject the Macquarie bid, asserting that his consortium – which includes the state-backed Pension Protection Fund (PPF), the US’s Hancock and Japan’s Mitsui – is the “best alternative” to meet the government’s goals for GIB. His move is backed by Caroline Lucas.

Unlike Macquarie, SDCL exclusively provides energy efficiency retrofit project finance, backed by specialist funds in the UK, Ireland and Singapore, with new funds coming on stream from New York and China.

SDCL also provides financial advisory services through an investment banking group that operates in sectors linked to resource efficiency and sustainable development, such as renewable energy, energy efficiency, water and waste management and recycling, sustainable land management and low carbon transport.

Maxwell issued a statement saying: “We believe that an IPO [for the GIB] by 2020 is viable and this has been an important consideration behind our approach to the privatisation. An IPO should be feasible and attractive once the GIB’s portfolio has been built out.

“This government could retain a stake in the GIB in the meantime to benefit from the expected future growth ahead of an IPO and achieve value for money for the UK taxpayer.”

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David Thorpe is the author of a number of books on energy and sustainability. See his website here.

Swansea barrage represents a key opportunity

Charles Hendry's report into the exciting Swansea Lagoon has given it the thumbs up.

The former energy minister concludes:

"I started this process with interest but sceptical. The more evidence I have seen, the more persuaded I have become that tidal lagoons do have an important role to play and there should be a government strategy in place to help this happen."

But it is not a cheap source of power. It has enemies. Among them is Jonathan Ford, writing yesterday in the FT,

Strangely, he quotes John Constable of the so-called Renewable Energy Foundation (REF), who lambasts it. The REF is a bogus organisation that does the opposite of what its name suggests. A simple Google search will reveal this, such as this piece. 

That aside, it is important to factor into any calculation about this investment that the lagoon will last 3-4 times longer than Hinkley or any other nuclear power station, and so its costs should be factored over around 100 years.

Hydroelectric power dams last for a at least this length of time. Admittedly the conditions for the barrage are slightly more stressful, being in salt water, but the area of Swansea Bay to be occupied by the barrage is a doubly sheltered one – both by the Bristol Channel and the horseshoe shape of the Bay itself.

Let's recall nuclear power's toxic legacy, and EDF's abysmal record, and nuclear power stations' own unreliability (often offline for weeks at a time for maintenance and safety), which should also should be factored in. 

Balance this against the modular nature of the turbines in the barrage (if one fails the others will keep working) and the predictability of the electricity (from the predictability of the tides).

Ford argues that nuclear is continuous source of power and the barrage is not, but the barrage has the ability to store energy (as water) within itself. The imminent availability of cheap electricity storage technologies will also help match supply with demand.

Tidal barrage and lagoon schemes are a new technology. Backing them will position the UK well as a world expert, leading to further lucrative business for UK plc.  China is already utilising it.

We have delayed long enough and let China get ahead. Let's get on with it.