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.

Weightman warns nuclear industry to do more research

Above: Dead cattle in barn on ranch at Namie, radiation exclusion zone, Fukushima Prefecture: photo by Tachyon (via Rocket News 24, 11 April 2011.

The post-Fukushima Weightman report into nuclear safety has been welcomed by the Government and industry as being favourable, but contains warnings to the industry.

Chris Huhne has interpreted the report on the UK's nuclear power stations and facilities as giving the green light to nuclear newbuild, but critics have claimed it is "rushed".

The report, by Dr. Mike Weightman, the chief nuclear inspector at the Office for Nuclear Regulation (ONR), "sees no reason to curtail the operation of power plants or other nuclear facilities in the UK" in the wake of the powerful earthquake and subsequent tsunami which crippled the Japanese plants in March, according to Energy Secretary Chris Huhne, who laid it before Parliament yesterday.

Huhne told the Commons that Weightman "believes the industry has reacted responsibly and appropriately, displaying strong leadership for safety and safety culture".

But the report makes a number of recommendations, including reviews of emergency procedures, of techniques for estimating radioactive source terms, and of the adequacy of the system of planning controls for commercial and residential developments off the nuclear licensed site, which will add to delays and costs for any developers.

It also charges the nuclear industry and the ONR to have "more open, transparent and trusted communications, and relationships, with the public".

Obfuscation was a widespread criticism of the industry in Japan and worldwide, both before and after the tsunami.

Although the Weightman report does say "there is no need to change the present siting strategies" for new nuclear power stations in the UK, it adds that the nuclear industry should "review the dependency of nuclear safety on off‐site infrastructure in extreme conditions" and look at flooding, power-supply and storage risks.

Caroline Flint, speaking for the first time in her new role replacing Meg Hillier as Labour's Shadow Energy Secretary, gave full support to the report, adding, "Now the Tory-led Government needs to give investors the support and confidence they need to deliver the construction of new capacity in the nuclear industry”.

Sellafield criticism

Sellafield is singled out for criticism by Dr. Weightman's report, saying that Sellafield Ltd, the company which runs the site, Britain’s Nuclear Decommissioning Authority which owns Sellafield, and the British Government “all regard urgent progress with the legacy ponds and silos remediation and retrievals programme as a national priority”.

“This priority is reinforced by the example of the Fukushima accident, where the vulnerabilities of an older plant were not sufficiently recognised and addressed,” says Dr. Weightman.

“The main focus for the site must remain the retrieval of the radioactive inventory from these facilities and the processing of the material into safer waste forms,” he reports. “In the meantime, contingency measures are put in place.”

The report says the storage ponds for nuclear waste at Sellafield, some of which are up to 50 years old, "can never be brought up to modern standards".

The heat-generating capacity of the radioactive material stored in the ponds is lower than that of fuel in an operating nuclear power plant, so accident scenarios generally develop over longer timescales than those modelled for nuclear power plants.

Sellafield’s management is reviewing the plant’s cooling, ventilation, inerting and containment systems and “the availability and reliability of these systems under accident conditions”, but the work has “yet to be completed”.

Flooding, venting and power supplies
The report also cautions about the danger of flooding.

It warns nuclear plant managers and developers (reiterating the point made in June in the Government's Response to Consultation on the Revised Draft National Policy Statements for Energy Infrastructure) that they must examine "the effects of the credible maximum scenario in the most recent projections of marine and coastal flooding", and "demonstrate that in principle adaptation to such a scenario would be possible".

The nuclear industry must "initiate a review of flooding studies, including from tsunamis, in light of the Japanese experience, to confirm the design basis and margins for flooding at UK nuclear sites".

It should also look at the ventilation and venting routes of radioactive gas and liquids for nuclear facilities.

The report admits that detailed information is not available on the performance of concrete, other structures and equipment, in earthquakes (Recommendation IR‐15).

Nor is there sufficient evidence about the "robustness and potential unavailability of off–site electrical supplies under severe hazard conditions" (Recommendation IR‐17).

Rushed report

Back in the Commons, it was left to Caroline Lucas of the Green Party to be one of the few MPs expressing scepticism, calling the report "rushed out", because of the lack of evidence backing the overall claim.

She complained that by being released in the form of a Written Statement it offered "little chance for Parliamentary scrutiny".

She added "It will do little to reassure the British public that the nuclear industry can be trusted to power our energy future".

Greenpeace provided evidence for this view by pointing out that its release is "significantly ahead of the major international comparable reviews into the implications of Fukushima", which are:

• 31 December: ONR's final report on EU stress tests.
• April 2012: Independent peer review of the national reports on the EU stress tests
• March 2012: UN action plan on nuclear safety
• August 2012: The Convention on Nuclear Safety meeting to consider the lessons of Fukushima.

Louise Hutchins, Greenpeace Senior Energy Campaigner said: "It's designed with one objective - to give the green light to a new generation of nuclear power stations, irrespective of the safety, environmental or rising financial costs of those nuclear stations. This is government complacency."

Labour's Paul Flynn, a long-time critic of nuclear power, agreed: "The country needs consideration of the full implications, principally the cost that is making nuclear power unaffordable and uninsurable throughout the planet.

"We are not getting that and we should ask the Government to do their full job and present us with a report that is comprehensive and full."

Under questioning, Mr. Huhne admitted that an email had been sent immediately after the Fukushima disaster from an official in the Business Department warning that it must not derail the UK's expansion of nuclear power and appealing to the industry to help the Government present the pro-nuclear case.

In answer to criticism that Dr Weightman could have looked at the costs of nuclear newbuild, Mr. Huhne said the Dr. Weightman "quite rightly, as the chief nuclear inspector charged with safety, takes the view that safety comes first regardless of the issues of costs".

Chris Huhne is progressing with plans to establish the ONR as a statutory body. Dr Weightman is to report within a year on the progress industry is making to improve standards, including plant layout, flood defences and other issues.

The Green Deal will fail under current arrangements

The Green Deal, flagship of the Government's Energy Bill and intended to help the housing sector contribute to cutting UK carbon emissions by 80% by 2050, is likely to be underfinanced and will fail by not attracting enough support from residents.

That was the message from MPs as the House of Commons debated the Energy Bill again on Wednesday, before it moves back for the final time to the Lords.

But they were unable to obtain any guarantees from Energy Minster Charles Hendry, of the value or interest charged on loans to residents or the degree of support that may come from the Green Investment Bank, factors that will have a massive effect on the degree of take-up of the scheme.

The green deal is the “pay as you save” scheme for retrofitting energy efficiency measures to every one of the 28m homes in the country.

A new amendment was passed to force the Secretary of State submit proposals on the ways in which the Green Investment Bank could maximise its take-up and to enable the consumer to compare recommendations and estimated costs and savings.

This is in effect limited by the 'golden rule' that the cumulative cost of the rate of interest and the cost of the installation should not exceed the amount that people are currently paying on their energy bills.

The percentage game

It's the interest rate of the loan repayments that is one of the crucial factors.

The Great British Refurb campaign's survey of about 2,000 people found that whereas 56% saw the green deal as attractive, only 7% said that they would be prepared to take it up if a 6% interest rate applied; if it were set at 2% per annum, they would be “very” or “fairly” likely to take it up.

MPs said they wanted the scheme to have a single interest rate in order to provide clarity, fairness, stimulate mass demand and, crucially, force green deal providers to "compete for customers on the cost and quality of the energy efficiency measures and installation, rather than on the headline interest rate of the finance".

Green MP Caroline Lucas (this week voted MP of the Year in the Scottish Widows & Dods Women in Public Life Awards) wanted the Green Investment Bank to be able to ensure a common and low interest rate - below 2% if possible - pointing out that a (very) different scheme in Germany offers publicly subsidised interest rates of 2.65% and has achieved 100,000 residential retrofits in a year - and the Government must achieve 145,000 every month to have a hope of meeting the required targets.

But Barker said the legislation will not place restrictions on the level of interest charged, instead relying on the market to decide.

Nor could he guarantee that the Green Investment Bank could support the interest rate, although its priorities are to address market failure.

Barker said that it is up to the market to set the interest rate, however, although there will be some protection for the fuel poor, and in order to prevent subsequent owners of a property being penalised for the fact that the previous residents were not considered credit-worthy.

The Government has yet to undertake consultation on the secondary legislation that will bring in the regulations, and this is what will determine the degree of willingness of financial backers to climb on board.

Barker added that the Government's own consumer research showed that the biggest factor in their taking up the green deal would be "a desire to make their home nicer".

The Energy Company Obligation and fuel poverty

The Energy Company Obligation (ECO) for energy companies is supposed to target the needs of vulnerable consumers, and the green deal is supposed to tackle the issue of fuel poverty, but with an unprecedented 1.9 million people in arrears with their energy bills in this country and 5.5 million living in fuel poverty - both numbers rising by the day - it is unclear whether any financier is going to want to touch them.

Barker admitted as much, saying "I cannot give a universal commitment" that they will all have access to the deal.

Barker tried to provide reassurance by saying "Many of the families and individuals [in arrears or fuel poverty] will be captured by community roll-out and street-by-street roll-out of energy efficiency improvement schemes."

ECO is expected to offer insulation and home improvements to whole streets, regardless of income, to ensure improvements are made at scale - which is far more cost-effective than house-to-house, especially where external insulation is required.

But the crucial question is how much finance it will have available.

Lucas certainly doesn't believe that as things stand there will be enough cash available to make the green deal work.

"Yes, we have the ECO £1 - 2bn," she said, "but this is a small proportion of what will be required".

In fact, as MP Barry Gardiner pointed out, the Committee on Climate Change estimates that up to £17 billion of support will be required through the ECO to insulate 2.3 million solid walls alone by 2022.

Similarly, he said "we cannot keep pushing up the ECO" because of its impact on every energy bill payer.

In addition, it is unclear whether the Treasury levy cap on DECC's spending will cover the ECO, and limit the support it can give to tackle fuel poverty still further. The two departments are still locked in negotiations over that one.

All Barker would say at this point is that DECC will publish in the autumn its expectations of how DECC policies, taken together, will impact on consumers through to 2020.

Regulation

The green deal, as MP Andrea Leadsom pointed out is, essentially, a financial services product. As such it is regulated by the Office of Fair Trading, which will be expected to ensure that any mis-selling is stamped out at the outset and full compensation is paid to any victims.

However, MPs raised concerns over whether the OFT will have sufficient resources to undertake this extra work, which could be considerable.

Market research has shown that customers would welcome and are therefore more likely to trust the involvement of local authorities, community groups and third sector organisations when thinking about entering into a green deal.

The legislation will allow for this and contain "a clear enforceable framework within the green deal code of practice" to ensure impartiality of advice and prohibit high-pressure sales tactics, as used infamously by energy companies recently.

Greg Barker said, "one of the most exciting things about the green deal is its potential to give rise to new third sector involvement in delivering energy efficiency services."

DECC is now setting up a new workshop to look specifically at how the provisions can best work with older buildings and for service family accommodation, particularly older historic buildings.

Contrary to MPs demands that it makes more sense for repayments of the loans to come from a gas bill (used more for heating than electricity), Barker said it will not be possible to specify whether the instalments will be paid via the customer's electricity bill or gas bill, as this would double the cost of administering the scheme.

He also said that liability for green deal payments should sit on the balance sheet not of energy companies, but of the green deal provider, such as B & Q, Marks & Spencer or John Lewis.

The amendments include one, brought by Luciana Berger, Lab/Co-op MP for Wavertree, Liverpool, to clarify and encourage green deal installation apprenticeships to create the necessary skilled workforce.

However, there was no discussion of standards of insulation and energy efficiency that will be required. That, too, will have to wait until the secondary legislation.

With the implementation date 12 months away for the green deal, there is still plenty of work to do before stakeholders will even be able to estimate how effective it may turn out to be, but there is certainly much concern that it will not be as attractive as it needs to be.

Will a hung Parliament be good for the environment?

Now that we know there is to be a hung Parliament, the stage is set for much horse trading on environmental issues between the three main parties.

And, now that Caroline Lucas has become the first Green Party MP since Cynog Dafis won his seat in the '90s on a joint Green-Plaid Cymru ticket, it will be fascinating to see if she succeeds in raising the profile of environmental issues.

She deserves huge congratulations, as she has won this on the back of many years of dedication and hard work as a Green MEP.

On the whole, the Liberal Democrats hold the greenest of policies amongst the main three, but if, as seems likely, they attempt to forge an alliance with the Conservatives, then it will be very interesting to see how a party that is against nuclear power and for onshore wind can get on with one that opposes these policies.

Let's take one topic and see what could happen: planning and housing.

Where both Tories and LibDems agree, and differ from Labour, is in a promise to abolish regional planning, including regional spatial strategies.

Although the Liberal Democrat Policies for the Environment election document had little to say about spatial planning it did pledge to abolish the Infrastructure Planning Commission and return planning, including housing targets to "local people", something the Tories might agree with.

A Conservative government would pay councils to release land for housing by matching pound-for-pound the council tax receipts they receive from new housing, and the LibDems could support that.

But the Tories have no target for housing on brownfield land to protect greenspace, unlike the Labour Government, which set one at 75%.

Labour promised to maintain the 60% brownfield and minimum density targets for housing in its election document A Green Future for All, and was the only main party to say it would enforce greenfield land releases, according to its Plan for Housing.

Labour also promised promise to end so-called "garden grabbing" by defining them as greenfield sites in "planning  law" so they cannot be so easily built over.

The Tory document, Modern Conservatism: Our Quality of Life Agenda launched during the campaign represented a very pale green version of John Gummer's 2007 quality of life commission document which promoted a wide range of radical Smart Growth policies.

One thing seems certain: the prospect of a hung Parliament will act as a brake on the deregulatory excesses of the right that historically have not boded well for the environment - which, naturally, does not have a vote.