Renewables industry questions UK's commitment to green bank
The UK's adviser in setting up its Green Investment Bank (GIB) warned on Thursday of delays in the rollout of offshore wind electricity projects if the bank is unable to borrow before 2016.
A likely delay in the GIB's ability to borrow emerged on Wednesday as estimates released in the government's Autumn Statement show the country's finances turning around one year later than expected. The GIB is unable to borrow until there is a drop in the UK's debt to GDP ratio, now slated for 2016/17.
"Restricting [the GIB's] access to capital was dressed up as a fiscally responsible act but it has purely been put in place to delay the development of the bank," Transform UK director Ed Matthew, who advised on the GIB's formation, told ICIS.
A delay would come at a critical time for offshore wind projects - several planned round three projects are expected to make final investment decisions around 2014/15. Projects intending to apply for GIB funding at that time could have their plans put on ice if the bank's borrowing powers are pushed back a year.
A GIB spokesman played down the impact of the new budget projections, describing the bank's present £3bn (€2.4bn) in funding as "sufficient."
Bad timing
The setback would also coincide with the UK's transition from the Renewables Obligation to new feed-in tariffs between 2014-2017. The chief executive of trade body RenewableUK, Maria McCaffery, said the delay "comes as a bit of a blow," considering the GIB's borrowing powers are now likely to kick in after the end of the Renewable Obligation (RO) period in 2014.
Industry experts said developers of round two projects are awaiting details of the new FiTs, which are based on Contracts for Difference, before choosing between the two subsidies and locking in their final investment decision before the RO ends.
A corporate financier familiar with round two wind farm projects warned of possible delays as developers are unable to make an investment decision until they are able to compare CfD strike prices with Renewable Obligation Certificates (ROCs).
Centrica had been due to announce a decision on its 580MW Race Bank project by February, but the company's latest time frame is before the end of 2013.
Statoil and Statkraft acquired the 560MW Dudgeon project from Warwick Energy in October, which industry sources suggested could delay an investment decision. A Statoil spokesman said the project would make a decision in late 2014, after the strike prices are made public.
"Although support mechanisms are of course key factors in project development, the time for FID was chosen based on expected length of time required for consent and early phase project development, which we are currently completing," the spokesman said in an email.
Light at the end of the tunnel?
Legislation to remove the link between the GIB's borrowing powers and the UK's public finances is inching its way through the UK parliament. An amendment to the enterprise and regulatory reform bill was debated in the House of Lords earlier this week and will be voted on in late January. If accepted, the change would allow the GIB to borrow in 2015, regardless of the state of the UK's debt to GDP ratio.
If able to borrow £20bn, the GIB could unlock up to £100bn for renewable energy projects and energy efficiency schemes, Transform UK estimates. This would give the bank substantially more reach than the £3bn The Treasury has given it.
Transform UK's Matthew said he is concerned about the government's commitment to the GIB, and the fact that the next election is due in 2015. "The question is [what] might happen after the next election - what will the [next] government do in terms of spending in the year after the election?"
Matthew said the government had sought borrowing powers for the GIB via an EU state aid application, but added "I'll believe that when I see it."
When the GIB was officially launched last month, Ben Caldecott, the head of policy at investment-management company Climate Change Capital, said the government should issue asset-backed bonds for clean energy projects under its Infrastructure Guarantee Scheme (see EDEM 28 November 2012). KB
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