Yesterday we learned that the UK’s first Green investment bank will be headquartered in Edinburgh.
The bank, funded by government, will invest in renewable energy projects and technologies, which are much needed to meet the UK’s commitment to raise 15% of our energy from renewable sources by 2020.
Despite some media fuss about the location, the most interesting thing about this bank is not where it is, but what it will be able to do and the scale of the challenge.
At the start of this week at a CSFI meeting in London, leading figures in the City discussed the economics of climate change and energy renewal.
One of the key messages from that meeting was that moving from one kind of energy use to another takes a very long time.
It can take literally decades to move from small scale to large scale use of an energy type.
Look at nuclear, which in 50 years has grown to produce 18% of the UK’s energy.
At the same time, some countries are investing in renewables and reaping the benefits.
China, for example, has become one of the world’s global wind market leaders in five years, and it has been estimated windpower there could replace 200 coal-fuelled plants.
Major changes to our energy mix will almost certainly have to involve state planning, which is – coincidentally – back in fashion.
So what will the bank be able to do?
I understand that at first the £3bn fund will not be able to borrow , but will be able to start making investments from April 2012.
The reason for not allowing the fund to borrow until 2015 ‘subject to public sector net debt falling as a percentage of GDP’ is presumably that it would count towards the public sector debt, which our Government is committed to reducing.
But let me get back to the scale of the challenge.
The UK’s renewable commitment will cost an estimated £200bn by 2020.
The gap between our £3bn fund and the money needed is wide. While the Green Investment Bank may provide a welcome stimulus, it will come back to whether the private sector has the appetite to invest.
Setting up a new bank is inevitably a complex undertaking. So it’s important the bank’s management uses the time to 2015 to position themselves for larger-scale lending thereafter.