UK Green Investment Bank – Examining the Case for Continued Intervention

By Daniel Radov, Alon Carmel and Clemens Koenig

The Situation

The Green Investment Bank (GIB) was set up by the UK Government in 2012 to accelerate investment in green infrastructure sectors. The rationale was to address the market failures that prevent the financial markets from providing sufficient capital to green infrastructure projects to meet government targets. GIB was allocated £3.8 billion to invest in the green economy in four sectors—offshore wind, waste and biomass, energy efficiency (non-domestic), and small-scale renewables.

NERA's Role

NERA was commissioned by the UK Government and GIB to evaluate how well GIB fulfilled its mandate. In particular, NERA considered the extent to which GIB had been successful in mobilising additional private capital from the world’s financial markets to invest in green infrastructure in the UK. The NERA project team was supported by Clean Infra Partners, a climate finance advisory firm. The report was written before the Government decision was taken to privatise GIB (it was sold to Macquarie in mid-2017).

The Result

NERA concluded that there was robust evidence to suggest that GIB had indeed “crowded in” significant amounts of private capital into the green infrastructure sectors, while adhering to its requirement to be “additional” and not offer terms below market rates (“green and profitable”). Without GIB, the finance for these projects would potentially not have been provided, or would have been delayed or invested at a higher cost of capital. With £1.6 billion of direct project investments (by mid-2015), GIB managed to mobilise private capital co-investments of £5.6 billion. This is equivalent to a mobilisation rate of 3.4, though there is significant variation across projects and sectors. The mobilisation rate was highest for waste and biomass, followed by offshore wind. The mobilisation rates for small-scale renewables and energy efficiency were far lower. 

Key Findings 

  • GIB helped to reduce various barriers to investment across the green economy, attracting private sector capital that otherwise may not have been invested—or that might have been invested with some delay, or at higher cost. 

  • GIB successfully addressed temporary liquidity barriers in the offshore wind, waste, and bioenergy sectors, where it deployed substantial capital. GIB was less able to identify suitable projects and invest as much capital in the non-domestic energy efficiency sector, and was only active in the small-scale renewables sector for a relatively short period of time. 

  • GIB’s initial investments were in less risky projects, but it then moved to deploy capital into projects with more risk. GIB helped other investors assess the risks of investment, drawing on deep specialist knowledge of its core sectors that other financial institutions lacked. Partners trusted GIB as an experienced, knowledgeable broker, and this trust was enhanced by GIB’s commercial stake in the investments (providing “skin in the game”). 

  • Some market participants suggested that in the future, GIB could take on even more risk, and could be more aggressive in pushing the boundaries of the requirement that it invests on commercial terms. For GIB to have a significant impact on non-domestic energy efficiency, many felt it should take on additional risk or provide concessionary finance of some kind.   

  • If the Government were considering an expanded role for GIB across other sectors, it would need to ensure that clear policy targets were already in place, as a financial institution on its own cannot substitute for such targets.