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UK Green bank gets borrowing approval

UK: A Green Investment Bank (GIB) to help finance low-carbon development such as offshore wind in the UK will begin operation in 2012-13, a year earlier than expected. But industry is concerned that there has been no consultation on what it will actually fund.

The announcement came as part of the UK government's 2011 budget, unveiled in March. The budget confirmed the £1 billion (EUR1.14 billion) initial investment it had previously pledged. It also announced a further £2 billion, to come from the sale of assets. Some £775 million of this has already been raised. The chancellor George Osborne said that the extra £2 billion would be underwritten by the government, meaning that the Treasury would plug the gap if further asset sales do not go ahead.

There had been disagreements within government over whether the GIB would be a fully fledged investment bank able to borrow money and raise further capital, or if it would be simply a fund. The arguments centred around government accounting rules. If the bank was officially classified as public sector, its borrowing could appear on the government's balance sheet and so undermine its deficit-reduction strategy.

Borrowing delay

The government has confirmed that it will be able to borrow, but not until 2015-16, and then only if government debt is falling as a percentage of gross domestic product. The government predicts that it will have met its target to shrink the deficit by then, allowing the GIB to borrow.

Some businesses and environmental groups fear the bank will be unable to borrow money when it begins operation. However, this is not too critical for offshore wind, as the bulk of capital for these projects will not be needed before 2015.

Gordon Edge, policy director at trade association Renewable UK, says there is plenty the GIB can work on before 2015. For example, it could finance risk-reduction products for offshore wind to cover events such as weather-related construction delays.

However, he says: "We still don't have a clue what the bank is going to do and what products it will offer. It's been very much cooked up behind closed doors. There has been nil consultation with industry."

The outcome of the government's review of the electricity markets is more important than the bank, he says. A consultation on market reform closed in March. "If the policy is right, the risk is lower and you can do a lot more with smaller amounts of money."

The government will announce further details on how the bank will work and the results of its market-reform consultation before summer.

The budget also pledged a carbon-price floor for the power sector to encourage investment in energy infrastructure. The price will start at around £16 per tonne of carbon dioxide in 2013 and move to a target price of £30 per tonne in 2020.

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