U.K. Green Bank Should Sell Green Bonds From 2013, Group Says

The U.K.’s planned Green Investment Bank should be able to issue bonds to help finance clean-energy projects such as renewable technologies from April 2013, the head of an environmental think-tank said.

“The earlier bonds are issued, the faster we should get the Green Investment Bank leveraging off institutional investors and deploying capital at the scale the low-carbon transition needs to meet our carbon targets and economic imperatives,” said Peter Young, chairman of the London-based Aldersgate Group.

Young, who has met with Treasury and other officials to discuss the bank’s scale and progress, said he wanted to see the institution issue green bonds early in 2013 to get longer-term investors into environmental projects.

“The particular attraction of bonds is they’re a form of financing that some of larger institutional investors feel comfortable in trading in and investing in,” he said.

The government says at least 110 billion pounds ($174 billion) is needed by 2020 to replace aging power plants, upgrade the grid and build renewable-energy projects. Lack of appropriate finance might threaten the U.K.’s pace to a low-carbon economy, Business Secretary Vince Cable has said.

A spokeswoman at the Department for Business, Innovation and Skills said no decision had been taken and how the bank, as an independent body, will borrow will be decided in due course.

The institution will be able to borrow from 2015 or 2016 provided the U.K.’s debt is falling as a percentage of economic output, a criteria that Young said should be lifted.

“If the Green Investment Bank can show itself to be a really robust institution making some good and sensible decisions, I don’t see that deficit rule as being very relevant,” he said.

All Party Support

The government is setting up the bank, supported by all three political parties, with an initial 3 billion pounds to spur investment in low-carbon technologies. That could leverage a further 15 billion pounds, Chancellor George Osborne has said.

“To determine the best mechanism, government and the GIB will need to consider the relative merits of different options, including the cost of borrowing, and the ability and most appropriate manner to access new types of investor,” the spokeswoman for the business department said by e-mail.

“This will be particularly important given the risk profile of investing in GIB debt,” she said. The bank’s location will be decided this month, the government said. There were 32 bids from locations across the U.K. wanting to host.

The institution needs European Commission approval before it can start. Under interim arrangements, the first investments will be managed through a team in the business department until that’s granted. The team, called U.K. Green Investments, is on course to start in April, according to the spokeswoman. Commission approval of the bank is expected early next year.

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