Enterprise and Regulatory Reform Bill

Lord Smith of Kelvin Excerpts

Wednesday 14th November 2012 Lords Chamber

[Lord Smith of Kelvin]

My Lords, I declare two interests. First, I am chairman of Scottish and Southern Energy, which is the biggest generator of renewable energy in the UK. Secondly, I chair the Green Investment Bank, which has just been mentioned. I can confirm the statement of the noble Lord, Lord Marland, that we are up and running. We have state aid approval. We have been charged with five priority areas: offshore wind, waste, waste to energy, non-domestic energy efficiency and the Green Deal, which is effectively domestic energy efficiency. We are very new. We had our first full board meeting at our headquarters in Edinburgh just one week ago. However, we have appointed a chief executive and most of the senior management team, and we have inherited a pipeline of possible investments from an outfit called UK Green Investments, which has been operating inside the Department for Business, Innovation and Skills.

Conditions in capital markets and in clean energy markets are difficult. In capital markets, UK banks are unwilling to lend beyond seven or eight years, and many of these projects need finance for up to 20 years. However, sovereign wealth funds, pension funds and foreign banks have been in touch with us to indicate that they are interested in investing in the UK. In the clean energy space, we need good policy and clarity on electricity market reform to remove the uncertainty that is deterring developers and lenders.

I want to talk about three areas included in the Bill which may help your Lordships—green issues, borrowing and independence. We know that we are going to be held to very high standards on green issues in both the investments and our own operations. We welcome the requirement to report on carbon emissions and the positive impact that our investments should have on reducing UK emissions. We will go further than the requirements of quoted companies by reporting in detail on our portfolio. We will also take the long-term view and have regard to the work of the Committee on Climate Change.

I ask noble Lords for support for the Government’s broad definition of “green purposes”. Waste and recycling —for example, anaerobic digestion—can have a positive impact, and it would make the Green Investment Bank’s task more difficult if there were changes in our mandate by a narrowing of the green definition.

On borrowing, under the terms of state aid approval, we have to prove that all investments are commercial. In showing that we can make commercial investments, we will attract in private capital alongside us. Incidentally, we will definitely not be the lender of last resort. Is £3 billion enough when most commentators are saying we need £200 billion invested in this area over the next 10 years? My answer to that is that businesses have to be built on solid foundations if they are to endure, and we will need this institution to endure because we will be making investment in green infrastructure long beyond 2015. We need to show government and private capital markets that we are a well run organisation with a good track record worthy of the injection of more capital or, indeed, borrowing money in capital markets.

I can promise noble Lords that if we feel we need to borrow we will approach the shareholder well before 2015. As a public limited company, we have the power to borrow, but we have to ask the shareholder, and the shareholder is the Government. As our team has only recently been assembled and projects such as the ones we are looking at can take quite a long time in planning and construction, I think that the original budget of investing the first £775 million over the next five months will be difficult to achieve. However, I am confident that we can commit £3 billion wisely by 2015 and crowd in an awful lot of private capital from around the world alongside that.

I fully take on board the comments of the noble Lord, Lord Stevenson, on having a UK supply chain and looking after small and medium-sized enterprises. That has already been pointed out to me by the noble Baroness, Lady Worthington.

In closing, I would ask noble Lords for their patience, for support for the Government’s broad green definition and for help in dispelling uncertainty over electricity market reform. I can assure noble Lords that the Green Investment Bank is already acting independently of Government, but, of course, prudently, as befits working in the public sector.