UK's Green Investment Bank to raise £1bn fund to invest in offshore wind projects

Out-Law News | 27 Jun 2014 | 2:02 pm | 2 min. read

The UK's Green Investment Bank (GIB) plans to set up an investment fund worth £1 billion, which would be used to acquire stakes in offshore wind projects in order to encourage private sector firms to invest, it has announced.

As the bank published outline financial information for the year to 31 March 2014, chief executive Shaun Kingsbury said that the new fund would allow GIB to raise its own capital for the first time. The new fund would be managed by a GIB subsidiary which is currently regulated by the Financial Conduct Authority (FCA), and is seeking permission from the FCA to become a regulated fund manager.

"We are providing a positive demonstration effect by successfully committing capital to profitable, green infrastructure investments," Kingsbury said. "We are making a difference across the UK by taking on the tough projects, de-risking new technologies and lowering the cost of capital for our sectors. We want to do more to maximise our green impact."

The publicly-funded bank committed £668 million to 18 new green projects over financial year 2013-14, taking its total capital commitments to £1.3bn of profitable investments, according to the announcement. Its investment attracted an additional £1.9bn of private money to these projects. It recorded an operating loss of £5.7m this year as the majority of its investments are still in the construction phase. However, it has estimated that these investments, once built, will earn an average return of 8% each year.

GIB is a government-backed bank set up in October 2012 to provide finance to private sector projects which would contribute to the 'green economy'. Its priority funding sectors are offshore wind, waste recycling and energy from waste, non-domestic energy efficiency and support for the government's Green Deal.

During the first phase of GIB's existence, which will run until financial year 2015-16, the government will provide the bank's funding alongside private investors. It has committed £3.8bn up to March 2016 in order to do so.

The announcement of GIB's first investment fund follows last month's grant of state aid approval by the European Commission allowing it to promote and manage such structures to encourage investment into its designated sectors. The bank is now seeking a "suitable group of strategic, long-term co-investors" to participate in the fund, which it hopes will reach first close by the end of 2014.

"This is an important development for the UK's offshore wind sector," GIB said in a statement. "With 3.6GW of installed capacity, 1.4GW in construction and a number of further projects in the pipeline, the UK sector is set to grow significantly in the coming years. To support that growth, it is vital that developers - typically large utilities - are able to refinance part of their investments in operating assets to reinvest in new developments. This requires a significant broadening of the number of long-term investors in UK offshore wind projects."

"Equity investments in operational wind farms can offer a compelling opportunity for investors seeking long-term, inflation linked returns. These attributes can be well-matched to the needs of long-term infrastructure investors such as sovereign wealth funds and pension funds," the statement said.

"GIB is continuing to ramp up investment and crowd-in financing to the renewables sector," said energy expert Stephen Tobin of Pinsent Masons, the law firm behind Out-Law.com.

"By making these investments and encouraging others to do the same through a fund, it should allow developers to recycle cash into more developments and help reach the targets required for renewable power over the next few years," he said.