Eco Investor February 2013


Green Banks Create Interest

The idea of a green bank is catching on with first the UK and now New York State establishing a bank to help make the economy more environmentally friendly. Australia would also be a good place for such an institution as both a greener economy and some real banking competition are desperately needed here.

Announced in May 2011, the UK Green Investment Bank (GIB) is now up and running with capital of £3 billion from the UK Government, and it recently made its first investments.

The Green Investment Bank is a for-profit institution investing on commercial terms in all sectors of the green economy. It also aims to help address market failures that hinder environmental infrastructure projects by accelerating private sector investment in the environmental economy.

Its priority areas are offshore wind; waste including treatment, recycling and energy from waste; and energy efficiency in non-domestic areas. Other sectors are biofuels for transport, biomass power, carbon capture and storage, marine energy and renewable heat.

No doubt the range of areas will grow as the investment bank widens its activities to all green sectors of the economy.

From 2015, it will be able to borrow, and this will widen its role in capital markets. It will be interesting to see from where it sources its debt capital. Although not likely at first, hopefully it will one day extend into the retail market with bank and cash management accounts, term deposits and bonds. Australia's Macquarie Bank is an example of an investment bank that offers retail products.

Meanwhile, the Green Investment Bank's first deals are loans to a new waste to energy power plant, an energy efficiency project at a panel maker, an offshore wind energy project, a coal fired power station that is half converting to biomass, and to a new municipal waste treatment, recycling and waste-to-energy facility. The larger loans are in consortia with major institutional lenders.

The bank can also make equity co-investments.

With so much scope for deal making and greening the economy, it is not surprising that an innovative place like New York was quick to see this potential and announce its own green bank.

The NY Green Bank was announced by state governor Andrew Cuomo on 9 January with initial funding of US$1 billion. Like its UK counterpart, the NY Green Bank will use public money and matching private money to develop the green economy.

It will offer loans and grants for clean energy projects, coordinate and leverage the State's clean energy spending, and help overcome financial market barriers hindering private capital going to clean energy projects.

An executive to establish the bank has been appointed and he will also lead the State's energy policy and its wide range of energy finance initiatives.

The Governor said "Today I laid out an ambitious agenda of investments in energy infrastructure, solar power, and an electric vehicle network. Richard Kauffman's extensive private and public sector experience in energy and finance matters will improve coordination of the state's energy policy and further the establishment of New York as the national leader in the clean energy economy."

The Governor's policy statement makes our own state Premiers look like dinosaurs. An even stronger word is needed to describe how he makes look the Federal Leader of the Climate- Change-Is-Crap Party.

While not a bank, Australia's Clean Energy Finance Corporation, along with the US's Connecticut Clean Energy Finance and Investment Authority (CEFIA) and a growing number of similar government bodies around the world, are charged to use public money to leverage private sector funds into clean energy and energy efficiency.

So Australia is not as far from having a green bank as it may seem. The fact that New York State has a slightly smaller population than Australia suggests that Australia could easily sustain a green bank.

As well as the green economy and government policies, a green bank would benefit all types of investors. Project developers would have a new source of debt and equity funding, and established financial institutions would have a new co-investor with industry knowledge.

The Clean Energy Finance Corporation will also provide these benefits.

But a bank would go further. By sourcing capital beyond government, institutions and corporates, it could create new cash, term deposit and bond products for retail investors.

This would open the cash and fixed interest asset classes to environmental investors, and further open environmental investment to conservative investors.

It could widen the equity options for mum and dad investors, and create a future privatization windfall for the government. A future headline could be "Eco Bank Ltd Enters ASX 100".

It sounds good. Bring it on.






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