The Green Investment Bank, Rob Cormie, Group Operations Director, GIB (20.01.14)


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Part of our Business and Climate Change Series, this presentation explored how the Green Investment Bank has delivered on its objectives and its plans for future development.The GIB, the first of its kind in the world, was formed as a public company in May 2012, and became fully operational in October 2012 when it was granted State Aid approval by the European Commission to make investments on commercial terms. Its remit is to co- invest in UK projects which are both green and commercial alongside private sector finance. Since its creation the GIB has co-invested over 600m on a range of projects totalling 2.3billion.

Its mandate from Government is to deploy at least 80% of its capital in offshore wind; waste recycling and energy from waste energy efficiency, including support for the Government's Green Deal. It measures its green impact in terms of reducing greenhouse gas emissions; increasing natural resource efficiency; protecting the natural environment; enhancing biodiversity and promoting environmental sustainability.

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  • I’ve met most of you over the past year For the few I haven’t I’m SK I joined GIB in November 2012 Prior to GIB I ...
  • To catalyse third party investment into green projects in the UK Using our £3.8bn and our experience to crowd in capital into projects which meet our double bottom line of being both Green and ProfitableThat must be green and profitable. Not green or profitable.We can help achieve that by providing a demonstration effect. I’ll give you an example of that in a moment.
  • We have the most experienced team of renewables investors in Europe. Between the 70 specialist investors that we have recruited, we have collectively 768 years of experience investing in our core sectors. Our leadership team alone has over 160 years of energy and infrastructure experience. And even more experience in financial services.We have Siemens Wind Power’s former head of European Operations to lead our technical teamWe have the CEO of Australia's first listed clean energy infrastructure fund running our transaction team We have Standard Chartered’s treasurer heading up our risk teamWe have 3i’s Chief Investment Officer as head of our strategy teamWe have Morgan Stanley's Head of European Renewables, who has executed over $30bn worth of transactions, heading up our capital markets teamWe have the head of Pinsent Mason’s energy projects team as our general counsel We have recruited stellar talent from Goldmans, RBS, Macquarie, Babcock, ABN AMRO, Lloyds and Kleinwort to name a few…They all come together in the two offices we have set up, the headquarters in Edinburgh (following a bidding process involving 31 other UK cities) and the transaction hub in London We are governed by an independent Board which run as any other plc board, fully independent with one representative from the Government’s Shareholder Executive.A hugely experienced and influential board spanning commercial, energy and green expertise. For example:Our chair is Lord Smith of Kelvin (finance and energy background).David Nish, chief executive of Standard Life and one of the UK’s largest investorsTony Poulter, PWC’s global head of consulting who is one of the world’s foremost experts on infrastructure investment.Professor Dame Julia King, who is amongst other things, the UK’s low carbon business ambassador.Tessa Tennant, a prominent innovator in green investment who founded the UK’s first green equity investment fund in 1988.
  • And we’re putting this powerful new team to good use. We’re out doing what we were created to – invest in green infrastructure.Let me give you some of the highlights, in one year:
  • We used to be told that if GIB was in your project, you had a problem. We see every deal in the market. This gives us a unique perspective.Our pipeline has over £4bn of projects which we are reviewing and progressing.We are at the core of UK green investments.
  • State Aid restricts the sectors in which we can invest . Our mandated sectors only account for 25% of the green infrastructure market place. This is a restriction not faced by other development banks like KfW in Germany and EIB. EMR is causing a temporary investment hiatus.Long dated capital is in short supply. So we are up and running. Our business model is working. But the constraints we are operating within are limiting our impact.
  • Looking to the future – what do we see? Priority one is to keep investing and to keep doing it profitably and to keep crowding in capital to UK projects. As we do that we’ll continue to build the infrastructure of an enduring institution. We will begin the process of becoming a regulated entity to allow us to broaden our remit, initially into the fund management business. Our job isn’t just to invest £3.8bn; our job is to build a bank that will carry on for 10, 15 years and beyond. We’ll keep innovating. We’ll back emerging technologies that are on the cusp of commercialisation. We also hope to innovate in the capital markets with:project bondssetting up an asset management business investing in equity construction for OSWAs I’ve already said, we can only finance projects in 25% of the green economy. We’d like to extend that. That requires a change to our state aid mandate. We’re in an ongoing conversation with Brussels about it. Our early targets would include the types of projects that many of you will receive approaches about:Small scale community renewablesLow carbon transportSupply chainGrid infrastructureAnd, in time, we want to raise more money. We’re not held back by capital at the moment so it’s not one of my most pressing concerns but there will be options as we go that we’ll want to explore to fulfil our mission to crowd-in capital to the UK.All of this is designed to maximise our green impact, not just through our own actions but to create a positive demonstration effect for the market.
  • So, I hope that has been a helpful overview. A lot of detail.I hope I’ve given you the impression that we have something potentially quite special here. I can feel that and I can see it in the response we get from others.We are already one of the first phone calls that a developer or investor will make to get their project moving.We are already having a demonstration effect with the market. Our involvement in a deal is creating a kitemark for both commerciality and green impact.We are the envy of countries across the world. All the UK parties should take great credit for being the first to set up a bank like ours. Others come to learn. As they did last week when we had a dozen leading international investors come to our first Green Bank Congress in Edinburgh. We would also have had the US Department of Energy were it not for the shutdown.So, to cut through the detail let me finish with my key points. In one year:We are up, running and investing.We’ve shown that our business model is an effective one. We can be both green and profitable.But we are slightly constrained. The market is doing that but so is our mandate. We’re working on both. We want to do more and I’m confident with a fair wind and a continuation of the support that we’ve enjoyed so far, we will be able to achieve, much, much more.Thank you
  • The Green Investment Bank, Rob Cormie, Group Operations Director, GIB (20.01.14)

    1. 1. UK Green Investment Bank plc Rob Cormie – Group Operations Director January 2014
    2. 2. ONE YEAR OLD Mobilising private sector investment in the UK’s green economy. We are up and running and investing Our business model is working But we are facing some restrictions We want to do more Our context Up and running Model is working Restrictions Next steps 2
    3. 3. OUR STARTING POINT Our statutory commitments … Our context Up and running … demand unprecedented investment Model is working Restrictions Next steps Notes: 1) vs 1990 levels; 2) from 3% in 2010; 3) vs 1995 levels; 4) Source: Vivid Economics. Estimates of required green investment in the UK varies between £220bn and £500bn depending on sources 3
    4. 4. INVESTMENT SO FAR Historic and projected investment run-rate is consistently half the required amount Our context Up and running Model is working Restrictions Next steps 4
    5. 5. 2013 GLOBAL CLEAN ENERGY INVESTMENT DOWN 12% • • Global investment in clean energy reduced for second year in a row This decline is steepest in Europe (c.40%), while investment in Asia continued to increase Global Renewable Energy Investment by Region, £bn -9% 21% -12% $103bn 34% $109bn $78bn 0.6% $121bn 17% $49bn 44% 45% 46% $22bn $68bn $39bn $63bn $29bn $58bn $24bn $35bn 2005 2006 $127bn $109bn $45bn 2004 $66bn $115bn $23bn $71bn $50bn $42bn $18bn $13bn $88bn $62bn $70bn 2007 $82bn $84bn 2008 2009 EMEA Source: BNEF AMER $68bn 2010 2011 2012 2013 ASOC 5
    6. 6. 3,500 INSTITUTIONAL INVESTORS ARE INCREASINGLY ACTIVE 3,000 2,500 • Institutional investment in renewable energy has more than doubled between 2007-13, with listed funds being the 2,000 preferred route to the market for pension funds and insurers • Insurers and pension funds are building infrastructure teams and increasing allocation to the sector – for example: 1,500  Axa recently announced that is aiming to invest €10bn (c.£8.5bn) in infra debt  Allianz GI raised a £1bn fund for UK Infra in 2013 1,000  Legal & General announced an aim to commit up to £15bn in the sector  Pension Denmark are actively involved in European infra 500 market and closed renewable energy deals in the UK  Blackrock is growing its EU Infra Debt team 0 2007 2008 2009 2010 2011 BearingPoint Institute Survey Institutional Investors and Infrastructure (Europe) Institutional Investors Commitment to European Renewable Energy Projects ($m) 3,500 PE/infrastructure fund Quoted fund Bond Direct 3,000 2,500 2,000 PE/infr Quoted Bond Direct 1,500 1,000 500 0 2007 2012 2013 In the next 3-5 years a significant number of insurers and pension funs will develop their own internal infrastructure teams to manage investment? 2008 2009 2010 2011 2012 Prequin Research on Insurers Capital Allocation Targets Infrastructure investment allocation by insurance companies, proportion of investors (%) 100 6% 6% Agree Strongly 2013 10-49.9% 80 5-9.9% 19% Agree 60 1-4.9% 40 Disagree 20 69% No opinion Less than 1% 0 Current Source: BearingPoint Institute, BNEF, FT, Prequin Medium-term Targets 6
    7. 7. OUR JOB Our vision: green and profitable Our context Up and running Our task: crowding-in capital Model is working Restrictions Next steps 7
    8. 8. OUR FOCUS Our proposition • • • • • We have £3.8bn of capital to invest, provided by the UK Government We expect to commit this capital by March 2016 We have the ability to structure products across the capital structure, from senior debt to equity We deal on commercial terms; GIB does not provide grants, „soft capital‟, regional assistance or development capital Investment must be additional. Our involvement must be necessary for the project to go ahead. We aim to crowd-in other private sector capital 8
    9. 9. WE‟RE UP AND RUNNING Our context Up and running Model is working Restrictions Next steps 9
    10. 10. WE ARE INVESTING Over £750m committed We have backed 25 projects We have invested in all our main sectors and in each part of the UK Financed the UK‟s first large scale coal to biomass conversion Invested in 30% of the UK‟s operating OSW capacity First ever minority refinancing of an OSW project Financed NI‟s largest waste wood power plant Delivered the UK‟s first listed renewable energy infrastructure fund Backed a large scale NHS energy efficiency project (will save the Trust £20m) Closed the funding gap for a new high-technology waste plant that had been stuck for 4 years When built, our investments will produced enough renewable electricity to meet energy needs of 2.7 million homes When built, our investments will cut CO2 emissions equivalent to taking 1.4 million cars off the road Our context Up and running Model is working Restrictions Next steps 10
    11. 11. AN EXAMPLE - TOMATIN 11
    13. 13. WE ARE MAKING AN IMPACT 2012/13 2013/14 so far 43% 48% market share market share Our context Up and running Up and runningis working Model Model is working Restrictions Restrictions Next steps Next steps 13
    14. 14. BUT WE ARE FACING SOME RESTRICTIONS State aid: Policy uncertainty: Financial volatility: Our context Up and running Model is working Restrictions Next steps 14
    15. 15. WE WANT TO DO MORE Our context Up and running Model is working Restrictions Next Steps Notes: 1) vs 1990 levels; 2) from 3% in 2010; 3) vs 1995 levels; 4) Source: Vivid Economics. Estimates of required green investment in the UK varies between £220bn and £500bn depending on sources 15
    16. 16. WHERE WE BEGIN AND END Operating on fully commercial terms is the only way to achieve scalable, long-term green impact. Our context Up and running Model is working Restrictions Next Steps 16
    17. 17. CONTACT US Headquarters Atria One Level 7 144 Morrison Street Edinburgh EH3 8EX Tel: +44 (0)330 123 2167 London Office 21-24 Millbank Tower Millbank London SW1P 4QP T +44 (0) 330 123 3070 The information in this document and any accompanying material (“The Document”) is confidential and commercially sensitive. This Document is provided to each recipient on a confidential basis solely for information purposes only. No reliance can be placed on this Document by any recipient or any other person. This Document and its contents are confidential to the person to whom it is delivered and must not be reproduced or distributed, either in whole or in part, nor its contents disclosed by such persons to any other person without the prior written consent of UK Green Investment Bank plc. Except as required by law, neither UK Green Investment Bank Plc nor any of its connected persons accepts any liability or responsibility for the accuracy or completeness of, or makes any representation or warranty, express or implied, with respect to the information contained in this Document or on which this Document is based or any other information or representations supplied to the recipient. UK Green Investment Bank Plc will not act and has not acted as your legal, tax, accounting or investment adviser. This Document does not constitute or form part of any offer or invitation to sell, or any solicitation of any offer to purchase, any investment and UK Green Investment Bank Plc does not arrange investments for/introduce parties as a result of sharing the information set out in this Document. Registered Office: Atria One, Level 7, 144 Morrison Street, Edinburgh, EH3 8EX. Company Number SC424067. UK Green Investment Bank Plc is wholly owned by HM Government. The company is not authorised or regulated by the Prudential Regulation Authority or the Financial Conduct Authority. 17