Macquarie finalises UK green bank purchase
David Thorpe | 22 August 2017
Australian-owned Macquarie Group has completed the acquisition of the UK Green Investment Bank from the British Government for a price of £2.3 billion (AU$3.7b). However, despite the company’s pledge to expand green investment, the deal has been labelled a disaster for renewable energy.
The newly named Green Investment Group (GIG) – losing the term “bank” to “overcome regulatory barriers in some international markets” – says it will make at least £3b (AU$4.9b) in new investments over the next three years, with a new chief executive, Edward Northam, at the helm.
Northam has been with the GIB since its founding in 2012 and moves up from being head of investment banking to replace Shaun Kingsbury.
Initially, attention will be on the UK. According to Northam, “This country is the most productive in terms of deal flow and opportunity and the consequence of that is that a very large part of our business is located here. If you look at our combined [Macquarie and GIB] project pipelines, a very substantial part is in the UK and I do not expect that to change.”
Northam said the GIG now had “the best of both worlds: a deep sector specialism coupled with access to a global platform and deep pools of capital” and spoke of “ambitious plans”.
He said the “market failure” that prompted the bank’s creation no longer existed, since green technology, such as wind and solar power, had matured.
“The industry is now different. It has proved its investability.”
In a statement Macquarie said it would “remain one of the leading investors in green infrastructure in the UK and Europe” and would “consolidate its own existing UK and European principal investment business into that vehicle”.
This combined business will be one of Europe’s largest green energy investment specialists, worth an estimated £15 billion, and includes UK investments in energy efficiency, bioenergy, energy from waste, onshore and offshore wind, low carbon transport, solar and tidal energy and energy storage.
What about emerging technologies?
But new green technologies continue to need nurturing to commercial status just as wind and solar once did. Will the bank support these?
Renewable Energy Association’s James Court said: “The new owners should be more ambitious in the bank’s aim of providing finance to early-stage innovative technologies.”
During the 18-month process of deliberation leading up to the sale, opponents repeatedly questioned whether the bank would hold true to its founding principles if owned by “vampire kangaroo” Macquarie. Fears were expressed that it would be subject to asset-stripping.
Mark Dooley, head of energy and infrastructure for Macquarie in Europe, said that while offshore wind projects would remain core to the business, Macquarie intended to “stay half a step ahead of the market” by investing in less mature technologies such as batteries and tidal power.
“We want to remain true to Macquarie’s pioneering spirit by supporting newer and emerging technologies,” agreed Northam.
The missing £200 million
But questions persist. The UK government will continue to hold an interest in a portfolio of a small number of GIB’s existing investments. These will be managed by GIB in a joint venture – UK Climate Investments LLP.
Fears about this aspect of the business centre on the fact that UK Climate Investments was set up to invest the £200m (AU$325m) British commitment it has under international climate agreements to invest in projects in developing economies that adapt to climate change and promote “green growth”.
This money was allocated in March 2015 for use in East Africa, South Africa and India.
But no investments have yet been made and its latest financial report shows that, despite this, £3.8m (AU$6.2m) has been paid to “external advisors”.
Macquarie, in its statement, said it would hold those assets “until they can be sold on in a way which returns best value for taxpayers’ money”.
But not having made any investments, there are no assets except the £200m (now £196.2m and losing value to inflation and currency fluctuation as time passes).
Dooley said the UK was “really the benchmark in terms of transparency and reliability of investment and transactability”. While this allows it to be in the public domain that the government has failed to invest this £200m, will Macquarie’s future activities be so transparent?
Little confidence Macquarie will continue the green mission
Green party co-leader Jonathan Bartley expressed doubts about the deal, calling it “disastrous news for everyone who cares about the future of renewable energy” and criticised the government for “flogging off our future security to the highest bidder”.
And Vince Cable, the Liberal Democrat leader who founded the bank when he was business secretary in David Cameron’s Conservative-led coalition government, called the deal “a sad day for environment and green investment in the UK”, saying that he had “little confidence that new private owners have a green mission”.
A body of five independent trustees, known as the Green Purposes Company Trustees, has been established to ensure all of the new company’s investments are aligned with its green purpose. They hold a “special share” held by the Green Purposes Company Limited and have the power to approve or reject any proposed changes to GIG’s green purposes in the future.
They are: James Curran, former chief executive of the Scottish Environment Protection Agency and a current non-executive member of the Scottish Government’s Climate Change Delivery Board; Trevor Hutchings, director of advocacy at WWF; Tushita Ranchan, board member of London Array offshore wind farm; Lord Teverson, chair of the Lords’ EU select committee on energy and environment; and Peter Young, former chair of the Aldersgate Group.
It will be up to them to hold Macquarie to account. The question is, will they be able to exert the necessary leverage?