By Claire West

The UK could lose out on hundreds of billions of pounds of vital investment in green energy projects if the Government waters down its plans for a Green Investment Bank, MPs warn in a new report.

Chair of the Environmental Audit Committee, Joan Walley MP, said:

"If the Government is serious about being the 'greenest ever', the Chancellor must ensure the Green Investment Bank can do what it says on the tin and raise extra capital like a real bank.

The UK desperately needs a game-changing injection of private sector investment if we are going to meet our climate change targets and move to a green economy.

Setting up a Green Investment Bank without the power to borrow would be a bit like trying to buy a house without first getting a mortgage offer. George Osborne has got the deposit, but if he doesn’t allow the Bank to raise extra capital, the sums are going to fall far short of what is needed."

The Coalition Agreement promised to establish a Green Investment Bank and the Chancellor pledged £1 billion to capitalise it in the Spending Review, plus unspecified proceeds from the sale of government assets. But there have been reports of disagreement within Government as to whether it should be a fully fledged investment ‘bank’ able to borrow money and raise further capital or simply a 'fund'. If the Office for National Statistics (ONS) classifies the Bank as ‘public sector’ its borrowing could appear on the Government’s balance sheet and so undermine its deficit reduction strategy.

Evidence presented to the Environmental Audit Committee by energy companies, NGOs and financial institutions suggests that between £200 billion and £1 trillion of private sector investment is needed over the next 10-20 years if the UK is to meet its climate change and renewable energy targets. Accountants Ernst and Young told the inquiry, however, that traditional sources of private sector capital are only likely deliver £50-£80 billion of investment in green infrastructure by 2025 — leaving the UK with a massive investment shortfall.

The report argues that establishing a proper Investment Bank is crucial in order to lever in the unprecedented levels of private sector investment needed. The MPs recognise the concerns about the Bank’s potential impact on the deficit and urge the Government to start talking immediately with the ONS about maximising the Bank’s impact on investment levels whilst minimising its impact on the deficit.

The Committee considers what the Bank’s priorities should be and concludes that it should concentrate on new fledgling environmental investment where the market has yet to be established.

Chair of the Committee, Joan Walley MP, said:

"New nuclear power stations that would be built anyway should not be bankrolled by the Green Investment Bank. It should be used to support fledgling green technologies that are struggling to get off the ground.

Many new clean energy projects are viable, but can’t find funding because their novelty deems them risky in the eyes of banks and investors.

A fully fledged Green Investment Bank would be able to kick-start green growth in the UK by offering government backed 'green bonds' that would attract big investors.

It could also have a role in financing the Green Deal home energy efficiency scheme.

The Government needs to clarify whether Green Investment Bank support for new nuclear would constitute a subsidy."