This seems a terrible idea. (source FT)
“Plans to use money from the sale of government assets to provide the riskiest of equity investment in green energy projects such as offshore wind and carbon capture have been shelved by the government.
The move comes amid signs of tension between Vince Cable at the business department and George Osborne at the Treasury over the scale of the coalition government’s planned green investment bank and its precise role.
Some £1bn ($1.5bn) of sales proceeds were to be used as “the riskiest of risk capital” to help attract a matching £1bn from the private sector by removing some of the biggest risks from green energy projects. The aim was to kick-start the further tens of billions of pounds of investment needed from the private sector..
…the idea might be revived when the government settles on plans for a green investment bank later in the year, although it seemed more likely the proceeds from asset sales – which the government still plans to follow through – would be used to pay down debt.”
These are exactly the sort of cuts we should not be making.
“These are exactly the sort of cuts we should not be making” – true, but Labour should be wary of attacking too soon. It may be that the green investment bank will eventually provide this sort of funding.
With 251 weeks still to go to a general election, Labour can afford to keep most of its powder dry for some time yet…
I disagree – these are exactly the sort of cuts we should be making.
However, the idea of selling off (for peanuts), our last few viable assets is a really bad one. In a depressed world economy it makes as much sense as selling off our gold reserves in the middle of a global boom.
But if they press ahead regardless, the proceeds would be better used to pay off the national debt, not frittered away on unquantified green vanity projects.
The clue is in the words ‘riskiest of risk capital’ – financial gambling is what got us into the current mess in the first place. I would hope our government does not follow the same tragic path.
Personally, I’m a huge sceptic of the concept of a Gov owned Investment Bank. What is it for? If it is to provide capital where the private sector won’t then I’m sure the outcome would be to at best make a non-commercial return or at worst lose its money. Ifprivate sector capital is available, there is no requirement for this type of bank.
The reason why projects don’t get financed is becuase they are not economically viable at a rate of return that the market judges appropriate. If the technology is too expensive relative to, for example, the price that the generator can sell the electricity on the market, then finance will not be available. The only way the Green IB can help this is by subsidy – either accepting a lower rate of return or guaranteeing part or all of the revenue stream (eg as happens in PFI) or by paying a grant.
If Gov really wants to help develop green investments, it needs to use the money to pay for tax breaks for manufacturers or reform the electricity market tariff system so as to make such investments commercially viable.
PagewithaView – there is a substantial difference betweeen what is proposed here and the types of assets that were behind some of the write-offs that emperilled the financial system. here we are talking private equity style growth capital (typically P/E houses would want a 15-20% return on capital for the types of Green project implied here). The issue with the financial crisis was large scale investment in seemingly safe instruments, AAA rated CDOs CLOs etc, that turned out to be worth substantially less.