Q&A with the Green Investment Bank

In February, the Green Investment Bank launched a new loan product to help local authorities make the switch to low energy street lighting. GIB is working with Glasgow City Council – the first council to take up the loan, supporting the City in its plans to convert its 70,000 streetlights to low energy. Room151 caught up with Gregor Paterson-Jones to find out more about the loan.

Room151: Why LED street lighting?

Gregor Paterson-Jones: What we wanted to do is introduce appropriate products to help energy efficiency projects. Street lighting was one of the easier things to do. There is market failure in this sector – the technology is mature but penetration into the market is less than 10 per cent.

R151: Why would councils approach you for a loan rather than the PWLB or other sources?

GPJ:  Before we launched our product, we examined the offer from the PWLB. We started from the point that if LED lighting is economic and makes sense then why isn’t it happening more quickly? If the default lending is through PWLB then what are the disadvantages and how do we make it more competitive? We found that with PWLB you have to borrow an amount up front and deploy it over time, meaning interest costs start from day one. We developed a product that means that you can draw down money as you need it, and only start repaying when the project begins. In addition, you can fix the rate of repayments to match the energy savings which result from the new lighting.

R151: What rates do you lend at?

GPJ:  I cannot give you an exact figure – the rate will vary from project to project, and we take the price in relation to the price of gilts. We have to lend on a commercial basis, but we can lend on a very long-term basis, which commercial banks are unwilling to do at the moment. That is where we can add value. It allows us to have a thin margin but offer sufficiently attractive rates. These rates are fixed.

R151: What do you require from the councils you lend to?

GPJ:  In order for us to lend to an authority it must have good credit and no financial problems. Their proposed scheme has to use LED lighting, and there must be a robust business case to prove value for money. We will lend £3 million as the minimum loan – we don’t want to do lots of small pilot schemes.

R151: What are the advantages of the product over PFI?

GPJ: Because this is tried and trusted technology, manufacturerss can guarantee the performance of the lighting for a long time. This means that council is taking less risk, which can help bring the price down. But the product could also be used as part of an existing PFI. You need an agreement with the contractor to vary the terms of the PFI.

R151: Can the loan be extended to other services?

GPJ:  Where there is a proven energy saving and where the local authority wants to borrow on a fixed rate it can be extended to other areas. The advantage with street lighting is that there are long manufacturing guarantees, and other areas might not. These would be more complicated deals. We can’t fund solar panels because there is not deemed to be any market failure in that market.

R151: Are any other loans in the pipeline?

We are discussions with 15 to 25 councils. There are about three in the running for the next one, which we hope to announce within three or four months. Working with councils can be slow going because there are so many layers of approval needed.