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Government seeking to acquire smart energy finance vehicle

Image credit: By NASA - https://www.flickr.com/photos/nasa2explore/24188011886/, Public Domain, https://commons.wikimedia.org/w/index.php?curid=46450247

The UK government is in talks to take over a £700m investment fund that gives public bodies interest free-loans to cover the cost of energy-saving technologies, such as smart city tech projects that deploy LED lighting.

The Department for Business, Energy and Industrial Strategy (BEIS), entered talks with the fund, Salix Finance Limited, to which it supplies the majority of its funding - and the entirety of which is public money - early in the summer, as parliament slated its earlier reform of another public investment fund, the £12bn Green Investment Bank, which it sold off last year. And while the Department has refused to state its purpose, it opened negotiations over Salix’s future as it started implementing recommendations of its Green Finance Task Force, to make private finance a bigger part of its efforts to transform the national infrastructure to use energy efficient technologies, to cut carbon emissions and meet its legal commitments to reduce global warming.

Annie Sheppard OBE, CEO of Salix, told E&T it had entered talks with the secretary of state for BEIS, Greg Clark MP, the fact of which had been buried at the bottom of financial accounts it published on 25 July with no more explanation than that they concerned its ownership.

“We are in discussions with government about the future of the company and its ownership,” Sheppard told E&T. “I am not allowed to disclose what the secretary of state’s purpose might be.

But she said: “The secretary of state is looking to see if the current board of Salix would consent to the secretary of state taking ownership of Salix as a company. Why the secretary of state would wish to do that is really something you should be putting to BEIS, and the Scottish parliament and the Welsh parliament.”

The reason was “absolutely confidential”, she said. But she added that she did not believe it would lead to Salix becoming a profit-led body.

Salix, a company limited by guarantee that is therefore required to reinvest any profit it makes back into the business, said in its accounts in July, “Management are currently in discussions with BEIS and the Scottish and Welsh governments concerning the ownership of the company. It is not anticipated that this will have any impact on the day-to-day operations of the company”. Negotiations had started after the close of its financial year on 31 March, it said.

Salix had committed £692.1m of funding for public bodies to invest in green transformation projects since it was founded by the last Labour government in 2004, according to its financial statement, and had paid about £0.5bn of funds put up by BEIS, and the Scottish and Welsh governments. Its projects, with such bodies as local councils, school and hospitals, were making annual energy savings worth £160m-a-year, and annual CO2 reductions of 0.8m tonnes.

The fact that its loans were interest-free were the key to Salix’s success, the current government said in a review of its investments through the fund, on 31 July. But so was the fact that it was wholly-funded with public money. Public bodies were wary of private financiers. And they didn’t want the savings they made with their energy-efficiency investments to be split, to become profit for privateers.

The Green Investment Bank (GIB), which raised about 10 per cent on loans it made with joint-public-private funding, meanwhile struggled to make investments in energy efficiency projects, said Meg Hillier, chair of the public accounts committee, in May.

BEIS sold off GIB last year to cut public debt because it could not longer afford to fund it, the National Audit Office wrote in a report about the sale last December. The government had set it up to persuade private financiers to put money into green projects, “to correct a market failure”. It attracted £2.5 of private money for every pound of public money it put up.

The idea that there is a lack of funds to make green investment has led calls for government schemes to draw more upon private finance. BEIS’ Green Task Force, like the NAO and BEIS itself, made statements about huge sums of money the country needed to invest in green technology, in order to meet international commitments to address the planet’s man-made climate crisis.

BEIS had estimated in 2011 that it would need to invest £30bn a year, and up to £50bn a year by 2020, according to an unpublished report the NAO cited in December. It was not clear whether it was short. But its task force report said local authorities had £30bn of green projects “stuck in the valley of death” for want of capital funding to get them started. It cited a 2014 report that the world would need to invest $90tn in green schemes between 2015 and 2030 to solve its climate problem.

The task force’s solution, for the government to team up with financiers in the City of London to build a public-private investment scheme, would be an opportunity as well, for the UK to get some of that huge global market in green finance. UK should “seize the chance” its financial centre offered, it said, to address “a problem faced by  governments across the globe, which was “connecting sufficient capital to sustainable infrastructure projects”.

“A more active partnership between the public and private sector is needed to .. mobilise private sector investors to invest in green infrastructure,” it said.

BEIS review of Salix, which it now calls the Public Sector Energy Efficiency Loan Scheme, said any lack of take-up of its fund from local authorities was attributed to a lack of awareness, and that one of the reasons for its success was that it had been established long enough for it to become well known.

A spokesman for BEIS said it had “no firm plans” for the future of Salix and it would not comment further on the negotiations.

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