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1st April, 2014, UK Energy System in Transition: Technology, Infrastructure and Investment

Edinburgh Centre for Carbon Innovation

Green Finance and Green Jobs

Will BlythOxford Energy Associates

Green Finance

� What is the size of the ‘investment gap’?

� Low-cost sources of finance, and prospects for scaling these up

� New sources of finance

� Policy options

Based on:

“Financing the UK Power Sector: Is the Money Available?”

W. Blyth, R. McCarthy, R. Gross

Working Paper, UKERC Uncertainties Project.

£m

‘Investment Gap’ Annual Build Rate MW

Historical 2020 2025 2030

10000

8000

6000

4000

2000

0

2009-2012 Average:

4100 MW

3400 MW

4700 MW

5800 MW

£m

Annual UK CAPEX £m

Historical 2020 2025 2030

25000

20000

15000

10000

5000

0

2009-2012 Average:

£ 4600 m

£ 6100m £ 8000m£ 12300m

Low-cost finance:Two Major Investment Routes

� Utilities:

85% 85% 85% 85% of the 16.5 GW of new capacity 2006-2012 in UK,

has been built by the major utility companies (BNEF, 2012)

� Financing of renewables:

Source: (UNEP, 2012) with data from BNEF

Project Finance

Balance Sheet (mostly utilities)

Bonds / otherGlobal renewable energy

investment $bn

UK Offshore Wind – Equity Ownership

Source: (PWC, 2012)

0

2

4

6

8

10

12

14

2005 2007 2009 2011 2013 2015

CA

PE

X £

bil

lio

ns

EDF

EON

RWE Group

Iberdrola

SSE

Centrica

RWE Innogy

(renewables)Average

Average - excl EDF

‘Big 6’ CAPEX plans to 2015

Total for Europe

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274 345450

540691

812

1,111

3,984

1,899

1,155

€0

€500

€1,000

€1,500

€2,000

€2,500

€3,000

€3,500

€4,000

€4,500

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Other

Renewable PE Fund

Hedge Fund

General PE Fund

General Infra Fund

Energy Infra Fund

Direct Long Term Investor

Dedicated Renewable

Infrastructure Fund

Direct Institutional Investment in low-carbon infrastructure

Source: (Hg Capital)

Total for Europe €m

Green Finance Conclusions

� History shows that finance can flow if investment conditions are right – puts the emphasis back on policy

� But large volumes of money (institutional investors) only available for relatively low-risk investments

� Current health of the utilities and business case for investment is therefore a worry

� Alternative routes for institutional finance to go directly into projects are being developed

� Back-of-the-envelope calculations suggest up to £1bn for UK renewables via this route??

Potential Solutions

� Overhaul the utility model• Allow them to make a profit• Dedicated wind utility• Re-regulate generation sector

� Ramp up project financing by accelerating the re-refinancing of projects

� Increased role of public finance institutions:• Guarantees• Public finance initiatives• GIB / EIB co-investment• Green bonds

Green Jobs

� What are green jobs, and how can we measure them?

� Macroeconomic perspectives and concepts

� Comparative analysis of job estimates from the literature

� Conclusions

Based on systematic review of literature:

“Low carbon jobs: the evidence for net job creation from

policy support for energy efficiency and renewable energy”

Draft TPA report

What are green jobs?

� Job types• Direct, indirect, induced

• Short vs. long-term

• Manufacturing, construction & installation, O&M

• Supply chain / wider economy

� Net vs. gross jobs (accounting boundary)• Equipment manf inside boundary?

• Displaced jobs in product markets

• Impacts on labour market

• Impacts on household expenditure

£MWh

Equipment

Labour

D

DI

DII

Calculating net jobs

Mostly Input-Output analysis, some direct job surveys, some CGE / other approaches

Macro-economic perspectives

� Is the economy in equilibrium?

� Is there an output (aggregate demand) gap?

� Role of fiscal and monetary stimulus

� Multipliers, interest rates and crowding out

� Business cycles, long-term growth and technology development

Evidence on Gross Jobs

Gross Jobs / annual GWh

Evidence on Net Jobs

Net Jobs / annual GWh

Short-Term Jobs (M,C&I)Comparing Fossil vs. Renewables

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

75 79 F9 F9 75 79 19 42 53 65 75 79 79 79 47 79 19 79 79 19 79

Gas Lig Coal Wind Hyd Bio Geo CSP LFG CCS PV

job

-ye

ars

pe

r M

W i

nst

all

ed

Range

Average

Green Jobs Conclusions

� On a simple ‘per MWh’ or ‘per £invested’ basis, renewables appear more labour intensive than fossil fuels. BUT:• The energy sector is not a major direct employer, so the effects

we see are relatively small • The ability to create jobs (in any sector) depends on having spare

capacity in the economy (i.e. recession). Timescales are important in determining the effects of policy.

• Taking account of price effects will reduce employment benefits if higher costs lead to reduced household spending. The source of the money is important – is stimulus money really additional?

� Do jobs lead or follow the economy?• In the long-term (beyond the current business cycle), labour-

intensity may not in itself be a good thing. Dynamic efficiency should drive decisions – i.e. will more RE/EE in the system make the economy more efficient in the long-run?