The Budget has set out a £3bn investment to support the expansion of green energy in the UK.
A minimum price for carbon and more cash for the Green Investment Bank (GIB) are among the announcements made by the Chancellor George Osborne, to encourage UK green energy growth.

GREEN INVESTMENT BANK

The Budget has allocated £3bn for the Green Investment Bank (GIB) which is a rise from the £1bn figure that was proposed last year. However the bank will only be able to borrow money from 2015, in a move which is expected to receive criticism from the renewables industry. The GIB will allow investors to raise money for clean energy projects that commercial lenders would be reluctant to fund and therefore should act as an enormous boost to the industry.

In addition the introduction of a price floor for carbon could support companies' transition to green technologies. The Treasury will delay tax increases on petrol and air travel, and a 'fair fuel stabiliser' will balance taxes between oil firms and drivers together with a 1p cut in fuel duty to a stabilise the fluctuating price of petrol.

The £3bn initial figure for capital is considerably higher than outlined by the chancellor last year, and was indicated by UK Energy Secretary, Chris Huhne, the day before the budget was announced.

The bank will begin operating next year, and the chancellor said private capital plus government injections should boost capitalisation to £18bn over the lifetime of this parliament. However original estimates calculated by the commission that set out parameters for the GIB last June suggested a £550bn investment could be needed over the decade to 2020 in order to meet targets on climate change, energy efficiency and renewables.

Some analysts fear the bank will not be able to do its job if it is tied to the Treasury until 2015. Ed Matthew, director of Transform UK, the business alliance behind the campaign for a GIB told the BBC: 'Delaying [the power to borrow] until the economy has recovered is like a doctor waiting for a seriously ill patient to recover before giving him life-saving medicine.'

James Cameron, vice-chairman of Climate Change Capital, said: 'The Budget is a pivotal moment in the evolution of the Green Investment Bank concept into a real and enduring institution. The Coalition is creating something that can make a positive difference to the entrepreneurial enterprises we need to deliver sustainable growth and the green transformation of our economy.'

Institution of Civil Engineers, director general, Tom Foulkes said: 'The increase in the GIB’s start up fund and the commitment to an earlier launch are welcome. But despite these positive steps, the fact still remains that a GIB without the powers to borrow until 2015 at the earliest, will struggle to generate the scale of investment required and could reinforce a negative impression about the UK’s approach to infrastructure development.'

He continued: 'To succeed in attracting large volumes of private investment into infrastructure in the long term, we must instil confidence and certainty. It is vital therefore that over the coming years, Government demonstrates continued commitment to the principle of a bank, not a fund.'

Andrew Raingold, executive director of the Aldersgate Group, is also cautiously optimistic, he said: 'Public banks are driving the economic recovery around the world. This is leading to growth in jobs and not deficits. We welcome the additional finance for the Green Investment Bank but it must have the power to borrow from day one. This would put the bank at the heart of Chancellor's plan for growth and not wait until the UK is overtaken in key green industries by competitors.'

CARBON PRICE FLOOR

The UK is also to become the first country in the world to introduce a carbon price floor for the power sector, and will now support the price for the electricity generation sector. It will be set at £16 per tonne from 2013, rising to £30 per tonne by 2020.

The move will be gladly received, say energy experts at KPMG, Andy Cox, energy partner, commented: 'The private sector which is being asked to fully fund billions of investment to get new nuclear built and set the UK firmly on the road to low carbon energy generation will be pleased with today’s announcement. However, the delivery of these massive projects requires certainty and the industry will want to have a clear understanding of how the step up to £30 per ton by 2020 is made when committing major capital investment. Moreover, any substantive changes required by the safety review could well destabilise the precarious balance.'

Mr Cox added: 'Beyond nuclear, the carbon price floor also has an impact on other forms of energy generation. This announcement certainly feels weighted towards building new nuclear and will put upward pressure on prices. In coal, for example, our analysis shows that at a carbon price floor above £25, coal starts to look difficult. Of course the knock on impact of this policy change on investment into other technologies - such as offshore wind – remains unclear and will be better understood once the conclusions of the wider energy market reform are announced later this year.'