Green plan for investment bank

Greens' Russel Norman proposes spending NZ$120 mln over three years to set up state-owned Green Investment Bank paid for with higher mining royalties

13th May 14, 11:38am by Bernard Hickey

By Bernard Hickey

A Green Government would spend NZ$120 million over three years to establish a state-owned Green Investment Bank to lend to and invest in renewable energy and clean technology projects.

Co-leader Russel Norman said the capital injection would be paid for with the revenues from lifting oil mining royalties to those levels charged internationally and the bank could have investments of NZ$1 billion by 2020 that acted as a catalyst for a further NZ$3 billion of private investment.

“Like Kiwibank before it, the Green Investment Bank will combine the best of the public and private sectors to accelerate New Zealand’s transition to a smarter, greener economy,” said Norman.

“The Bank will act as an independent and expert facilitator of private sector capital to secure billions of dollars of new investment into smart green innovation," he said.

“The Green Bank will act as a catalyst for investment in the green economy. It will be a central instrument in transitioning investment away from polluting industries and into the clean and profitable investments of tomorrow."

PricewaterhouseCoopers had estimated that clean technology sector could be worth between NZ$7.5 billion and NZ$22 billion to the New Zealand economy by 2015, Norman said.

“Considerable new investment opportunities lie in renewable energy plants, solar panel installations, energy efficiency retrofits, the development and production of significant volumes of biofuels, and new clean technologies. The Bank will mirror the success of green banks overseas. There are successful precedents throughout Europe, Japan, and the USA with two of the newest green banks started in the UK and Australia," Norman said.

Here is the full policy document.

Later in a news conference announcing the policy, Norman said a Green Investment Bank would be one of the priorities it included in any coalition negotiations.

An independent working group would be set up in the first year to recommend the size, shape and institutional form of the Green Investment Bank, including whether or not it was a registered bank or an investment fund.

The bank or fund itself would be set up in the second year with the bulk of the funding (NZ$100 million) being spent in the third year, Norman said.

The bank would not invest in the venture capital stage and would instead invest in projects at the latter stage of their development. It would be independent of government and partner with private sector lenders and investors to 'crowd in' capital rather than crowd it out.

It may issue its own bonds and would be a for-profit bank that reinvested its profits initially, although it may eventually pay dividends to the Government. It may both lend and invest in projects, he said.

Norman estimated the bank could have investments totalling NZ$1 billion by 2020 and attract a further NZ$3 billion in private sector funding for NZ$4 billion worth of clean technology investments.

He compared the bank to the Green Investment Bank set up in Britain by the David Cameron-led Conversative/Liberal Democrat coalition Government and the Clean Energy Finance Corporation set up by the previous Labor Government.

(Updated with more detail and video of Norman question to Finance Minister Bill English in Parliament on Green technlogy investment)

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23 Comments

by Henry_Tull | 13th May 14, 12:15pm 1399940138

like DFC, but greener..

On Tuesday Solid Energy strategy manager Bill Luff told Campbell Live that Biodiesel NZ was the worst mistake the company made in trying to diversify.

http://www.stuff.co.nz/business/industries/8422158/Solid-Energy-lost-more-than-60m-in-biofuels

"I think Biodiesel sticks out a mile: It's probably a business - the old adage - you don't go into businesses that are based on government subsidies."

Alarm bells over the cost of carbon and fuel that were ringing when Biodiesel NZ was bought never amounted to real changes in the market and the business always struggled, he said.

In five to 10 years the company "may make a lot of money for somebody", he said, but Solid Energy had got in much too early.

by steven | 13th May 14, 12:23pm 1399940595

biofuels dont work in a BAU scenario...so the only way to make biofuel work is a different economy.

regards

by Boatman | 13th May 14, 2:43pm 1399949018

God Defend New Zealand ...........from these idiots.

by Anarkist | 13th May 14, 6:09pm 1399961353

Sadly Biofuels NZ investment was the least of their poor decisions.

"In a 2008 briefing paper for the Minister for State-Owned Enterprises (SOEs), Solid Energy was described as one of the strongest performing SOEs and one of New Zealand’s largest exporters. In its current business plan, Solid Energy forecast profits of $170–$180 million over each of the next three years, with dividends of $100–$130 M per annum. The significant increase over past performance was due to strong international coal prices.^[83] The Board made a huge increase in its estimate of Solid Energy’s commercial value; from $475 M in 2007 to $2.954 bn in 2008.^[84]

Treasury advised a movement towards a greater private sector involvement in SOEs, while observing that partial listing would not be consistent with, “the Government’s policy to retain 100% ownership of SOEs.” This report also recommended putting pressure on SOEs to increase their gearing (ie, the ratio of debt to equity or capital) by borrowing more from the private sector and paying special dividends to the Crown. These higher debt levels would, “put increased pressure on SOEs to perform, by committing a fixed part of their future cash flow to debt servicing, meaning they must focus more on core business profitability, and on selecting new investment projects carefully.” At the same time, disquiet was expressed about the limited public monitoring of SOEs and the lack of transparency about the process.^[85]

During 2009 Solid Energy started a borrowing programme to finance its growth objectives. This course of action was encouraged by the government. On 26 May Simon Power, Minister for State Owned Enterprises, told Solid Energy, “I have been advised by officials that Solid Energy may have the capacity to sustain a 40% gearing ratio. I urge the Solid Energy Board to give serious consideration to this proposal, and to release all surplus capital to the shareholder as special dividends. I note that Solid Energy currently has a gearing target of 35%, including the company’s rehabilitation liability as if it were debt. Given that the nature of the rehabilitation liability is significantly different from debt, I am sceptical that this is an appropriate treatment . . . I would also like to . . . ensure that a larger and more consistent share of profits is returned to the Crown as shareholder. In this regard, I propose that the Solid Energy Board give serious consideration to adopting a dividend policy equal to 65% of operating cash flows.” Solid Energy was also brought to task about its failure to provide comprehensive and timely information about planned capital expenditure, performance targets and a commercial valuation of the company.^[88]"

http://www.sourcewatch.org/index.php/Solid_Energy#2005.E2.80.932008

Why isn't the National Party held to the same standard as Labour and the Greens?

by steven | 13th May 14, 12:54pm 1399942476

Not quite so simple, also bear in mind the sucking noise out of your wallet and into the SOE's coffers is determined by the Govn as the major shareholder.

So really vote for a change of Govn with a different thinking would achieve the same thing, way cheaper.

regards

by rastus1 | 13th May 14, 12:48pm 1399942126

Not averse to the idea, but some muddled thinking comeing through now. A levy to fund green stuff on one hand, but on the other, a policy to reduce power prices and hence up the demand for power on the other. If they really want to provide relief, stay out of price meddling and use some profits to susbsidise insulation and so on.

by steven | 13th May 14, 1:00pm 1399942804

I think its not a levy to fund, but a removal of tax credits on fossil fuels?

Maybe I need to go back and re-read.

In any event I dont think we have that choice.

regards

by David Chaston | 13th May 14, 1:39pm 1399945150

Tax "credits" on fossil fuels? All I see is extra taxes. Petrol is 42.7% tax

by steven | 13th May 14, 1:55pm 1399946150

Yeah maybe I mis-heard Norman's speech...I though he said it was funded from reducing the tax cradits the NZ Govn allowed...

by dtcarter | 13th May 14, 11:37pm 1399981028

From what i heard, it is to be funded by increasing oil royalties to the global average. (which he says wont impact local prices as all our oil is exported).

So it's about royalities, i.e. what private companies pay us, to extract and sell our natural resources, rather than tax credits. Apparently we charge below average at the moment.

by steven | 14th May 14, 6:26am 1400005560

Hi,

Yes, I found that bit eventually. I suppose its a bit of is the glass half empty or half full. Pretty sure I read it was about reducing the tax breaks, then yes it actually seems to be increasing royalties to the global average, which is probably too low as it is. Assuming corrupt pollies abroad take back handers to keep it that way....

regards

by dtcarter | 14th May 14, 2:19pm 1400033964

Who is going to pay for our monumental road building projects if not the poor petrol consumer? God knows the private sector won't pay the likes of Puhoi to Wellsford and Transmission Gully, the business case for those is appalling.

by steven | 13th May 14, 2:00pm 1399946409

The levy is against fossil fuels, while the reduce power prices is for electricity, so different.

If ppl need power to keep warm and cheaper power allows then to be warm, then yes you are correct, we will use more. However NZ's electrical power is mostly hydro and renewable.

That is on one level of course. Personally I think being Green and looking at social issues is quite mutually exclusive. ie jobs v eco systems...simple too many ppl.

regards

by Ralph | 13th May 14, 1:01pm 1399942867

A hidden tax to create a pet project, political football for investing in things that don't give a commercial return. How easy it is to waste other peoples money.

by steven | 13th May 14, 1:11pm 1399943482

Hmm, yes and no. If you only think in terms of short term efficiency and profit then yes maybe. If you also consider resilance and seed funding for alternatives before what we use (fossil fuels) becomes scacre and un-afforadble, and the impacts on our economy of that, then no.

regards

by Ralph | 13th May 14, 4:05pm 1399953925

An investment without a profit is a speculation.

Pretending it is "seeding" is a clever word game way to put lipstick on the pig.

by steven | 13th May 14, 4:59pm 1399957154

Uh no, ppl speculate to make a capital gain type profit. The difference between an investment and speculation is a bit of a fine line, but both should makes profits.

"lipstick on a pig" are you really so limited that you cannot see the impacts of peak oil? so want to ignore them thinking you are insulated? As Kunstler says the likes of Warren Buffet etc are more likely to get lynched or dragged behind their limo if things get rough....same could be said for our Pollies. Why do you think the Greek Parliment wanted to make sure of their escape exit from Parliment?

Now I'll grant you I have concerns that what we will see will indeed be not ideal....but really to do nothing is inviting a rate of change we cannot cope with...

regards

by Anarkist | 13th May 14, 5:55pm 1399960546

Ralph, so how much profit did the State Owned Energy Infrastructure generate until its capital costs were paid off? How much revenue does Xero make? Or Facebook for that matter? Both of which have miniscule capital costs in comparison? Why apply a different metric to renewable energy companies than the rest of the new technology sectorr?

The clean tech sector doesn't have the U.S. military providing a slush fund that fuels venture capital in Silicon Valley. At least with a Green Bank, it would be independent and there would be no arguments about Ministerial interference in the operations of the bank. We have a Reserve BAnk acting as a backstop for the private banking industry who create the vast majority of money in our economy, which is underpinned primarily by real estate. So why not a Green Bank investing in an emerging commercial sector which is currently underserved by the financial community's bias toward real estate due to favorable international banking regulations and tax policy?

by Ralph | 14th May 14, 2:39pm 1400035186

I think any political pet project (bank or other) will be anything but independent.

I apply the standard equally across all industries. An "investment" that can't make money except by capital return alone is a speculative activity in my book. If the speculation doesn't pan out it could even be classified as a charity.

by dtcarter | 14th May 14, 2:43pm 1400035409

Do you regard Kiwibank as independant of political influence? It was a Pet political project for Jim Anderton.

by Ralph | 14th May 14, 4:51pm 1400043072

Good question.

Fundamentally it owes its existence to political agendas rather than commercial realities and will therefore always be at risk to politics in a way purely commercial enterprises are not.

Being one step removed (under NZ Post) and having its main benefactor retired some what mitigate near term interference but politics is like weather and changes at short notice.

So I think I have to suggest that children of politics can never escape their ancestry unless evicted from the family (privatised).

by notaneconomist | 13th May 14, 2:15pm 1399947321

Wannabe entrepreneurs who don't take any personal risk or liability creating new ways of implementing their concepts.........

How about the Greens put the extra money they plan on taking into lowering Government debt !!!

by Boatman | 13th May 14, 2:41pm 1399948868

The Greens are moving into the Lunatic fringe . Thank God they dont run this place .

Firstly , if green projects are vialbe , why not let the market do what it will ?

Just how much mining royalties do we earn , and dont these funds already prop up the budget ?

Mining is NOT the backbone of our economy , so if you increase the Royalty take from the already aeneamic Mining sector you risk viability issues and , someone is going to lose out , likely the shareholders , and these include NZ Super and Aussie pensioners for example .

Then to compare us with the UK which by the way has around 60 million people , and a massive economy compared with us, is delusional .

The Greens are either dreamers or delusional .

I dont what Doctor Norman is a Doctor of , but it sure isn't economics

We dont have enough plants such as maize to generate biofuel and we sure dont have enough used cooking oil from McDonalds to make diesel

If the "much touted , but vague on specfics" so called green projects were even remotely economically vialbe dont you think that the seriuosly wealthy countries in the OECD with huge research budgets and tax breaks for development , would have been onto them ?