The Scottish Low Carbon Investment Conference

Ed Wilson, Head of Renewables for Lloyds Banking group, is leading a session on how sufficient capital can flow into major renewable and low-carbon projects.

Q: Where will large-scale capital investment for big renewables and low-carbon projects come from? How can we open up the capital markets?

A: Given the scale of the required investment programme and the risk profile I would expect the funds to come from three key sources; the balance sheets of the major utilities, multi-lateral agencies such as the European Investment Bank and KfW (the German government-owned development bank) and thirdly those banks, such as Lloyds, that have the capability and skills to assess the risks and provide the necessary structuring expertise. There are those advocating the bond market, but in my view we are some way from utilising this long term funding source given the need for an investment grade rating and the relative lack of flexibility.

Q: What sort of targets are achievable in terms of the amount of money being invested in the low-carbon economy in Scotland over the next 20-30 years?

A: Financial targets may not be appropriate as finance will be available for those projects that are well-structured and manage the technology, grid and market risks. The challenge is for the supply chain and developers to innovate and create solutions to problems that everyone is well aware of.

Q: How can we ensure that there is no huge imbalance between capital supply and capital demand?

A: We have to recognise that there is a requirement for both public and private sources of capital/expertise to meet the challenge of the low carbon economy. The market will respond and provide capital if high-quality projects are brought forward. This requires the government to work with the supply chain to develop the technology and projects to the necessary quality. Finance will follow good projects and not the other way round.

Q: What sort of expertise exists in Scotland to answer the sort of large-scale financing challenges presented by the low-carbon economy?

A: Scotland not only has enormous wind and marine resource, it also has the basic skillsets whether provided by banks, the utilities, technology providers and the legal and financial community. Scotland should look at what it has before seeking skills from elsewhere. The Lloyds Banking Group has financed enough renewable generation to supply over three million homes globally and is currently providing finance to the next round of offshore wind farms. We have the expertise and understand the risks involved in the renewables sector, and this puts us in a very strong position from which to grow from.

Q: How can big players in the financial market be persuaded that the low-carbon economy is the right place to invest?

A: The stage has changed over the past ten years. Historically LBG was one of a handful of financial institutions that invested in the market, as renewables and low carbon technologies were not seen as mainstream. We were classified as “tree huggers”. Now, however, as the financing need has grown and transaction sizes are in the hundreds of million as opposed to £10-20 million size, we have been joined my many other large financial institutions from around the world and investment is now considered to be mainstream. With the growth of offshore wind, we would expect to see a number of other large investors join the market.