The Scottish Low Carbon Investment Conference

Susan Rice, Managing Director of Lloyds Banking Group in Scotland and Paul Brewer, a partner with PWC, will lead the keynote leadership session Financing The Low-Carbon Economy on day one of the conference.

Q: Why is this conference so significant to Scotland and its economic future?

SR: This aims to be a transformational conference, for the low carbon economy and for Scotland’s economy. The First Minister has drawn a parallel to a conference that was held in the early 1970s which spearheaded the development of the oil and gas industry here. We want to achieve the same for renewable energy in Scotland with the SLCIC.  

Q: Why is Scotland so well-placed to host an event like this? 

SR: Scotland has a unique set of attributes which makes it the right place to host this international conference. It’s not simply that we have an abundance of natural resources, other countries do as well. It’s much more about the expertise and infrastructure that exists here – from our strong education platform to our engineering capability and well-developed supply chain, much of it built up around the oil and gas industry.

Added to that, there is political and civic will – manifested, in part, through our carbon reduction targets and the 2020 Climate Group http://www.2020climategroup.org.uk/ We also have two important energy firms based here, both with a significant focus on renewables. Scotland has the credibility in the energy and renewables sphere to host this conference, just as we have the potential to be a leader in this sphere if we can pull all these elements together.

Q: Why is the opening session so important and what do you hope to achieve?

SR: We hope that this session on financing the low carbon economy will set the context and tone, and indeed the agenda, for the whole conference. As the opening thought leadership session, we’ll be positioning the financial challenges which other sessions and speakers might pick up and work through over the two day conference. We necessarily need to talk about the challenges which exist today. By bringing together a range of financiers and renewables experts, we hope to start to unravel the complex financial issues and start to prompt solutions.

Q: How important is a strategic approach to financing the low-carbon economy, taking into account Scotland but also the background and context of what is happening in the UK and Europe?

PB: A strategic approach is essential – both in ensuring the 2020 targets are delivered and in maximising the economic impact benefit to Scotland in realising its low carbon potential and contributing to developments in Europe and beyond. For example, securing large scale finance for offshore wind farm developments is a challenge, but until it is clear that the supply chain and port infrastructures to support this will be financed and delivered, the development finance challenge can’t be fully addressed.

Q: Is there a simple answer to financing the green economy?

PB: The simple answer is no…there are many facets to the green economy ranging from local renewable heat initiatives, to large-scale renewable generation technologies, to carbon capture and storage. Each has different financing needs and is at a different stage of maturity. For example, mainstream lenders are now willing to bear many of the risks involved in onshore wind projects but offshore wind has a long way to develop before many lenders will see the risks as similarly acceptable.

Q: How can we ensure that innovative companies get the money they need to develop renewable and low-carbon technologies? 

SR: We need to think differently rather than conventionally when it comes to financing low carbon projects. By nature they tend to be high risk, with long return. We need to work hard to create new financial solutions which will enable financing of early stage development and new technologies. These solutions might mean banks, investors, VC, patient capital or others combining to offer solutions. What is critical, though, is that investors understand this market.

PB: We’re setting out to bring new technologies to market very quickly by historical standards which may seem a risky call for equity investors, but equally the scope to achieve high returns from accelerated, large scale implementation of the successful technologies is potentially very attractive. Well-established industry partners will also have an important role to play in driving the pace of development and implementation.

Q: How will complex projects like huge offshore wind farms be financed?  What sort of sums do we need to invest in infrastructure and where might this money come from?

PB: The biggest challenge is in the period prior to successful operation of each major wind farm development. Currently offshore wind developments are regarded as too risky for debt until successful operation. The finance needed to fill the gap before debt is accessible is of the order of £10bn at any one time as development reaches its peak towards 2020. There will need to be a supportive and stable government and regulatory environment to encourage new sources of finance as developers will not be able to fill this gap themselves. In the short term, though, the focus is on developing and funding the supply chain that is needed to support successful development.

SR: There are so many factors that need to be considered in these sorts of developments – whether they are big or small. Advanced planning is critical – for an offshore wind farm, for example, issues such as wind wake effects, bathymetry results and shipping lanes need to be considered. The biggest challenge is consents and the time they take – we need to find a way of dealing with this time factor when we look at investments. We need to find a way to deploy finance that moves beyond the conventional approach that provides support throughout the whole development.

Q: Is it possible to ensure that financing follows the life cycle and evolution of large and complicated developments?

PB: Yes, as renewable generation developments mature, I would expect pension funds and financial institutions to view this market as an important source of long term stable, relatively low risk returns and participate on a large scale. We need these investors to enter the market as early as possible to free up the early stage risk capital for use in new developments.

Q: Can Scotland overcome these challenges and lead the way in finding answers?

SR: Of course we can, but so can others. By hosting this conference, Scotland is demonstrating its aspiration to be a leader in this sphere, capitalising on our unique attributes. But we need to follow that aspiration with definitive action and leadership. Scotland has done this before with the oil and gas industry, I have no doubt that we can do it again.