The UK Green Investment Bank will continue to target small-scale hydropower, according to its latest Annual Report and Accounts 2014-15 published today.

This year, for the first time since the GIB was established, the Bank expanded its investment mandate into a new sector, community-scale renewables – largely hydro projects of less than 8 MW and onshore wind projects of less than 18 MW. During the year GIB launched two new sources of finance for the sector, £100m of new debt finance alongside global investment firm KKR and £50m of new equity finance alongside Strathclyde Pension Fund to supplement its own £150m funding. The funding is managed by Temporis Capital LLP and has a particular focus on providing long-term debt financing.

The sector experienced a loss of funding after an important lender to the sector withdrew from the market in 2013, creating a financing gap that GIB is now helping to address. Over the coming years GIB said it will continue to explore opportunities to support the sector through both debt and equity financing.

In February 2015 GIB made an investment of £50m, alongside Strathclyde Pension Fund in UK community-scale renewable energy projects, through Albion Community Power plc. This can provide unlevered equity funding for up to 30 projects generating c. 24 MW of new renewable energy, enough to power 17,500 homes. The particular focus will be on feed-in tariff brownfield wind and hydro projects. One of the first projects the GIB backed was a hydro project north of Loch Lomond.

GIB remains the most active investor in the UK’s green economy

The GIB remains the most active investor in the UK’s green economy, backing more green infrastructure projects than ever before, the report says.

The GIB said it has also laid the foundations needed for its future growth by turning profitable in the second half of the year, raising private capital and agreeing terms on its first international activity. While the UK will remain the GIB’s primary focus, the international pilot programme is described as “just the beginning of what will be a significant opportunity for GIB’s long-term expansion.”

Investing in UK green infrastructure was the Bank’s main priority throughout the year. In 2014–15 the GIB backed 22 new projects and committed £723m of capital, with 50% of the transactions that progressed invested in in its core renewable energy sectors (offshore wind and waste and bioenergy). GIB said the investment was critical in advancing projects with a total value of £2.5bn.

In total, by the end of 2014–15, GIB had committed £1.8bn to 46 projects and helped mobilise a total of £6.9bn for UK green infrastructure.

GIB said that every one of its investments has been made on fully commercial terms with returns in line with other private sector investors. These investments, taken together, project a weighted average debt and equity portfolio rate of return of c. 9%.  However, the vast majority of the investments have been in construction projects which do not fully generate income until they are built and operating – with many of the projects having construction periods of two years or more.

The Bank reached operating profitability in the second half of the financial year, making a modest profit before tax of £0.1m for the full year of 2014–15. As more of the existing projects become operational GIB is expecting its level of profitability to increase significantly.

Commenting in the report, Shaun Kingsbury GIB Chief Executive said:

“ I believe that GIB is in an excellent position to fulfil its mission of becoming a long-term, enduring institution. 2015–16 will be an important year in that process. By the end of the year I expect us to have had another year of strong capital commitment, a full year of clear profitability, our first experience of managing private capital and an expansion of our activity into new markets and geographies.”

Click here to download the GIB's Annual Report & Accounts 2014-15