The world’s leading low carbon big city….. London Green Fund Supporting Green Infrastructure in London 23-24 June 2011 Regions for Economic Change, Brussels Alex Conway European Programmes Director alex.conway@london.gov.uk Cities are engines of growth, job and wealth creation…. London is a dynamic, exciting city, a hub for business, a magnet for tourists, a stage for international sporting and cultural events and home to a diverse population. Population over 7m 300 languages spoken We have regional Government, led by Mayor, Boris Johnson: best big city on earth 1 1

What is the London Green Fund? £100m Investment Fund - £50m ERDF. Equity or debt finance. Supports waste and energy efficiency projects. Supports reduction in CO2 and waste going to landfill. Insulation Building management technologies Cooling equipment Low carbon heating Joint European Support for Sustainable Investment in City Areas JESSICA – is an initiative developed by the European Commission and the European Investment Bank –in collaboration with the Council of Europe Development Bank (CEB). Under new procedures, Member States can use some of their Structural Funds, to make repayable investments in projects forming part of an integrated plan for sustainable urban development. EIB involvement in JESSICA is threefold: advising and assisting national, regional and local authorities in implementing JESSICA promoting the use of Urban Development Funds and best practice across Europe acting as a Holding Fund, when requested by Member States or Managing Authorities When we negotiated our Operational Programme with European Commission colleagues, we had ‘exchange of views’ as to the extent to which London’s European programme should include a capital funding component. We wanted one, but EC colleagues needed to be convinced. Of course, we reached a compromise. We agreed up to 40% of our funding might be capital subject to the outcome of an evaluation sponsored by the European Investment Bank and EC as to the applicability of JESSICA in London.

London Green Fund: Place in Finance landscape Increasing commercial viability London Green Fund Grant Commercial High risk, with little market demand evidence or funding security Returns are ‘non-financial’ Outputs essential to economic development policy Lack of alternative funders Fluid risk profile and little or no robust market demand evidence Requirement for long term debt and equity, or additional funding security or guarantees are required Returns are longer term or do not match commercial needs Clear and understandable risk profile Strong rationale for commercial funding to be made available Normal levels of commercial return that commensurate with risk of project Evaluation by Deloitte suggested the following….. . Entire region is urban area, geographic eligibility issues do not arise; Mayor’s London Plan and sub-plans meets requirement for an ‘integrated plan for sustainable urban development’; JESSICA meets Mayor’s objectives on tackling climate change, Funds can be recycled and returns generated reinvested in any urban regeneration project; Promotes closer working with European Investment Bank; Exciting opportunity to do something genuinely innovative with ERDF; Let’s call it ….the London Green Fund!

Setting Up London Green Fund - money Sept 2008 Evaluation Investment Board Dec 2008 EC Agree In kind EIB LDA €54m ERDF €20m London Waste and Recycling Board €109m Land & cash Oct 2009 Holding Fund Launch Land €35m Match funding Apr 2010 Procurement Commences Click 1: So this is how things work Clicks 2-6: Need to set up a holding fund -or will lose n+2 money. So the LDA has European money to place in the holding fund – but what about match? The LDA is ‘land-rich’ – owning a lot of land in the Thames Gateway. But ‘cash poor’ – recent Governments have slashed funding for Regional Development Agencies – which are now being abolished. In discussions with the EC, we saw a potential solution – what if we placed land into the holding fund? This land could then either form part of a contribution to a project built on that land. Or it could be swapped for cash – by the LDA or a partner. In order to use this land and comply with EC rules, we had it independently valued. We then placed a legal ‘restriction’ on the land which meant it could not be used for any purpose without the permission of the EIB. This gave the EIB the comfort they needed. Clicks 7-8: We also found another investor – and one who had some cash. The London Waste and Recycling Board was established by the GLA Act 2007 to promote and encourage the production of less waste, an increase in the proportion of waste that is re-used or recycled and the use of methods of collection, treatment and disposal of waste which are more beneficial to the environment in London. LWARB has a fund made up of money from central Government and the London Development Agency to achieve these objectives. Click 9 – so now we could set up our holding fund, and we did this a year ago. I should explain that our negotiations with the EIB over setting up of the holding fund were protracted. We had to agree who had liability. We had to agree potential exit strategies. We had to agree how much the EIB were getting paid. But we were able to resolve these differences amicably in the end. . Click 14 – With the holding fund set up, we needed an Investment Board, which is now overseeing all activity. My team acts as the Secretariat. Membership includes LDA, LWaRB, Mayoral Advisor for Environment and other stakeholders. Chair is an LDA Board member – also a City venture fund capitalist, very knowledgeable, a big asset. Mar 2011 Waste UDF Launch Jun 2011 Energy Efficiency UDF Launch

Setting Up London Green Fund – go! Sept 2008 Evaluation Investment Board Dec 2008 EC Agree ‘In-kind’ EIB LDA €109m London Waste and Recycling Board €35m cash Land & cash Oct 2009 Holding Fund Launch €70m €39m Private Investors Apr 2010 Procurement Commences Energy Efficiency UDF Waste UDF Click 10 – and very quickly, we were able to act on our commitment to find the necessary funding. Oddly enough, it is the LDA’s forthcoming abolition that has helped. It means that the LDA’s remaining resources have been very severely squeezed. The LDA Board took the decision that the best thing to do with the funds remaining in relation to green programmes was to double them – via the Green Fund, and thus in the last year, two further payments were made to the value of the land placed in the fund, and the land was swapped for cash. Click 11-12 So we are now procuring two urban development fund managers to manage these cash-matched funds and find projects. Taking advantage of EC rule changes that allow for greater use of EU funds to support energy efficiency measures – for example in respect of social housing. The first UDF has been procured, and we have a preferred bidder for the second. Click 13 – and those UDFs will invest in projects. Energy Performance Contracting approach: The public sector building owner identifies a portfolio of buildings they would like to retrofit, sets a target percentage energy savings and a payback period An Energy service companies (ESCOs) carry out the works and guarantee the resulting energy savings This guarantees the payback of the initial investment with the delivery risk transferred to the ESCO. Hence this is a cost neutral means to reduce energy bills and carbon footprint of buildings Challenges: Attracting sufficient private sector funding Investing entire funding in good projects by December 2015 Large-scale infrastructure projects require huge upfront investment Identifying financial commercially attractive projects to deliver environmental targets Will public-sector seed funding catalyse the market? Mar 2011 Waste UDF Launch PPP/Urban Projects Jun 2011 Energy Efficiency UDF Launch