Commercial markets are constantly evolving in the waste sector, and the GIB’s managing director is keeping an eye on where its investment can help.
“It’s a bit sad to look at the City from here,” said Chris Holmes, fondly gazing through the 13th floor windows of Millbank Tower, where the Green Investment Bank (GIB) has its London offices. “If I took out some binoculars, I could probably see my ex-colleagues.”
The cutout view of London’s financial district looks like it is just a stone’s throw away. Among the shining towers, he pointed at the building of his former workplace, the Dutch bank NIBC, from which he left in November last year to take up the role of managing director, bioenergy and waste, at the GIB.
From his previous position as head of capital markets, infrastructure and renewables at NIBC, Holmes has brought a wealth of expertise in banking and advisory practices, team management, as well as knowledge of the waste industry: at NIBC he followed a number of transactions related to the sector.
Left behind are “some good memories and good colleagues” he said, and that has continued at the GIB so far: “I’m having a lot of fun - there is an emphasis here on enjoying what you do, and you can truly see it.”
His team is not only fun, he assured, but also blessed with a wide-ranging set of skills. There is also cross-fertilisation between the divisions that mark the bank’s priority areas of work: offshore wind, energy efficiency and waste management.
The GIB is happy to help people find the right path to get funding, but strives not to be an adviser: its aim is to help “investment opportunities to become investable”.
Despite not being as widely discussed in the public sphere as offshore wind, the waste sector is equally “glamorous”, especially for those working in it, Holmes insisted.
“It is very different, of course. Offshore wind [projects], for example, are much bigger deals and visually have more impact,” he said. “But in the waste and bioenergy team, we have a deeper pipeline of transactions across a broad range of subsectors. Some projects are quite glamorous. Some are quite small, and maybe not too interesting to the general public, but I think people in our sector really appreciate and recognise what we are doing.”
An increasing number of potential project developers have been approaching the bank and awareness on the GIB’s activity has improved.
“There is still is some misconception. We are not here to provide soft loans or grants - we are here to act on a commercial basis,” he said. “But this is becoming less and less a misunderstanding. Now it’s more like ‘how can the GIB play a role in my project?’
People are exploring the boundaries of what we can and what we cannot do.”
Not all the approaches to the bank are successful. Holmes said it was difficult to put a figure on how many applicants were rejected or, as he put it, “redirected” to other routes. But they fit into a few typical scenarios.
First, the GIB will only consider projects that require at least £30m in capital investment. For transactions smaller than that, the bank usually suggests approaching Foresight, a fund in which the bank owns the largest share.
The GIB might consider giving out loans to smaller projects if the developer has concrete plans to roll out a series of them. Applicants also need to bring to the table other potential investors. If they do not, the GIB can suggest some parties that could be interested in the deal, “but it is for them [the applicants] to start testing the market”.
The GIB can also advise those it believes have a successful technology but are missing a contractor to work with or a feedstock supplier: “We can make some introductions and point them in the right direction.”
Once relationships with other funders and partners are forged and the project gains momentum, developers can go back to the GIB and present a more solid proposition in which the bank might become involved in. Holmes said the GIB is happy to help people find the right path to get funding, but strives not to be an adviser: its aim is to help “investment opportunities to become investable”.
It is almost 18 months since its birth, and the GIB can now count seven direct investments in such “investable opportunities” in the waste and bioenergy sector (see table).
The largest and one of the first was a loan facility of up to £100m to support the Drax power station in switching to biomass from coal, announced in December 2012, shortly after the GIB was set up in November.
Then some £97m has been pledged to projects developed by waste management companies in collaboration with councils, such as Sita and the Merseyside Waste Disposal Authority and the West London Waste Authority; Shanks and Wakefield Council; and UBB Waste and Gloucestershire County Council. The projects involve the building of waste and recycling centres with attached energy-from-waste (EfW) plants and waste transfer stations.
The GIB has also invested £20m in the construction of a wood-fuelled combined heat and power (CHP) station in Londonderry, Northern Ireland, and £12m in a gasification plant in Birmingham.
The bank is now ready to expand the range of technology it supports, such as MRF projects. The GIB has so far only invested in MRFs that were part of larger developments, but would consider standalone plants in future.
“[At this stage] it is about educating ourselves about the opportunities, which are perhaps less forthcoming than the ones which we have found for example in energy recovery,” said Holmes. The interest in MRF is driven by a desire to follow the waste hierarchy, which prefers the sorting of materials for recycling over incineration. Even so, market forces are also playing a part.
“We see the market shifting towards more materials being recycled domestically rather than being exported to countries such as China. There is a growing demand for MRFs. If there are good opportunities to invest in recycling and reprocessing facilities, we want to be aware of them and be part of them.”
The GIB may be attuned to trends in the waste sector, but its success story has been tinged by a significant setback. In February, the bank announced it would invest £51m in a controversial EfW project at King’s Lynn, which collapsed shortly after. It was part of a 25-year contract between Norfolk County Council and Cory Wheelabrator, and was originally supported by £91m in PFI credits.
The project encountered strong opposition from local campaigners, Defra funding was withdrawn, and planning permission was put on hold pending a decision by community secretary Eric Pickles, which never came.
“Investors would need to bring a certain amount of sophistication and knowledge to the table to be able to finance waste projects.”
When the GIB stepped in with funding after the withdrawal of Lloyds Bank, one of the original backers, many took it as a sign that the project would proceed. But the council pulled the plug, saying that Pickles’ failure to rule had increased the financial risk to the authority to an unacceptable level.
“Clearly, it was a disappointment,” said Holmes, but he steered clear from any suggestion that investing in such a contentious project might have been a faux pas for the GIB. The bank does not engage with the democratic process and looks at projects “purely on a commercial basis.”
“We were presented with an investment opportunity, which met our investment criteria. For that reason we supported the project, knowing that there was still a process to be run, but a process in which we had no influence over.”
The saga of the King’s Lynn EfW possibly exemplifies the complexity and risky nature of waste projects. And while an increasing number of investors are looking at the sector, they are also aware of the difficulties of devising infrastructure deals.
Holmes said: “We are certainly seeing a lot of appetite in this sector. But investors are mindful of how difficult it is to finance waste projects and how different they are from other infrastructure projects. [Investors] would need to bring a certain amount of sophistication and knowledge to the table to be able to finance these projects.”
More investors coming to the waste scene is a positive development because the GIB aims not only to invest directly but also to act as a catalyst for more funding for green projects.
Source: Photo by Peter Saerle
For every transaction it makes, the bank indicates how much additional funding it has helped to mobilise. For example, the GIB committed £20m in the Merseyside waste project, while £315m was pledged by other debt providers such as Banco Bilbao Vizcaya Argentaria, Bank of Tokyo-Mitsubishi UFJ, Credit Agricole Corporate & Investment Bank, Mizuho Bank, Sumitomo Mitsui Banking and Unicredit Bank, London branch. Equity was raised from Sita, Sembcorp Utilities and Japan’s Itochu.
The bank is able to mobilise additional funding other than the £3.8bn capital it has received from the Government as part of its mandate. What it cannot do, however, is access the international debt capital markets, at least for now.
The ability to borrow is what would make the GIB a “fully-fledged bank”, according to chief executive Shaun Kingsbury in June, when business secretary Vince Cable announced that the bank would be able to borrow a limited amount of money from a Government fund in 2015. But some people, including shadow resource minister Barry Gardiner, have called for full borrowing powers to be granted earlier to widen the bank’s ability for support.
“Our priority now is to deploy our capital,” said Holmes. “If we do that well, we will see what happens further down the line.” He refused to speculate on when the bank will have the ability to borrow and how much negotiating powers it has over the decision; his main focus is a pipeline of deals to ensure the best use of its £3.8bn.
Holmes does not shy away from ambitious plans. His determination to deliver comes from resolution, evident in his professional and personal lives.
A keen sportsman, he trained since Christmas to run the London Marathon in April. It was his third, but the first two were a long time ago when he was “a young whippersnapper”. He wanted to go below three hours in the race, and the day after the event he told me: “I’m delighted and relieved to have achieved that with a time of 2.58.57.”
What makes a project attractive?
- Proven technology
- Strong contracting parties with a track record of success in delivering projects
- A credible feedstock supplier
“Those are the three areas we tend to focus on initially, we need to see a good story around them for us to be something we can be involved in.” - Holmes
Chris Holmes’ CV
Prior to joining the Green Investment Bank as managing director, waste and bioenergy, Chris was head of capital markets and UK origination and advisory within the infrastructure & renewables team at NIBC Bank.
Chris has over 16 years’ experience of lending, financial structuring and advising on infrastructure and renewable transactions across the UK and Benelux.
Prior to joining NIBC, Chris worked with Grant Thornton advising on PFI/PPP transactions.