Green Initiative Fund: establishment.

STATES OF JERSEY

GREEN INITIATIVE FUND: ESTABLISHMENT

Lodged au Greffe on 31st January 2013 by Deputy G.P. Southern of St. Helier

STATES GREFFE

2013   Price code: C  P.12

PROPOSITION

THE STATES are asked to decide whether they are of opinion

1. to request the Minister for Treasury and Resources to bring forward for  approval  no  later  than  September  2013  proposals  for  the establishment of a new special fund in accordance with the provisions of Article 3(3)(a) of the Public Finances (Jersey) Law 2005 to be known as the "Green Initiative Fund", with the Fund to be utilised, in consultation with the Ministers for Planning and Environment and Transport  and  Technical  Services,  to support  a  programme  of initiatives  to stimulate  the  economy  through  the  development  of environmentally  sustainable  projects,  some  of  which  would  be  in place by the first quarter of 2014, with these projects to include, but not be limited to –

Home Energy Saving;

Solar heating;

Power from the Sun (Photovoltaics); Ground and Air Source Heating; Wind Power;

Waste Water Recycling;

Biomass and Biofuel;

Wave and Tidal Power;

Combined Heat and Power (CHP); Sustainable Transport;

2. to request the Minister for Treasury and Resources to identify the most  appropriate  manner  to provide  an  initial  sum  of  up  to £30 million for the new Fund, with this funding being additional to the sums voted by the States in the Medium Term Financial Plan 2013 to 2015 and, in this regard, to request the Minister to consider, but not be limited to, the following options –

1. the transfer of interest from the Strategic Reserve Fund;
2. a bond issue;
3. borrowing by the States;

with the funds being credited initially to the consolidated fund and thereafter transferred to the new special fund to meet the requirements of the Public Finances (Jersey) Law 2005.

DEPUTY G.P. SOUTHERN OF ST. HELIER

Page - 2

P.12/2013

REPORT

This proposition has 2 main objectives –

1. to provide additional stimulus funding to kick-start the economy; and
2. to develop  sustainable  projects  to the  long-term  economic  and environmental benefit of the Island.

The Minister for Treasury and Resources has repeatedly highlighted the reality of the worsening economic situation –

"Since the publication of the FPP Annual Report on 1st October there has been  further  confirmation  of  the  fragile  economic  conditions  the  Panel portrayed  both  internationally  and  locally.  The  IMF  confirmed  in  their October 2012 World Economic Outlook what the FPP feared in that that the global recovery has suffered new setbacks in recent months and as a result global economic prospects this year and next have weakened."

"The IMF also states they may have been underestimating the size of fiscal multipliers – the extent to which changes in government spending or taxation feed through into overall changes in economic activity. Of particular interest for Jersey is that this means the positive impact of fiscal stimulus could be larger than previously thought. In particular, it means multipliers are likely to be larger in today's world of significant spare capacity in the economy, very  low  interest  rates  and  fiscal  action  across  many  countries.  This complements the IMF's previous work that suggested government spending multipliers tend to be larger than tax multipliers.

Together,  these  latest  findings  by  the  IMF  combined  with  the  latest information on the performance of the global and local economies tell us that in Jersey there is a real opportunity to maximise the impact of fiscal stimulus on  economic  activity  and  local  employment  at  a  time  when  it  is  most needed."

In considering the possibility of additional stimulus to the economy the fiscal policy panel (FPP) made the following recommendations –

"1.  The  Panel's  assessment  of  the  economic  outlook  for  the  Jersey

economy has been downgraded for 2012 and 2013 and there are indications that significant spare capacity will remain in the economy over this period. This leads the Panel to advise that the States should act now to give discretionary fiscal support to the economy in 2012 and 2013 and if practical to a greater extent than set out in the MTFP."

"3.  The extent of stimulus should not be limited by the balances on the

Consolidated  or  Stabilisation  Funds.  The  States  should  give consideration  as  to  the  best  way  to  fund  needed  stimulus  if  it  is constrained by the availability of funding from these sources, not least because any constraint would be one of cash flow and funds could be repaid from future revenue."

In response to these suggestions the Minister for Treasury and Resources clearly accepted that consideration could be given to borrowing to fund stimulus –

"If .. there are projects that can be brought forward but which do not have a funding source that is similarly flexible, then consideration will be given as to how they can be funded and if necessary whether external and internal borrowing may be appropriate."

There are, of course, several initiatives already under way but each is somewhat limited in scope.

Energy Efficiency Service (EES)

For example, the energy efficiency scheme (EES) has limited funding and has tight eligibility criteria. The following is taken from the States website –

"The  Energy  Efficiency  Service  (EES)  runs  2 grant  schemes:  the  Home Energy Scheme and the Community Buildings Programme. To qualify for a grant, you or your organisation must meet certain criteria. Once we confirm your eligibility, your property will be assessed to identify if any of the energy saving measures provided by the schemes are suitable for you. Depending on what work is appropriate the EES will arrange for works to take place through the grant funded process.

The following is available under both grant schemes:

• cavity wall insulation
• loft insulation
• draught proofing
• pipe work insulation
• heating system reviews (owner-occupiers only)
• low energy lighting

Other works will be confirmed on a case-by-case basis. Home Energy Scheme

This  scheme  is  currently  available  to  households  that  meet  any  of  the following criteria:

• households registered on Income Support
• individuals registered on the 65+ Health Plan (Westfield)
• individuals that received the Food Costs (GST) Bonus in 2010 or 2011
• anyone aged over 70 that currently holds less than £50,000 in savings if married/co-habiting or £30,000 savings if living alone."

Both private tenants and owner-occupiers are eligible for the scheme; however, States of Jersey Housing Department residents are not.

The  EES  was  allocated  an  initial  £1 million  budget  for  a  pilot  year  in  2009.  In addition, Jersey Electricity provided £0.5 million in seed funding. In 2010 the States introduced VED to generate revenue for environmental initiatives, including ongoing £1 million budget for EES. In the Eco-Active/EES report of January 2009 – January 2011  showed  a  total  spend  of  £1.6 million.  R.126/2011,  Department  of  the Environment: Report for 2010', highlights the benefits to the economy thus –

"As well as improving the lives of vulnerable people and making significant environmental and social improvements, the EES is contributing significantly to the local economy. It is now working with 15 approved local contractors, and their numerous subcontractors, to deliver energy efficiency improvement work, investing in the local economy through its support of the heating and plumbing, electrical, roofing, insulation, carpentry and surveying trades. As a direct result of the work that the EES has generated, we have observed the upskilling and diversification of local businesses which are now in a stronger position to provide energy efficiency services to Islanders; for example, we have seen two new entrants to the cavity wall insulation business locally."

The Report also points to the way ahead –

"The next step for the ECO-ACTIVE Energy Efficiency Service

Whilst it is clear that a grant scheme to improve energy efficiency should be applied to low income households as a first step, there is a point at which that sector  is  effectively  exhausted  with  a  smaller  maintenance  programme required to help those entering the scheme's eligibility criteria.

The wider economic benefits of the scheme to the local economy and perhaps most  importantly,  the  environmental  benefits  of  energy  efficiency improvements are still achieved if the scheme is extended to include the able- to-pay  sector.  This  is  an  important  step  as  it  is  acknowledged  that  non- investment in energy efficiency is a well known market failure. Entering this sector is the next challenge and will ultimately require the States of Jersey to approve the re-allocation of the majority of the original funding."

Unfortunately, this commitment to expanding the EES has come up against the CSR cuts. The reality is reductions in budget for EES of £54,000 in 2011 and £63,000 in 2013 (MTFP 2013 – 2015: Addendum).

Pathway 2050: An Energy Plan for Jersey

These  sentiments  have  been  crystallised  in  Pathway 2050,  currently  out  to consultation. The major target, to reduce emissions of Greenhouses gases (GHG) by 80% by 2050 is ambitious, but the investment allocated to achieve the targets is minimal. In the plan there are some 27 Action Statements. Here I examine Action Statements 3 and 4, 5 and 22, all of which could benefit from access to funding from the Green Initiative Fund.

Delivery mechanisms

There are a number of existing programmes or work-streams that have been identified as an initial set of delivery mechanisms for the interventions outlined.

These programmes have been created over time to target specific sectors and have well-developed stakeholder engagement and recognition. The programmes are already mature and will be further developed to deliver the interventions outlined in this document.

There is a need to ensure adequate resourcing for the immediate actions that have been identified; the actions identified for the first 5 years are within existing budget, so whilst there is not a requirement beyond the existing allocated funding outlined in the 2013 – 2015 Medium Term Financial Plan, there may be a need to re-profile and renew  commitment  to  use  the  allocated  resources  to  support  the  interventions  to achieve the targets as outlined.

In terms of reducing demand for energy, the domestic sector needs to be more widely targeted, especially pre-1997 housing (38,000 out of a total of 45,000 households).

Action Statement 3: Apply energy efficiency measures to the pre-1997 stock of properties

Properties built pre-1997 have the most potential to benefit from installing additional energy efficiency measures. Based on the findings of the EES Phase 1 report and Energy Saving Trust information, a range of measures that provide the most GHG savings for this category of housing have been identified.

To begin to deliver this action, the EES will develop a revised delivery mechanism and help to put in place the infrastructure that will assist in the take-up of these energy efficiency measures. One of the requirements is for an increased number of installers and energy auditors, in order to respond to the potential increased roll-out of these measures. Preliminary assessments have indicated that there is the potential to create up to 70 employment opportunities, sustained for the next 2 decades to undertake the energy audits and efficiency installations outlined.

Further  intervention  may  also  need  to  be  assessed,  including  the  requirement  to investigate a number of finance options for able-to-pay householders, including low- interest options, pay-as-you-save models, etc. A watching brief is being undertaken with regard to the U.K. Green Deal' policy; lessons from the Green Deal will be used to inform the future development of policy interventions in Jersey.

Action Statement 4: Implement micro-renewables in the domestic sector

Decentralised micro-generation involves generating small amounts of heat and power, normally from renewable sources, to meet individual and community needs. Specific technologies include: solar thermal; photovoltaic systems; ground and air source heat pumps; micro-wind; combined heat and power; biomass. Good quality, well-installed micro-generation systems will have numerous benefits that include –

• Lowering carbon emissions (if it is displacing higher carbon energy sources);
• Decreasing the environmental footprint of the displaced power;
• Diversifying the supply of energy;

• Increasing the overall local security of supply to some forms of potential interruption if sufficient volumes of generation are achieved;
• Adding value to a property by considerably reducing its running costs;
• Paying themselves back (over varying periods of time) as a result of avoided energy costs.

Proven technologies are available, and high-quality well-installed systems can deliver annual cost savings through avoided energy costs once the equipment is installed.

However, upfront capital costs are required, and financial incentives are offered in other jurisdictions (such as the U.K.) to provide consumers with a return (or an increased return) on this investment. In the long term we expect to see market-ready solutions that will deliver energy-autonomous housing, and communities that will contribute to the affordability and security of supply.

Under this Plan the Energy Efficiency Service will provide advice and information for householders  on  micro-renewables  options  to  assist  them  in  making  informed decisions as the costs of these technologies evolve. The EES will also work with industry stakeholders to raise awareness and to provide upskill training to ensure a skilled workforce is available to deliver integrated solutions to householders. Uptake of these technologies will provide an opportunity for this sector to diversify, and could create an estimated 26 employment opportunities, sustained over 20 years, either in existing or new start-up SMEs.

The JEC already has a buy-back scheme in place for micro-generation of renewable electricity (see attached Appendix).

Action Statement 5: Assisting the uptake of micro-generation

To inform the best approach to accelerating the installation of micro-renewables and the move towards energy-autonomous housing, a pilot project will be undertaken based on a community energy model. This could be incorporated as part of the Local Village Plans'. The pilot project as outlined in Action Statement 6 below will lead to the best model for ensuring that Action Statement 5 is effective. The pilot project will be  coordinated  by  the  Energy  Efficiency  Service,  working  with  the  Energy Partnership.

Action framework for offshore utility-scale renewables

The final action statement, involving the delivery of offshore utility-scale renewable sources  of  energy,  derives  from  the  States  Tidal  Power  Commission  report  of December 2008, Tidal Power for Jersey: Options and Opportunities. The Tidal Power Commission was reconstituted as the "Renewable Energy Commission" in 2011. The report of the Environmental Policy Director at that time focused on funding for such initiatives as follows –

1.  Financing options

"Financing any renewable energy project in the absence of governmental subsidy  remains  a  key  challenge  to  extract  the Islands  renewable  energy resources. The ongoing dialogue should be continued to ascertain whether Jersey might be eligible for financial incentives such as Feed-in-Tariffs from, most obviously, the European Continent, but also the UK. If Jersey is not eligible for such assistance it will constrain the speed at which renewable energy might be developed unless alternative funding can be found."

Pathway 2050 addresses this component of the energy plan thus –

"It is recognised that the deployment of offshore renewable energy is a long term aim and is subject to a number of enabling steps such as clarification in respect of subsidies, technological advances and commercial viability and more  detailed  environmental  and  stakeholder  assessment.  Thus  the recommended actions centre on the technology non-specific' enabling steps already begun by the Renewable Energy Commission that will prepare the way for a future project so that Jersey is prepared at the appropriate time to offer itself as a de-risked jurisdiction that is open for business."

This statement indicates a fairly timid approach to the development of renewable energy sources. Yet again we appear to be sitting back and waiting for others to take the lead, when we could be showing the way forward. The Green Initiative Fund could be the starting point for the expansion and development of this sector of the economy.

Financial and manpower implications

This proposition asks the Minister for Treasury and Resources to investigate funding mechanisms and to come forward with proposals, and thus has no direct financial costs.  There  will  be  some  officer  time  required  from  the  Treasury  to  assess  the cost/benefit  of  alternative  sources  of  funding,  along  with  some  work  to  be  done between 3 or 4 departments involved in assessing the extent of projects, including the balance  of  grant/loan  basis  and  the  level  of  returns  produced  by  any  supported schemes and any partnerships with the private sector that might be covered by the fund. The  costs  will  depend  on  the  proposals brought  forward  and a  consequent decision by the States.

The Ministers for Treasury and Resources and Planning and Environment have agreed to meet to explore the concept further prior to debate.

Notwithstanding the above, I have been asked to clarify the following costs –

1. The loss  of  interest  to the  strategic  reserve  from  the  removal  of £30 million.
2. The cost of £30 million borrowing/issue of bond.
3. What income might the fund generate?
4. Manpower costs.

In the absence of any figures from the Ministers involved after 6 weeks, here are my estimates.

1. 2010  figures  reveal  gains  of  £35 million  on  £550 million  in  the  Strategic Reserve, a return of some 6.7%. Figures for 2011 are much reduced however. At worst then, this source of funding would cost around £2 million.
2. Analysts suggest that U.K. Councils with a good financial track record should be able to borrow at very attractive rates of 0.6 to 0.8 of a percentage point over  government  bonds  in  most  cases.  Five-year  U.K.  government  bonds currently yield 1%, and 10-year bonds 2%. Wandsworth Council, for example, has recently sounded out Moody's to clear its rating, which it believes to be investment grade, if not AAA.
3. This depends greatly on what projects are supported and under what terms. Significant progress in photo-voltaics, or wind generation, may produce a return from feed-in tariffs for the JEC. Expansion of energy-saving schemes to better-off households might be interest-free or low-interest loans.
4. Operational costs.

The Economic Development Department estimates that the operational and management costs of setting up the £10 million Innovation Fund, which is not dissimilar, are £100,000. EDD intends to allocate an individual to be the Fund Executive to support the Innovation Board and assist the management and ongoing operation of the Fund. The Department states that this post will be from  within  its  existing  establishment  and  budget.  This  must  represent  a minimum for the larger Green Fund.

The Energy Efficiency Service, which could be subsumed in the new Fund, operates with a board and 2 full-time employees based at Howard Davis Farm, who are responsible to the Director of Environmental Policy. They report overheads of £350,000 on delivering just over £1 million in Grants. They point out, however, that much of this was start-up costs and that delivery of the Home Energy scheme to the "able-to-pay" sector would be far less staff- intensive, thereby improving efficiency. Expansion of the service as suggested in this proposal would initially require an additional member of staff. The upper limit on operational costs might therefore be estimated as £400,000.

APPENDIX