UK green bank may be based in Edinburgh, minister says

Edinburgh could become the home of the UK's new green investment bank, the energy secretary has said.

Chris Huhne said Scotland's capital had a "very special advantage" because its financial institutions had a strong track record in lending to renewable energy companies.

Mr Huhne's comments were made at a meeting of the Scottish Parliament's economy, energy and tourism committee.

The bank will channel private sector funding into low carbon businesses.

But Mr Huhne also sounded a note of caution when he reminded MSPs that Edinburgh was facing stiff competition from other financial centres, notably London and Leeds.

The bank, which has been proposed by the UK government, would raise money in a similar fashion to regular banks but would use the profits to fund clean energy and low-carbon projects.

The institution will initially be financed with £1bn of public investment.

Committee member Stuart McMillan, a West of Scotland MSP, called for a guarantee that the bank would not need to go back to the government for additional funds if it hit financial problems, and an assurance that bankers' bonuses would be either limited or non-existent.

But Mr Huhne said top-banking talent may only be attracted by market rate salaries and bonuses, and that the bank would not be immune to the financial storms that recently saw some of the UK's biggest financial institutions refinanced with public money.

Mr Huhne said: "If at any point more capital is required then it would obviously have to come back to its shareholders.

"If the shareholders were a mixture of private and public then it would be a rights issue or any of the normal means of finding that money.

"However, the closing position of the Treasury is it wants to be as far away from any contingent liabilities as possible, which means that it would want to make sure that it does not pick up any liabilities under any circumstances."

'Be surprised'

On the issue of bankers' bonuses, Philip Wynn Owen, from the Department of Energy and Climate Change said: "It's likely that to actually form a bank the government will need to be party to making appointments of fit and proper persons, otherwise it's going to be quite hard to get a banking licence to actually run a bank.

"Personally, I would be surprised if the legislative process and the appointments and contractual negotiations with these fit and proper persons, who are usually people who have run a bank or other such institution before, didn't include negations about contractual terms and bonuses."

Mr McMillan made the point that the public may not respond favourably to another publicly-funded bank spending taxpayers' money on bonuses.

"As the public already don't fully understand about the Green Investment Bank, and as they read more information about it, I'm sure they won't be fully convinced when they realise that the potential for large bankers' bonuses will actually be part of the case for this new institution," he said.

After appearing before the committee, Mr Huhne held talks with Finance Secretary John Swinney and Energy Minister Jim Mather.

He will meet the First Minister Alex Salmond later when discussions are expected to focus on the UK government's proposals to reform the electricity market and the current review of electricity transmission charges.

The Scottish government believes the current transmission charging regime is deterring investment in renewable energy projects in rural areas.

Under the present system, generators in the most remote parts of the country pay the highest charges for using the national grid.