Next steps
This strategy consolidates the findings and recommendations of several reports, including the Regional Energy Policy Commission Reportxciv, the Arup EIZ Investment Case Reportxcv and the Black Country Energy as an Enablerxcvi and Powering Growthxcvii reports.
The key next step to take forward the recommendations in these reports is the establishment of a fully funded delivery body for the region, namely Energy Capital, building on the formal agreement secured in October 2017 to incorporate this within the WMCA structures.
Energy Capital will then take forward the work programmes agreed between the Mayor, the government and the LEPs to deliver the various recommendations.
Within WMCA/Energy Capital responsibilities, securing substantial funding (of the order of £500M) to support investment in energy projects across the West Midlands should be a high priority. One way of doing this would be around a cross-sectoral ‘Growth Deal’ centred on the West Midlands emerging ‘new energy economy’22.
The second priority is to work with government and regulators to detail the EIZ model for the region, working with legal experts to ensure an operational level of detail. The Arup report suggests initially establishing EIZs as special purpose vehicles (SPVs) which might subsequently take on energy or other regulatory or financial powers, and which seems a sensible approach to avoid delaying immediate progress.
The context and framework created by this strategy is designed to facilitate raising a sensible mix of public and private finance: broadly public investment is appropriate where significant strategic innovation risk (and consequent social reward) is present23 or there are significant social and health issues (such as fuel poverty) to be tackled; private finance should be appropriate where the risks are purely commercial.
A virtue of almost all regional energy projects is, however, that within appropriate regulatory frameworks – which EIZs should provide – most of this funding should be investable with acceptable rates of return to the right parties, albeit over relatively long timescales in some cases. This should limit the need for grant-type funding to targeted public investments designed to overcome market failures in innovation, early-stage project development and fuel poverty alleviation.
The role of the WMCA in delivering this strategy will therefore be one of facilitation focused on:
-
ensuring regional energy infrastructure investment is aligned with strategic regional industrial, transport, spatial, and productivity and skills plans;
-
facilitating regional energy markets which deliver clean, competitive power to businesses and homes;
-
optimising investment in energy infrastructure (including housing energy efficiency) to reduce fuel poverty, increase industrial competitiveness and productivity, and maximise economic opportunities for the region;
-
securing and managing dedicated investment funds, underpinned by public risk sharing and anchor funding where appropriate;
-
supporting and encouraging innovation (broadly defined) in energy systems, business and financial models to support this.
In line with other combined authorities, a specialist team in the WMCA is likely to be required from 2019 onwards to deliver this. This is likely to employ around 10-15 people, based on models from the GLA and elsewhere.