Royal Bank of Scotland Group Plc, Britain's biggest government-owned lender, may channel as much as 400 million pounds ($631 million) into clean energy this year with a focus on biomass.

The bank is working on about five deals to support plants that will use organic matter such as wood chips to generate electricity, said Andrew Buglass, head of energy in RBS’s structured finance division. The facilities, to be built from scratch, will each have a capacity of 50 to 150 megawatts, he said. Projects of that size may cost as much as 300 million pounds and RBS expects other banks to invest as well.

Britain’s biomass industry has gained momentum following clarification of government support levels in July. The Department of Energy and Climate Change estimates bioenergy plants using wood chips and organic waste to produce heat and power may meet 8 percent to 11 percent of the nation’s primary energy demand in eight years.

The bulk of the bank’s lending last year was on wind and solar power, Buglass said in an interview in London, as it laid the groundwork for the larger biomass projects it expects to fund this year.

“Biomass will occupy quite a lot of our time and effort this year,” Buglass said. “It can make a material contribution to the generation mix. Financing for the larger biomass projects is likely to be finalized towards the end of the year.”

RBS also has held discussions with clients interested in converting fossil-fuel powered stations to burn biomass, he said.

Kedco, Helius

To date, RBS has invested in biomass facilities of below 50 megawatts developed by companies including Kedco Plc and Helius Energy Plc. Helius said in April last year it was working with lenders including RBS and Lloyds Banking Group Plc to finance a 300 million-pound power station in Avonmouth.

RBS in December started a 200 million-pound fund to help U.K. businesses reduce energy use and lower costs, through projects such as the installation of more efficient lighting. It’s been in talks with the U.K. Green Investment Bank about the fund and ways they can work together, said Buglass.

“I see the Green Investment Bank’s participation as a positive move that will enhance liquidity and help drive the market forward towards 2020 and will watch with interest how they deploy their funds during 2013,” he said.

The GIB opened in Edinburgh on Nov. 28 with 3 billion pounds of state funds to spur financing for low-carbon technology as Britain aims for 15 percent of its energy to come from clean sources by 2020. One of the bank’s main priorities will be supporting energy efficiency programs. It already has awarded Sustainable Development Capital LLP 50 million pounds to start a fund for energy efficiency projects.

In addition to biomass, RBS expects to back onshore wind and ground-mounted solar projects this year, said Buglass. It will also look at offshore wind as existing projects start to approach markets to refinance what they’ve already built on an equity basis, he said. It expects to lend as much to renewables as last year, if not more, which would amount to 300 million pounds to 400 million pounds, said the head of energy.

Copyright 2013 Bloomberg

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