Clean Energy Finance Corporation: Difference between revisions

The Clean Energy Finance Corporation (CEFC) is an Australian Government-owned organisation that was established to facilitate increased flows of finance into the clean energy sector. The CEFC invests in accordance with its legislation, the Clean Energy Finance Corporation Act 2012 (CEFC Act) and the Clean Energy Finance Corporation Investment Mandate. The CEFC is a corporate Commonwealth entity under the Public Governance, Performance and Accountability Act 2013 (PGPA Act). The CEFC has access to funding of $10 billion comprising annual appropriations to the CEFC Special Account of $2 billion every 1 July from 2013 to 2017 inclusive, in accordance with section 46 of the CEFC Act.

The CEFC's Investment Mandate, issued by the Australian Government as a Ministerial Direction on 3 December 2015, provides the CEFC with high level policy direction from the Government and articulates the Government's broad expectations of how the CEFC will invest and be managed.^[1] The Investment Mandate and accompanying Explanatory Statement and the response of the CEFC Board were tabled in Parliament and are available on the ComLaw website. In its response to the December 2015 Investment Mandate, the CEFC said it represented an appropriate approach that would allow the CEFC to support Australian Government policy priorities while still allowing a measure of investment flexibility.

The CEFC is governed by an independent Board which has a statutory responsibility for decision-making, performance of the Corporation’s functions and managing the CEFC’s investments, and a Chief Executive Officer who is responsible for the day-to-day administration of the Corporation. A system of delegations exist to aid in the performance of these functions. The Board reports to Parliament through its responsible Ministers.

The CEFC’s investment objectives are to catalyse and leverage an increased flow of funds for the commercialisation and deployment of Australian-based renewable energy, energy efficiency and low-emissions technologies. The CEFC achieves its objectives through the prudent application of capital, in adherence with its risk management framework, the December 2015 Investment Mandate and the CEFC investment policies issued by the Board.

History

The CEFC was established under the Clean Energy Finance Corporation Act 2012, passed by the Parliament of Australia on 22 July 2012.^[2] The CEFC was established on 3 August 2012.^[3] It commenced funding investments on 1 July 2013.

The Abbott Government announced its intention to abolish the CEFC. Mr Abbott and then Assistant Treasurer Senator Arthur Sinodinos confirmed the Government would scrap the CEFC. Legislation to abolish the CEFC and transfer the CEFC’s existing assets and liabilities to the Commonwealth was before Parliament but blocked by non-government senators in the Senate. The CEFC is not supported by the Coalition Government. Then Opposition Leader Tony Abbott wrote to Jillian Broadbent, chair of CEFC on 5 August 2013 asking it to stop making new loans and to cease assessing new projects.^[4]

On 5 December 2013, CEFC Chairperson Jillian Broadbent complained to ABC Radio National, begging the government to "break an election promise" and keep the CEFC in operation citing a 7% profit. Senator Sinodinos said that if it's making a profit, it should survive without the government and essentially confirmed the government will shut the corporation down.^[5] In July 2015, Tony Abbott announced he would ban the corporation from investing in wind power^[6] and rooftop solar.^[7] On 13 July 2015, the CEFC said it was taking advice in relation to the draft Mandate.^[8]

In December 2015, Fairfax media reported that Prime Minister Malcolm Turnbull had lifted the ban on CEFC investment in wind power, in his first major break from the former regime's environmental policy.^[9] The Guardian reported on 24 December 2015 that the CEFC had been directed to focus on innovative and emerging technologies, reversing a mandate by the former prime minister Tony Abbott that would have specifically blocked funding for windfarms and small-scale solar projects.^[10]

Commercial approach

The CEFC applies a commercial approach when making investment decisions and seeks to develop a portfolio across the spectrum of clean energy technologies that in aggregate must have an acceptable but not excessive level of risk relative to the sector.^[11] The Corporation applies a commercial filter when making its investment decisions, focussing on projects and technologies at the later stages of development. The filter is not as stringent as the private sector equivalent, as the Corporation has a public policy purpose and values any positive externalities being generated. Consequently, it has different risk/return requirements. For a given return, the Corporation may take on higher risk and, for a given level of risk, due to positive externalities, may accept a lower financial return. In line with its policy intent, the Corporation considers the positive externalities and public policy outcomes when making investment decisions and when determining the extent of any concessionality for an investment.

Commitments since inception

The CEFC said on 15 July 2015 that, since its inception, the CEFC had committed over $1.4 billion in finance to investments in clean energy projects valued at over $3.5 billion. [2]

The CEFC invests for a positive financial return. In July 2015, the Corporation said it had made more than 55 direct investments and 34 projects co-financed under aggregation programs. [3] The CEFC invests in projects which help improve energy productivity for businesses across Australia, develop local industries and generate new employment opportunities. The portfolio weighted average yield includes an estimate of all projected income from contracted investments, is based on assumptions made at the time each investment is committed, and as such is an indicative forecast only, given variables such as potential for material movement in assumptions between the time of contractual and financial close, establishment fees and costs, floating rates, timing of draw-down and deployment, penalty fees, early repayment fees, etc.

In July 2015, the CEFC said it had committed new investments of close to $500m in the preceding 12 months, taking its total commitments to invest over the two years since inception to more than $1.4 billion. New commitments by technology in 2014-15 included $246m in renewables [solar ($199m), wind ($37m) and waste-to-energy/bioenergy ($10m)], with a further $238m in energy efficiency projects. A $15m investment in remote solar and storage at the DeGrussa copper mine in the Pilbara region, was finalised just after the end of the financial year. Key investments for the 2014-15 year included:

• A $125m investment in greener buildings via an equity stake in the EG Group’s $400m High Income Sustainable Office Trust (HISOT), which will invest in older office stock to upgrade their energy performance to revitalise and reposition them in the market. [4]
• A $120m Energy Efficiency Bonus equipment financing program by National Australia Bank (NAB) to accelerate the uptake of energy efficient vehicles and clean energy equipment by businesses and agricultural enterprises. [5] The CEFC said agribusinesses and small-scale manufacturing companies had invested more than $50 million into energy efficient equipment within five months of launching the program. [6]
• A $100m investment in Origin’s Solar as a Service program to drive power purchase agreements (PPAs) for commercial and residential solar and battery storage. [7]
• A cornerstone investment of up to $75 million in the inaugural issue of National Australia Bank’s Climate Bond issuance, an Australian first for an Australian dollar denominated and Australian asset linked bond of its kind. [8]
• A $50m investment with Firstmac in an innovative securitised financing program to provide options to help accelerate business and personal adoption of low emissions and electric vehicles, as well as solar plus battery storage and energy efficient equipment. [9]
• A $10m loan to Landfill Gas Industries for investment in Queensland waste-to-energy operations, producing electricity from previously wasted landfill gas. [10]
• Up to $15m loan for Australia’s largest solar and battery storage project to date. The CEFC’s finance, along with an ARENA grant, enables the development of the 10.6MW solar plant with 6MW of battery storage at Sandfire Resources’ DeGrussa copper mine, 900 km north-east of Perth, in Western Australia. [11]

The CEFC remained active in the second half of 2015, announcing a number of major programs. It said its $250 million Local Government Finance Program would help Australian councils invest in clean technologies, via flexible and competitive fixed-rate, long-term finance tailored to the needs of Australian councils. [12]

The CEFC made a $100 million cornerstone commitment to a new Australian Bioenergy Fund, to support investment in a broad range of projects seeking to produce energy from agricultural, council, forestry and mining waste streams. It is aiming raise more than $200 million in equity and will be managed by the Foresight Group (Foresight). [13]

The CEFC also reported strong market interest from more than 40 domestic and international project developers pursuing investment opportunities in the development of Australia’s large-scale solar capacity. The CEFC opened a $250 million lending program for large-scale solar in September, inviting expressions of interest from project proponents. [14]

In December 2015, coinciding with the Paris global climate talks, the CEFC said it was part of a group of six green banks and two leading non-profit groups establishing a Green Bank Network to help meet the urgent need of increasing and accelerating investment in renewable energy and energy efficiency worldwide. [15]

Enabling legislation

The Clean Energy Finance Corporation is a Commonwealth authority established on 3 August 2012 by the CEFC Act. ^[12] The object of the CEFC is specified in section 3 of the CEFC Act as being ‘to facilitate financial flows into the clean energy sector’. The main function of the CEFC is the ‘investment function’ (as specified in section 9 and subsection 58(1) of the CEFC Act), to invest, directly and indirectly, in renewable and low carbon technologies. Section 9 also specifies a number of support functions such as:

• liaison with relevant individuals, businesses and agencies to facilitate the investment function
• to perform any other functions conferred by the CEFC Act or any other Commonwealth law
• to do anything incidental or conducive to the performance of the investment function or the other functions.

Responsible Ministers

Under section 4 of the CEFC Act, the Responsible Ministers are the Environment Minister and the Finance Minister. [16] The Nominated Minister is one of the Responsible Ministers who exercises additional powers and functions under the CEFC Act. Subsection 76(1) of the CEFC Act provides that the Responsible Ministers must determine between them which is to be Nominated.

Investment Mandate

An Investment Mandate direction [17] is the means by which the Government of the day provides instruction as to how the Corporation can make investments, providing it:

• does not have a purpose of directing the Corporation to require the corporation to make or not make a particular investment and
• is not inconsistent with the Act, (including the object of the Act).

Under the Act, the CEFC Board must be consulted on the draft of a proposed new mandate, and any submission made by the Board must be tabled in the Parliament. [18] A revised Investment Mandate was issued by the Australian Government as a Ministerial Direction on 3 December 2015. [19]

The Australian Government is providing $2 billion per year in funding to CEFC on 1 July for five years commencing in 2013 (Clean Energy Finance Corporation Bill 2012)[20] The CEFC will be exempt from tax in order to overcome capital market barriers.^[13]

Offices

CEFC is headquartered in Sydney with offices also in Brisbane.^[14] In the 2013 Australian federal budget the organisation had a forecast budget of $19.5 m.^[15]

The chief executive officer is Oliver Yates.^[15] Yates was a former Macquarie Group investment banker.^[16]

See also

• Energy policy of Australia

References

External links

• Clean Energy Finance Corporation- Clean Energy Finance Corporation website
• The CEFC- "Clean Energy Finance Corporation Expert Review" website (Australian federal government)
• Clean Energy Finance Corporation, press release from the Prime Minister of Australia, Wed 7 March 2012.
• Clean Energy Future – Renewable energy - Clean Energy Future.