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Carbon Edge Dictionary, previous edition
Clean Energy Corporation Gets Moving - Oct 2011
A major piece of the architecture of the government’s carbon price is the establishment of the Clean Energy Finance Corporation (CEFC). The CEFC is an AUD10 billion commercially focussed organisation that will operate independently of government utilising new borrowings.
Getting to the core of the CEFC is difficult in some respects. However, CarbonEdge considers it important for subscribers to consider the underlying nature of the CEFC. Critically, it is a finance corporation and accordingly, is expected to utilise loans, loan guarantees and equity investments strategically to leverage private sector involvement in financing renewable and clean energy investments.
Australian Interest in Renewable Energy Needs New Investment
We only have to consider investments in renewable energy over the last few years to understand that there are constraints that need to be addressed if the pace and scale is to be increased. The following chart shows the growth in renewable energy, by source, for the six years to 30th June 2009.
Australian Production of Renewable Energy by Type: 2004 – 2009 (PJ)
Source: Energy in Australia 2011
It is important to note that this chart shows all renewable energy, not just electricity. However, what can be observed is that the rate of new capacity installation averages just 1.8 per cent growth per annum over the six years.
When considering electricity generation alone (with heat energy removed effectively), the situation is not much different, as the following chart demonstrates.
Australian Renewable Electricity Generation by Type: 2005 – 2009 (TWh)
Source: Energy in Australia 2011
We note of course that this data only covers five years, but it describes annual growth in renewable electricity supply of just 1.2 per cent per annum and at a time where many of the renewables have been incentivised with both grants and access to Renewable Energy Credits.
The significant qualification for both of these charts is that the quantity of hydro-electricity produced over the period has been impacted severely by the long-term drought. Very little new hydro capacity has been installed over these periods, so smoothing out the impact of the drought and assuming hydro continued at the highest year in each series, delivers growth of just 2.6 per cent in total renewable energy and 4.1 per cent in total renewable electricity generation.
Whichever set of numbers you prefer, the task for the CEFC is significant.
None the less, perhaps the most significant data of all is that which shows the total of new investments on a type and sector-by-sector basis. There can be little doubt, as the following table shows that investment in renewable energies in Australia is moving quickly, but remains very patchy.
New Financial Investment, Australia, FY 2009 and 2010 (USDM)
| Sector | 2009 | 2010 |
| Wind | 312.9 | 1 594.6 |
| Biomass | 181.6 | 122.1 |
| Geothermal | 64.7 | 16.9 |
| Solar | 35.1 | 15.6 |
| Small Hydro | 16.5 | 14.9 |
| Marine | 11.5 | 7.8 |
| Total | 622.3 | 1 771.9 |
Source: Bloomberg New Energy Finance
New financial Investment only (i.e excludes corporate M&A, PE buy-outs, PM exits, and asset finance acquisitions and refinancing. Also excludes corp. and gov. R&D and small-scale project estimates. No adjustment for re-invested equity.
We can observe that the only sector to increase in 2010, according to Bloomberg, was the wind sector, with all others experiencing a decline, while the total amount of new investment almost tripled. Obviously there is some substitution going on here, but there is a further story to tell.
The data records new investments, including proposals. That is, the table does not show the value of newly installed capacity. So we can expect to see a lag from this data before it is realised into actual energy investments in any case.
However, there is another aspect that may take some of the lustre off the stellar wind figures in coming years. Right now, in Victoria at least, public policy is such that many of the proponents of wind power are considering relinquishing their licences and some have already shelved their plans.
CEFC has a Serious Job to do
It is the CEFC’s role to make investments in ‘clean energy’ assets to assist in removing constraints for private investors, including institutions.
Many renewable energy investment opportunities have sound fundamentals and long term may have investment characteristics typical of existing energy assets. Essentially, they are infrastructure assets. However, investment in them is more difficult for the private sector because of the various sovereign risks at an economy wide level and initiation and technology risks at an asset level.
CarbonEdge is aware that the government has been seeking for some time to facilitate investment vehicles that can attract typical infrastructure investors such as superannuation funds, to play a larger part in financing the nation’s future energy.
Of course, the CEFC will also be expected to accelerate investments both with respect to timing and scale. This is critical to the government as meeting the 20 per cent renewable energy target by 2020, which in turn is vital to meeting the 5 per cent emissions reduction target that is the sole point of agreement between the Government and the Opposition when it comes to climate policy.
The budget estimates indicate the CEFC will cost AUD944 million to operate through to 30th June 2015, inclusive of finance costs associated with annual investments of AUD2 billion from 2013-14.
Reserve Bank of Australia Board Member to Chair CEFC
In late September, the government announced the appointment of Reserve Bank of Australia board member Jillian Broadbent to chair the CEFC. The eminently qualified Ms Broadbent will be joined by other Board appointments in coming weeks.
Mandate and Investment Products Top of the Agenda for CEFC
There was some concern when the CEFC was announced that it could take over a year to conclude an investment mandate for the fund, but this is one of Ms Broadbent’s early tasks and she is to report to government on this in early 2012.
That is particularly important both for constructing the specific investment ‘products’ it will create, as well as for speeding up deal flow.
The CEFC is specifically excluded from investing in carbon capture and storage activities because that is already done through Australia’s involvement in the Global Carbon Capture and Storage Institute.
Many in the renewable energy sector have been questioning whether the CEFC should invest in transmission systems. The arguments being that on the one hand, remote renewable energy power stations would be easier to finance from strictly private investment if transmission was covered by the CEFC. The alternate view seems to be that transmission technologies are more easily invested in by the private sector and the CEFC should stick to specific renewable energy investments.
Although it seems a lot of money, AUD10 billion in total and at around AUD2 billion per annum is a relatively small amount of the anticipated AUD100 billion expected to be required in renewable energies by 2020.
The financial limits make the CEFE's mandate all the more important.
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