The Clean Energy Finance Corporation has defended its investment record after the Australian National Audit Office (ANAO) noted its failure to meet what the CEFC has previously described as “unrealistically high” investment returns mandated by successive Coalition governments.
Th CEFC said it saw driving new investment in new clean energy projects as its primary focus, and noted that it was still able to deliver profitable investment returns, even if they weren’t as high as the targets set by the Coalition after it came to power.
The ANAO published the outcomes of its audit of the Clean Energy Finance Corporation on Thursday, finding that the green bank had generally fulfilled its functions competently and with an appropriate level of expertise expected of a public investment body.
However, the ANAO noted that the CEFC has failed to hit government-mandated investment returns, which have been ratcheted up under successive Coalition governments, and had fallen short every year since 2014–15.
“Since 2014–15 the CEFC has not yet met either of the two portfolio target benchmark return rates set by the Investment Mandate. The CEFC does not have a strategy in place to enable the mandated rates of return to be achieved over the medium to long term (10 years),” the ANAO found.
Responding to the ANAO, the CEFC said that while it took the returns mandated by the federal government seriously, it also took a wider range of factors into account, particularly its overarching role of supporting increased investment in clean energy projects.
“The CEFC takes seriously its obligation to take all reasonable steps to target the portfolio benchmark return over the longer term and monitors and reports against this regularly as noted by the ANAO,” the CEFC told the ANAO.
“However, the primary objective of the Corporation is to increase the flows of finance into the clean energy sector and this primary objective will, rightly continue to be the primary focus of the investment strategy.”
The CEFC was established by the Gillard government in 2012 and was allocated $10 billion in public funds to invest in Australia’s emerging clean energy sector, with a goal to fill market gaps and encourage private sector investors to enter the market.
The CEFC is able to lend funds to projects at concessional rates and has generally sought to act as a co-investor alongside the private sector. However, it still expected to deliver positive returns on its investments and the green bank was tasked with achieving investment returns that matched the Australian government bond rate.
The agency faced abolition under the Abbott government in 2013 but was saved from this fate by a senate crossbench which blocked attempts to pass repeal legislation in the senate.
After failing in their quest to abolish the agency, successive Coalition governments instead ratcheted up the investment returns the CEFC was expected to achieve, adding an additional requirement to deliver returns 3% to 4% above the 5-year Australian Government bond rate.
CEFC described this target, as noted by the ANAO, as “unrealistically high” for the clean energy sector it was tasked with investing in, and to achieve returns of that magnitude would require either taking on riskier investments or investing outside of the clean energy sector.
Chair of the CEFC, Jillian Broadbent told then energy minister Josh Frydenberg and finance minister Mathias Cormann as much in a letter to the ministers in 2016.
“Board remains of the view that the current Portfolio Benchmark Return for the CEFC’s core portfolio of 3% to 4% over the 5-year Australian Government bond rate remains an unrealistically high return target for this market. It does not reflect the CEFC’s considered approach to risk and the composition of the current investment portfolio,” Broadbent wrote.
The CEFC told the ANAO that despite falling short the investment targets, it had a strong investment record and that it had chosen appropriate investments that leveraged additional private sector investment, with no major investment failures.
Investments made by the CEFC have delivered positive returns on behalf of Australian taxpayers, generating average annual returns since its inception of 4.75 per cent, compared to the government’s benchmark target of 5.28 to 6.28 per cent.
“We would also like to highlight the CEFC’s exceptional track record of investment with no material losses to date, or expected, in the investment portfolio. This is one of the fundamental indicators of the effectiveness of selection, contracting and ongoing management of investments by the CEFC,” the CEFC told the ANAO.
“This has been achieved to date through careful analysis and diligence throughout the investment origination and management process and the ability to make investment decisions independently in accordance with the CEFC Act.”
While stopping short of saying that the CEFC must be hitting the investment targets specified by the government of the day, the ANAO said that the agency should produce long-term strategies for hitting the targets, and to keep relevant ministers informed of its performance.
“Given the requirement in the Mandate to target the specified rates of return over the medium to long-term, the CEFC should be actively seeking to achieve them by 2022 when it will have been operating for 10 years,” the ANAO said.
“It should keep responsible Ministers informed of the action it is taking to meet the target rates of return and any concerns it has about its ability to do so, while also meeting its overall legislative objective to facilitate increased flows of funds into the clean energy sector.”
The Department of Industry, Science, Energy and Resources told RenewEconomy that the government expects the CEFC to meet all of the requirements outlined in the investment mandates issued for the green bank.