The Clean Energy Finance Corporation is taking a leaf out of the books of central bankers by looking to further boost liquidity into Australia’s stalled renewable energy market, pumping $100 million into a new $1 billion funding pool.
The CEFC has teamed up with Palisade Investments and four other institutions to provide up to $1 billion in equity and finance for large-scale renewable energy projects. Palisade is also considering a new specialised fund and is eyeing up to 500MW of large-scale solar and wind projects.
That’s welcome news to the Australian renewable energy industry, which remains at an effective standstill nearly one year after the Coalition government and the Labor opposition agreed to cut the unfilled renewable energy target by nearly one third, to a total of 33,000GWh from 41,000GWh.
Project developers still complain that financiers are refusing to come to the table in the absence of long-term contracts from utilities, or corporations for that matter, and the lingering belief that the target could be changed yet again.
Only one large-scale project – apart from those given a 20-year contract by the ACT government’s own renewables scheme – has been committed, and that project, the 175MW White Rock wind farm near Glenn Innes, is being funded by Chinese wind turbine manufacturer Goldwind, which is using its own turbines.
The CEFC move follows similar moves internationally, where eight major banks pledged $7 billion for renewable energy investment, adding to a $10 billion commitment by the Bank of America.
It also follows the creation of a new investment vehicle by AGL Energy. But where AGL Energy’s move was seen as a means to reduce its financial exposure to its statutory obligations to meet the RET, the CEFC move is designed to increase funds available.
“Australia has a considerable funding gap in new investments in renewable energy if we are to meet the Renewable Energy Target,” CEFC chief executive Oliver Yates said. “We expect this transaction will play an important role in catalysing new finance to help close that gap and accelerate our overall renewable energy capacity.”
The RET is facing a major shortfall because of the investment drought. Analysts say that between 2,000-4,000MW of new projects need to be committed (i.e. with finance) in the next 12 months if the sector is to avoid triggering a “penalty price”.
This will prove to be highly embarrassing to the Coalition, which will have nothing to show for its three years in power. While this was the stated intention of former prime minister Tony Abbott, who didn’t want to see any new wind farms, the Turnbull regime wants to be seen as a supporter of renewable energy.
The CEFC tried a similar tack with Colonial First State more than a year ago, but it didn’t stick. The CFC got its money back, and Yates says the market for renewable energy projects has changed in the past 18 months, “but it hasn’t changed enough.”
“The climate is signalling louder and louder that carbon has to go,” he told RenewEconomy.
Yates says the CEFC intervention is needed because institutional investors traditionally look to buy projects that have already been built. Indeed, many of Australia’s biggest wind farms have been sold to such investors.
But Yates wants them involved early, helping to fund construction “so we can more effectively accelerate the construction of commercially-viable projects. This means we can inject equity into projects at the time they need it most, so they can begin generating energy as soon as possible.”
Yates argues that wind farms and solar farms are a lot simpler to build than other infrastructure, liking them to Meccano sets, and says that if equity can be sourced, then it makes the job of financing a lot easier. Both White Rock and the Ararat wind farm, which is partially supported by a long-term ACT government contract, are backed by significant equity capital from Goldwind and GE and others in the case of Ararat.
Yates says if this venture is successful, it could unlock billions more in institutional investment. “Pension funds are awash with capital,” Yates says. “This could be a very positive sign for the market.”
The CEFC is allocating up to $100 million of equity to the initial $1 billion investment strategy. Palisade is committing up to $400 million of additional equity, through a combination of managed funds and its Direct Investment Mandate clients, which include VicSuper, LGIAsuper and Qantas Super.
NAB and Commonwealth Bank will work with the CEFC and Palisade to provide debt financing for these renewable energy projects.
CEO Roger Lloyd says Palisade is looking to build a portfolio of renewable energy projects in excess of $1 billion.
“This strategy is capable of initially developing up to 500MW in solar and wind generation projects throughout Australia,” he said in a statement.
“Considerable time has been invested in identifying projects to which to apply this funding. We see renewable energy investments fulfilling our investment criteria and delivering robust and sustainable cash flows, which are important to our investors.”