Green bank says clean energy investment hurdles still too high

Prime Minister Malcolm Turnbull is accused of wanting to have his cake and eat it too, by demanding that Australia’s green bank direct fund to early stage “innovation projects” while setting an unrealistic investment hurdle.

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Australia’s Clean Energy Finance Corp has warned that the Australian government’s targeted rate of return on its investments in emerging clean energy technologies may be too high, despite a small cut in the targeted benchmarks.

Under a new investment mandate released on Tuesday – the third in less than 15 months – the CEFC said it welcomed the decision to cut the targeted returns to 3-4 per cent above the government bond rate. It had previously been 4-5 per cent.

But chairwoman Jillian Broadbent warned that in a global environment of low interest rates, this was still too high.

“The board is of the view that this is still an unrealistically high return target for this market,” Broadbent wrote in a letter to environment minister Greg Hunt, released on Tuesday. “It does not reflect the CEFC’s approach to risk and the proportion of public sector counterparties (universities and councils) within the current investment portfolio.”

The CEFC has become a political football since the Coalition came to power in 2013. For three years the Coalition vowed to dismantle the “green bank”, which has $10 billion to invest over a minimum five years, and the government sought to restrict its mandate and lift its benchmark returns in the meantime.

But after legislation for its removal was rejected twice by the Senate, the Turnbull government decided to keep the CEFC, but would seek to legislate a $1.34 billion cut in the funding for the Australian Renewable Energy Agency, another key institution the government had sought to remove.

ARENA, under the latest Coalition proposal, will act as a sort of advisory body on a new fund, the Clean Energy Innovation Fund, which will use CEFC monies to make equity and finance available to new emerging technology projects, but no grant funding.

Broadbent told Hunt that global equity risk premiums, as well as both “credit and duration spreads” on debt instruments were compressed and were at or close to long-term lows.

“These market pressures, when coupled with the CEFC’s narrow investment universe of clean energy technologies in Australia, mean that the CEFC has limited ability to access higher yielding transactions,” she wrote.

“Consequently, as expressed in my responses to the last two Investment Mandates issued to the CEFC, the Board’s view remains that targeting such a high rate of return will require the CEFC to seek out-of- market returns, which will be difficult to achieve.”

She said the management of the CEIF would be particularly challenging, despite the fact that it has a lower return target of 1 per cent above the government bond rate.

That’s because the CEIF portfolio will be concentrated within a single industry sector, and involve technologies that are not yet fully commercially established.

Broadbent said the government could expect returns on individual investments from “full loss” to a return of several multiples, and should be prepared for high variability in returns from these early stage assets.

The CEIF requires the CEFC to allocate up to $100 million over the next 10 years, in debt and equity investment, in emerging clean energy technology projects and businesses that involve technologies that have passed beyond R&D but are not yet mature enough to attract sufficient private sector investment.

Hunt has said this will include new solar technology, storage, and smart grids. But it won’t include grants, considered a key part of the innovation funding chain, because “taxpayers wanted to get their money back.”

The CEFC’s broader mandate remains by and large the same: support for emerging and innovative renewable energy technologies and energy efficiency technologies, such as large-scale solar, storage associated with large and small-scale solar, offshore wind technologies, and energy efficiency technologies for the built environment.



Broadbent also said the CEFC views the CEIF as a “natural part” of the CEFC activities, possibly suggesting that it was already viewed as part of its mandate.

She also noted: “The Board considers it important to emphasise that, as the investments made in the CEIF are ultimately held by the CEFC and funded with monies allocated to the CEFC under the CEFC Act, the final decision-making authority, responsibility, and management in relation to investments in the CEiF remains with the CEFC.”

In other words, it’s not your decision, minister.

Comments

3 responses to “Green bank says clean energy investment hurdles still too high”

  1. Chris Fraser Avatar
    Chris Fraser

    Malcom’s a merchant banker. If he thinks he can get a better return than the CEFC he should invest his own money in renewable. Then we’ll compare the results.

    1. solarguy Avatar
      solarguy

      Chris, Uncle Mal had his chance to do what was in his heart, but alas he is a coward. The right wing believed him and gave him the nod as leader, he then should have given them the sword and shown to all the country his true colours, That’s if they were?

  2. solarguy Avatar
    solarguy

    New RE technologies aren’t needed just yet, sure their important to develop, but we already have just what we need to go 100% renewable NOW! Lets stop wasting too much on them at this point in time. Otherwise we will we will piss it all up the wall and achieve, NOTHING!
    Damn It, lets just bloody well do it. there IS SO LITTLE TIME LEFT TO DO IT!

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