Why we need a big green bank for low carbon transition

One of the arguments that has been thrown forward against the proposed Clean Energy Finance Corporation – and will no doubt continue to be so in the coming months – is that it will be good money thrown after bad, and the $10 billion planned injection by the federal Government over a five year period is out of all proportion to the task at hand.

And, it is argued, it is not necessary in the light of a carbon price. Or it should be restricted to R&D. The Opposition – taking its cues from the energy debate in the US and Canada – as it has done on climate change policies – has vowed to repeal it.

There is a general assumption, as there was in the carbon debate, that Australia is doing something that no-one else has contemplated, and that it is recklessly and needlessly leading the world. But as in the carbon pricing debate, this is not so.

The experience of the Solar Flagships, and other grants-based programs for that matter, highlight the need and the opportunity for the CEFC. Institutional investors, noting the $100 billion that will be required in renewable energy investments at a minimum over the next two decades, insist that such an independent financial institutions will play a critical role in stimulating the transition to a clean economy.

Recent surveys suggest that this is the approach of all the countries that are currently playing a leading role in clean energy investment – Germany, China, the US and Brazil – and each have state-owned development banks, or their equivalent, underwriting the majority of cleantech investment.

An analysis conducted by Bloomberg New Energy Finance found that possibly the most influential player in the global energy market in the past year has been the German state-owned development bank, known as KfW, which in 2011 alone committed €22.8 billion ($29 billion) to climate and environment projects – mostly through lending at discounted rates and providing loan guarantees. The funding was split among energy efficiency investments (€10.1 billion), renewable energy (€9.4 billion) and waste management (€3.3 billion). KfW accounted for nearly half of all German clean-tech investment.

The bank plans to increase its allocation in 2012, as part of a five-year €100 billion investment spend out to 2015, to support the government’s pus to a 35 per cent renewable energy target by 2035. Its portfolio includes, solar farms, low-interest lending programs for building efficiency, regional power-grid growth, rooftop solar, energy-storage projects and it is expected to play a critical role in the deployment of large, capital intensive, offshore wind farms. Germany’s own investment requirement to meet its goals are estimated at €250 billion by the end of the decade.

The BNEF survey found that the global leader in the number of large scale solar deals completed in 2011 was the US Federal Financing Bank, which played a critical role in the loan guarantees handed out by the US Department of Energy. Despite the politics over the failure of one investment, the start-up solar module developer Solyndra, more than 98 per cent of the estimated $45 billion of loans made by the DoE since the GFC, including 15 large scale solar projects, have been sound. These include loan guarantees to huge projects such as the BrightSource 392MW Ivanpah solar thermal portfolio and the 290MW Agua Caliente PV plant. It has also extended its reach to battery, energy efficiency and wind technologies.

BNEF notes that Chinese (and other) state owned banks have also been active in the past year, but the sums of money involved is difficult to track because of the lack of transparency on these deals. Other industry estimates suggest that the China Development Bank provided $45 billion in cheap lines of credits to solar and wind investments. BNEF also notes that Brazil’s development bank, Banco Nacional de Desenvolvimento Economico e Social, or BNDES, has been a significant lender to Brazilian biofuels and wind projects, and ranked second in identified clean energy deals across the globe in 2011.

The European Investment Bank is also playing a critical role, deploying at least $6 billion in 2011, and other country-based development banks, including in Denmark, have provided cheaper loans to support their technologies, including for the $800 million Macarthur Wind Farm in Victoria, which is using Danish Vestas turbines and which will be the largest in the southern hemisphere when it is complete.

Given this, the $10 billion to be invested in the CEFC appears relatively modest. But it could, given the experience elsewhere, play a key role in unlocking money from superannuation funds and other institutional funds as a co-investor, in much the same way as the DoE has forged a path for the likes of Warren Buffett, Bill Gates, Google and others to follow in its footsteps.