New Australian ‘green bank’ plans to catalyse private sector funds

Australia’s planned A$10bn (€7.9bn) ‘green bank’, the Clean Energy Finance Corporation (CEFC), hopes to catalyse private sector investment and provide a “pathway” for institutional investors to engage with renewable technology.
“The CEFC will generate the greatest impact on the availability of funding if it can leverage its $10bn by catalysing private capital into the sector,” an expert panel said in a report to the government. Providers could include investment managers, banks, specialised and private equity funds as well as corporates.
Co-financing will be a key principle of the new body, which is expected to go live in July 2013 and provide $2bn of funding every year for five years. Investments will be made on a commercial basis.

The report was welcomed by the Investor Group on Climate Change Australia/New Zealand (IGCC), which represents institutional investors with some $700bn in assets.

“We wanted to see a CEFC that would build investor confidence in low carbon and renewable opportunities. We think the proposed CEFC design does that,” said the group’s chief executive, Nathan Fabian.

The panel, headed by Reserve Bank of Australia Board Member Jillian Broadbent, envisages the CEFC making both direct and indirect investments, with the former via debt or equity in projects or clean energy businesses. The latter could be via pooled funds.

And it might invest in entities that aggregate smaller transactions that are too small for banks.The government supported all the recommendations in the report. The government will now appoint the CEFC board and set an investment mandate, though the CEFC will make its decisions independently of government.

A seven-member board will comprise people with expertise in finance, investment management, venture capital/private equity, clean energy and the environmental sector.

The financial upside of renewable energy

The report points to domestic institutional investors who have made clean energy investments. They include Industry Funds Management, which owns Australia’s largest renewable energy company, Pacific Hydro. It also cited VicSuper’s $30m investment in Cleantech Australia Fund and the direct investment by the Retail Employees Superannuation (REST) in the Collgar Wind Farm.

“The financial upside of renewable energy is, once installed, the capacity to generate power at low operating costs,” the panel said. “This upside is long-term and heavily discounted in traditional financial modelling.”

The CEFC will not invest in carbon capture and storage projects or technology.

The target rate of return is likely to be the government borrowing rate as it “signals the Government’s expectation that the CEFC maintain the value of its investment portfolio”. The panel also said that issuing bonds is outside the CEFC’s remit.