Jillian Broadbent AO
Uncertainty regarding the Renewable Energy Target has negatively impacted investment in large utility-scale energy projects. In a financial year which saw an all-time record of around US$320 billion of global investment in clean energy, Australian clean energy investment fell by 31 per cent. Against this background, the CEFC has continued to be an active investor and its portfolio grew by 29 per cent.
With fewer large-scale renewable projects, this year’s investment focus has been towards energy efficiency in buildings, with government and in the manufacturing sector, progressing new financing structures to broaden the base of finance available to the sector, and co-financings with ARENA (the Australian Renewable Energy Agency).
The Corporation made new investments of $484 million during the financial year and has continued to grow and diversify its portfolio, to a total committed portfolio of approximately $1.2 billion as at 30 June 2015. All investments are performing to our satisfaction.
Investments have been across the energy sector in manufacturing, mining, agriculture, energy utilities and commercial property. A recurring theme experienced by businesses investing in newer and more efficient technology is the productivity benefits that flow through to their operations, extending beyond simply lowering energy costs.
Our new financing initiatives are supporting Australia’s development and deployment of innovative technologies, reducing business operating costs and increasing productivity, while delivering least-cost emissions reduction, and contributing to the resilience and competitiveness of the economy.
The projects and programs to which the CEFC has committed investment will, once operational, help contribute to Australia’s abatement task, while achieving a positive return for the CEFC.
The CEFC invests with a medium to long-term view. Projects that involve innovative technologies or financing models typically have long gestation periods from concept, through to design, funding, construction and deployment. Our operating model of early engagement with project proponents, complemented by the development of innovative finance programs with other market participants, has resulted in overall investment in new projects and programs with an approximate total value of $3.5 billion.
Reflecting on the experience of investing over the past two and a half years, we have been pleased at the way project owners and private sector co-financiers have participated with us. The CEFC is bringing our sector-specific expertise in finance and our understanding of emerging technologies to the table, helping address financing barriers and building investment momentum for the clean energy sector.
Engagement has been with financiers including the major banks; Macquarie Bank and Firstmac; global equity and debt providers such as Kohlberg Kravis Roberts (KKR) and Denham Capital; large and small ASX-listed and unlisted companies, such as Origin, Sandfire Resources, EDL and Epuron; and institutional investors such as Colonial First State and EG Group.
Success is evidenced by the investment of $1.80 from the private sector for every $1 from the CEFC, demonstrating the important role the CEFC is playing in catalysing private sector investment in clean energy technology in an environment where Australia’s private capital and expenditure is failing to grow.
Our experience suggests that the pathway towards decarbonisation of the Australian economy can be a catalyst for innovation and growth. The CEFC has been able to demonstrate how renewable energy and productivity-enhancing technologies can drive competitive advantage. This is evident from small start-up businesses through to large businesses and infrastructure.
By catalysing investment at scale, the combination of private sector involvement and productivity improvements is helping enable least-cost carbon dioxide abatement and deliver broader economic benefits. As the CEFC grows and further diversifies its portfolio, the positive economic and environmental impact of this innovation will be amplified.
With the uncertainty in policy, some large renewable energy participants have announced plans to sell assets and exit the Australian market. This has impacted some of our investments and the CEFC has attempted to be a flexible financier throughout.
The current CEFC portfolio is forecast to earn a lifetime yield of 6.1 per cent, or 2.94 per cent above the average Australian Government bond rate of 3.16 per cent. This is a strong achievement in a market challenged by lower interest rates and declining investment opportunities and margins.
Investment opportunities in utility-scale renewable energy projects should recover in the coming years with stable policy settings and clear parameters from Government. The CEFC remains committed to working in a flexible way with Government programs, project owners and co-financiers to grow this sector.
The CEFC Board shares with the Government the objective of protecting and minimising risk exposure in the investment of public funds. In fulfilling its responsibilities, the CEFC pursues its investment function, applies commercial rigour, invests responsibly and manages risk prudently, utilising a robust, commercial risk management approach.
The CEFC Board remains committed to working constructively across all levels of Government, including of course with our Responsible Ministers. Under revised Administrative Arrangements Orders of 21 September 2015, the CEFC is now the responsibility of the Environment portfolio. We welcome this, and the enhanced opportunity to coordinate with other Environment portfolio initiatives and with our Responsible Ministers, the Hon Greg Hunt MP, Minister for the Environment, and Senator the Hon Mathias Cormann, Minister for Finance.
I pay tribute to the members of the CEFC Board: Paul Binsted, Michael Carapiet, Ian Moore, Anna Skarbek, Andrew Stock and Martijn Wilder AM, for their continued commitment, enthusiasm and hard work throughout the year. Their professionalism and dedication to the shared vision for the achievement of the CEFC Mission continues and has been essential.
I am pleased to report that the Board had recently been honoured to receive the Climate Alliance 2015 Board Leadership of the Year award. The Climate Alliance awards recognise Australian organisations that have demonstrated commitment to managing the risks and opportunities of climate change, providing a positive role model for other boards, taking a leadership role in climate response in the business community and providing exemplary leadership for the Corporation’s executive.
Credit is also due to the CEFC executive and staff, who have delivered a good 2014–15 result, notwithstanding the tough market conditions. The energy, leadership and experience across the team remains critical to the success of the organisation. Such a result would not have been possible without the ability of the executive team and staff to find opportunities for the CEFC to catalyse investment and fulfil its objectives. I congratulate our CEO, Oliver Yates, the executive team and the entire staff on their efforts throughout the year.
It is important that Australia has a range of energy options for the future. Innovation and investment are vital to long-term productivity growth, broadly and particularly in energy.
Worldwide, the energy sector is undergoing a transition that will result in a diversity of cleaner and smarter technologies and more distributed generation. This presents opportunities and challenges for the Australian economy in our areas of natural competitive advantage, of which renewable energy and innovation are an integral part.
The CEFC continues to demonstrate its ability to contribute to the economic transition and diversity of Australia’s energy mix, and to effectively and collaboratively work with a diverse range of businesses and investors. Mobilisation of public and private sector investment (into renewable energy, energy efficiency and low emissions technologies) can provide important opportunities for economic growth and productivity in Australia.
The CEFC is committed to continuing to play a valuable role helping Australia maximise economic opportunities for lowering emissions and contributing to our global competitiveness in a carbon constrained world, leveraging private sector skills and capital for public policy outcomes that strengthen the Australian economy.
Jillian Broadbent AO