- More than a Green Bank - Australia’s Clean Energy Finance Corporation
- April 24, 2012
- Law Firm: Norton Rose Canada LLP - Montreal Office
The Clean Energy Finance Corporation (CEFC), Australia’s equivalent of the UK Green Investment Bank or the US CEDA or PREF Programs, is set to be established as an independent corporation, with secure funding and a flexible mandate to invest in debt, equity and funds participations. It goes far beyond its offshore equivalents and is likely to be more of a Green Future Fund than a Green Bank.
CEFC in a nutshell
The establishment of the CEFC is a key element of the Australian Government’s implementation of its Clean Energy Future Plan. Its core focus is to overcome barriers to private sector support for renewable and clean energy projects and technologies.
The report of the CEFC Expert Review Panel (Report) was released by the Government on 17 April 2012, with complete acceptance of all 26 of the recommendations set out in the Report.
The Report recommends that the CEFC operate as an independent statutory authority, with A$10 bn of pre-authorised Government funding. It will be an entity that will use a range of debt, equity and funds-based participations to:
- achieve its objective of “facilitating flows of finance into the clean energy sector”;
- invest in Australian-based renewable energy, low-emissions and energy efficiency projects as well as incidental manufacturing;
- allocate funding at least equally between renewable energy and low-emissions/energy efficiency streams;
- direct investment in energy efficiency to focus on larger energy efficiency-focused projects;
- apply a “commercial filter” to its investment decisions;
- consider positive externalities (policy goals) as well as purely commercial factors;
- offer concessional finance through flexibility in availability, tenor, cost or risk absorption;
- favour later-stage projects with renewable energy projects still being eligible for large-scale generation certificates under existing Renewable Energy Target (RET) scheme;
- seek a positive rate of return at approximately the Government’s bond rate;
- favour loans initially rather than equity investments whilst it builds its capacity;
- be efficient, accountable and transparent in its operations;
- act through an independent board operating within the parameters of its investment mandate;
- develop and apply a robust risk management and compliance framework; and
- commence investment operations on 1 July 2013.
The Report also recommends the later consideration of either absorbing Low Carbon Australia into the CEFC or directing some aspects of CEFC funding through Low Carbon Australia.
CEFC in context
The Report and Government have confirmed that legislation, which will include the CEFC’s enabling legislation, will provide the necessary appropriation to secure its A$10 bn of funding. That legislation is proposed to be tabled in Parliament within the next 3-4 months. There is also an assumption that key existing Government policies on carbon price and the RET will remain in place.
In some respects the CEFC will resemble its export finance cousin, the Export Finance and Insurance Corporation (EFIC), Australia’s export credit agency. EFIC is a provider of loans, guarantees and other financial support (but not equity or subsidies) where the commercial market is unable to assist Australian exporters. It is a statutory authority with an independent board (albeit with one Government-appointed member) and provides a commercial return to the Government.
However, quite importantly, EFIC’s obligations are expressly guaranteed by the Commonwealth and it funds itself by issuing debt securities in local and offshore capital markets. It is not reliant on appropriations but does operate within debt issuance limits agreed with the Government. There are some other important differences that relate to restrictions on the type and amount of financial support that EFIC can provide, arising in part due to OECD and WTO requirements. A final, ironic difference is that at the same time as we see a bold and expansive CEFC initiative being launched, the Government-appointed Productivity Commission is likely to recommend a significant reduction in EFIC’s mandate. If implemented, those changes would leave exporters in the renewable and clean energy sector with no gap funder to assist, as the CEFC mandate is to be limited to Australian projects and related manufacturing.