Eco Innovator November 2011

Government Policy

Clean Energy Finance Corporation Appointments

The $10 billion Clean Energy Finance Corporation will make commercial investments in clean technologies through loans, loan guarantees and equity investments. Investments will focus on renewable energy, energy efficiency, low emissions technologies, and in helping refocus manufacturers to supply inputs for these sectors.

The Corporation will also remove barriers to the financing of large-scale clean energy projects, said the minister for Climate Change and Energy Efficiency, Greg Combet. It will target market failures that prevent the financing of projects, including risk aversion from a lack of information and information asymmetries, and the high costs of transactions which reduce total investment.

Last month the Government appointed Reserve Bank board member Jillian Broadbent AO to chair an expert review to advise on the design of the Corporation. It also appointed two members to the review panel - fund manager in smaller companies David Paradice, and banker and risk manager Ian Moore.

The expert review panel will report to the Government by mid-March next year with recommendations on the Corporation including its establishment, investment mandate, risk management approach, and governance.

The recommendations will inform the drafting of legislation to be introduced into Parliament next year so the Corporation can commence operations on 1 July 2013.

The CEFC will not directly compete with private sector financing, but act as a catalyst to private investment that is currently not available. Its role is to encourage private investment and help overcome capital market barriers to commercializing clean energy technologies. The CEFC will also invest in firms that use these technologies and in manufacturers that produce parts for these technologies.

It will not invest in carbon capture and storage technologies.

Funding will be in two equal streams: a renewable energy and enabling technology stream, and an energy efficiency and low emissions technologies stream that will be able to fund renewable energy projects in addition to the dedicated stream.

A report on the CEFC by the Australian Conservation Foundation (ACF) says it will fill "a significant gap in funding for demonstration and deployment stages of renewable projects at large scale. This is the ‘valley of death', where great technologies go to die. Alternatively, they travel to China, the US, and Europe to gain the financing support they require to reach full commerciality and compete with existing technologies. This gap in funding has been the reason most great Australian innovations have left our shores."

The Clean Energy Finance Corporation in the funding cycle.

ACF says government funding to support renewable energy has to date been primarily delivered through grants. "These programs have typically been insufficiently funded and often poorly delivered, ultimately failing to develop a strong domestic renewable energy industry where Australian R&D can reach commercialization," it said.

"A new approach to financing carbon pollution abatement and renewable energy is required in Australia, and the CEFC offers this new approach."

The CEFC will retain capital returned from investments for reinvestment, giving it a revolving funding model. The board will determine any dividends it pays to the Australian Renewable Energy Agency.






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