From Chair Steven Skala AO
In 2022, the CEFC marked 10 years of investment in Australia’s clean energy transition. Built on solid foundations in its first five years, the business has grown very significantly over the past five years.
In the five years to June 2022, the CEFC has seen marked growth in dollars committed, dollars crowded in from private sector capital, annual carbon abated and profitable financial returns. Occurring against a backdrop of market gaps, market failures and new technologies, these are notable public policy achievements.
Reflecting on its impact over time, the CEFC has made lifetime commitments of $10.76 billion to 30 June 2022, driving total transaction value of $37.15 billion. It completes its first 10 years with access to a further $4.57 billion in investment capital from the Australian Government, in addition to the ongoing returns from its investment commitments.
Since inception, each dollar of CEFC capital committed has attracted $2.42 in additional capital, an important indicator of its success in drawing private capital to investments that are reducing emissions across the economy. CEFC capital committed in the five years to 30 June 2022 had a higher leverage of $2.54: $1.00.
Cumulatively, the CEFC portfolio of investment commitments is expected to yield estimated carbon abatement of more than 200 Mt CO2-e. In 2021–22, this figure was buoyed by landmark investments in the manufacturing sector to support decarbonisation at Orica Limited and Manildra Group. Together, these investments are expected to eliminate some 900,000 tonnes of CO2-e annually. These transactions are notable for driving change in the hard-to-abate manufacturing sector, enabling the companies to remain globally competitive while delivering a significant contribution to national decarbonisation efforts.
New commitments made by the CEFC in 2021–22 totalled $1.45 billion, with the CEFC recording $261.7 million of normalised surplus from operations in the year1, a new record since it began investing.
In the reporting period, $837 million was received in principal repayments and capital returns and since inception $3.32 billion of capital has been returned or repaid to the CEFC from private sector sources. This is money that is effectively recycled from the private sector and becomes available to be reinvested by the CEFC in eligible investments.
The CEFC portfolio of investments at 30 June 2022 achieved a combined annualised rate of return (before expenses) since inception of 4.48 per cent, and an annualised rate of return (before expenses) over the past five years of 4.49 per cent.
The shorter-term results in part reflect tightening economic conditions. Clearly, more challenges will emerge in an environment that is now subject to rising interest rates and inflation, a nationwide skills shortage and supply chain disruption resulting in materials and timing uncertainty.
In addition, Australia is not immune from the ripple effect of changing geopolitical circumstances that amplify some of these pressures. These include the significant effect on global energy supplies and prices. In 2021–22 the recovery from the economic effects of the COVID-19 pandemic has been impacted by economic shocks connected with Russia’s invasion of Ukraine. Many nations are contending with a significant disruption to their energy supplies. It is a timely reminder of how important a stable and secure energy supply is to the economic circumstances that ensure the standard of living we have come to expect.
Australia’s transition to low emissions energy requires both an elevated sense of ambition and clear-eyed realism about the path ahead. The accelerated pace at which Australia seeks to meet its decarbonisation objectives presents a formidable challenge especially if it is to do so in an orderly fashion.
An enormous injection of capital, rapid development of storage and necessary emerging technologies, timely and affordable availability of material and labour to develop essential grid infrastructure and clean energy generation, an efficient resolution of national and state regulatory hurdles and sustained and timely community support are key factors in determining the path to, and pace of, success.
For its part, the CEFC is well positioned as it prepares to help the Australian Government deliver its $20 billion Rewiring the Nation policy. Backed by investment and sector expertise that this year helped kickstart two significant transmission projects – EnergyConnect and the Southern Downs Renewable Energy Zone – the CEFC will play an important role in Australia’s decarbonisation journey in the coming decade.
Cooperation with Australia’s energy agencies, ARENA and many co-investors is also critical. Over the course of the past decade, the CEFC has built strong relationships with these key parties.
The CEFC has enjoyed the support of the department, known in the relevant period as the Department of Industry, Science, Energy and Resources, and a good working relationship with the previous responsible Ministers, the Minister for Energy and Emissions Reduction, the Hon Angus Taylor MP and the Minister for Finance, Senator the Hon Simon Birmingham. It now enjoys the support of the Department of Climate Change, Energy, the Environment and Water, and a good working relationship with the Minister for Climate Change and Energy, the Hon Chris Bowen MP and the Minister for Finance; Minister for Women; Minister for the Public Service, Senator the Hon Katy Gallagher.
The CEFC is well served by experienced and hardworking Board members, and I thank them for their commitment and support. This year the CEFC Board welcomed David Jones AM and Matt Howell and extended its thanks to outgoing Board members Laura Reed and Philip Coffey for their significant contribution. I thank CEO Ian Learmonth, the Executive and all CEFC employees for their continuing enthusiasm, focus and good work during the year.
The entire team is proud of the CEFC legacy and is dedicated to ensuring that the CEFC continues to deliver for all Australians.
Steven Skala AO
1. The normalised surplus from operations excludes gains brought to account through holding bonds and loans at fair value, together with the non-cash expense and revenue related to concessional and loan modification charges and revenue received from Government through appropriation. This normalised surplus from operations was achieved after taking into account an increase in the impairment provision across the CEFC portfolio, including coverage for the first significant CEFC loss in 10 years.