Performance statement and analysis
1. Catalyse private sector capital
Performance measure 1.1
Financial leverage – ratio of private sector capital to CEFC capital
Each dollar of CEFC capital invested in 2021–22 was matched by an additional $2.30 in private sector capital. This leverage result was eight per cent below the bottom end of our target range of $2.50: $1.00. This lower result was largely attributable to two of the three largest transactions accounting for nearly 25 per cent of the 2021–22 capital commitments, attracting leverage of less than $1.00. The two transactions were those involving PowerLink and the ANZ. Across the portfolio, CEFC investment commitments in the 2021–22 year contributed to total transaction value of $4.79 billion, reflecting additional private sector investment. While the CEFC reports leverage at the primary point of investment, it should be noted that secondary leverage also occurs as additional investors or financiers replace CEFC capital as our investments mature.
1. For this indicator the 2021–22 Portfolio Budget Statements target was $2:00.
Performance measure 1.2
Amount of new capital leveraged or unlocked that invests in Australian clean energy technology, business models or financial structures and/or products for the first time
During the 2021–22 year, 11 CEFC investment commitments attracted new private sector market participants. The total capital committed by these new participants was $439 million, across diverse investment areas, including agriculture, property, renewable energy generation, private equity and cleantech innovation. These new investors included property investors, fund managers and superannuation funds.
2. Invest in innovation, clean energy technologies and infrastructure
Performance measure 2.1
Total capital committed to clean energy technologies
The CEFC made total new investment commitments of $1.45 billion in the 2021–22 year. This was at the top end of the performance target range and compares favourably with the $1.37 billion of new investment commitments made in the previous financial year.
These commitments included $455 million for essential grid and transmission infrastructure projects, including the Queensland Powerlink project in the Southern Downs and the EnergyConnect development in NSW, Victoria and South Australia. A combined $110 million in investments in two major Australian manufacturers, Manildra and Orica, aim to deliver significant operational and emissions benefits and demonstrate opportunities to address “hard-to-abate” sectors.
CEFC investment commitments also extended to large-scale renewables and energy storage, with an additional $53 million in commitments, including innovative bifacial solar panels and half-cut cells, as well as early-stage renewable energy developments.
A record $45.4 million in new and follow-on investments through the Clean Energy Innovation Fund included backing for MicroTau, which has developed a shark skin–inspired film coating to reduce transport emissions and Samsara Eco, which is developing an innovative process using modified enzymes to support infinite plastics recycling.
Performance measure 2.2
Estimated emissions reduction per annum for new investment commitments
New investment commitments in 2021–22 are estimated to achieve emission reduction of 1.4 Mt CO2-e per annum, being 40 per cent higher than the target range.
Emissions abatement achieved through direct CEFC investment commitments to two Australian manufacturers contributed nearly 65 per cent of total estimated annual emissions reduction. The next most significant contributor to emissions reduction was investments in renewable energy.
It should be noted that CEFC investment commitments in grid enhancements and energy storage are not included in the estimate of direct emissions reduction under this performance metric. However, these investments are critical in unlocking the additional investment in renewable energy required to create a low emissions electricity grid in the future.
CEFC capital committed per tonne of estimated lifetime emissions reduction for new investment commitments in 2021–22 was $51.00. The expected financial return per tonne of estimated lifetime emissions reduction for 2021–22 investment commitments was $12.00.4
Performance measure 2.3
Percentage of new investment commitments that have at least 2 “positive impact” material ESG factor scores
The CEFC Environmental, Social and Governance (ESG) Policy identifies material ESG factors assessed as being the most relevant for CEFC. The material ESG factors are identified as material investment and/or corporate risks and opportunities for the CEFC under a two-step process. Firstly, areas most relevant to our activities are identified where we seek to cause no harm. Secondly, we identify the material ESG factors where we can maximise our impact. The performance target is focused on the investment commitments we make and their potential to maximise impact in addition to our core decarbonisation emphasis. During 2021–22, 86 per cent of new investment commitments were assessed as having at least two positive impact material ESG factors in addition to the core decarbonisation factor, against the target of 70 per cent.
3. Financial sustainability
Performance measure 3.1
Total operating result adjusted for concessionality, loan modification charges, bond revaluations and Innovation Fund revaluations.5
The adjusted operating result of $219.6 million was significantly better than the target range of $95 million to $120 million. The adjusted operating result of $219.6 million largely comprises $215.6 million of own-source revenue (excluding unwind of concessional discount, loan and modification changes) and $91.3 million net positive fair value gains on equity investments and derivatives in the core portfolio. This was partially offset by a $40 million increase in the provision for impairment and $51.5 million in operating expenses.
Revenues were significantly higher than planned, reflecting higher dividends and trust distributions, along with higher interest and fee income as a result of higher average loan balances, market interest rates increasing sooner than expected and fees associated with the early refinance of a number of loan facilities. Fair value gains and losses on equity and derivatives were not forecast in the 2021–22 Corporate Plan, given the high levels of uncertainty associated with the economic impacts of the COVID-19 pandemic.
Operating expenses of $51.5 million were lower than planned, due to lower than forecast employee headcount, and savings in consulting, professional fees and travel related expenditures.
Performance measure 3.2
Free cash flows from operations after the implied costs of funds
Free cash flows from operations8 for the 12 months to 30 June 2022 were $174.6 million. After accounting for the implied costs of government funding of $85.1 million9, the net result was an $89.5 million surplus, significantly ahead of target. This result was also an improvement on the prior year result of $69.9 million. As with the adjusted operating result, higher dividends and trust distributions, along with higher commitment and establishment fees, were the most significant drivers of out-performance against target.
4. Qualitative performance indicators
Performance measure 4.1
The organisation’s ability to demonstrate leadership and broaden relationships across governments, regulators, industry, the research sector and investor communities to accelerate the energy transition
The CEFC non-executive Board and its non-executive sub-committees reviewed the performance of the Corporation and concluded that performance had exceeded stakeholder expectations in leadership and the broadening of relationships. In addition to the investment commitments made during the year, this was demonstrated through:
- Strong engagement with the Australian Government on a number of priority policy areas, including the proposed Rewiring the Nation policy
- Active engagement with the Australian Energy Market Commission (AEMC) through the Transmission Planning and Investment review process, including briefing commissioners
- Engagement with the Australian Building Codes Board regarding minimum residential energy efficiency standards for the 2022 National Construction Code
- Recognition as a Responsible Investment Leader 2021 by the Responsible Investment Association Australasia
- Engagement with NSW EnergyCo in the planning and delivery of the first NSW Renewable Energy Zone which had progressed to final bidder stage at the time of reporting
- Collaboration with the NSW and Queensland Governments in relation to the delivery of new Renewable Energy Industrial Precincts
- Participation in the Australian delegation to COP26 in Glasgow
- Creation of Virescent Ventures as a new venture capital manager to leverage new sources of third-party capital into the cleantech sector.
Performance measure 4.2
The effectiveness of the organisation with regards to the active management of the portfolio to deliver positive financial and emissions reduction outcomes
Active management of the portfolio is an important element of our operations, contributing to the realisation and delivery of positive financial and emissions reduction outcomes from our investment commitments. Effective and active management of the portfolio was demonstrated through:
- Ongoing management of, and support across our portfolio of renewable energy assets, particularly those affected by low energy pricing and curtailment throughout the year
- Refinancing of a wind farm with a lower retained exposure for the CEFC and the successful refinancing and exit from another de-risked wind farm, demonstrating an ability to support projects at an early stage and until their risk profile is attractive to the broader debt markets
- Negotiation of restructures and/or debt prepayments across specific projects designed to mitigate future risk
- Early termination of an aggregation partnership that had experienced challenges demonstrating adherence with program requirements
- Participation in the restructure of an existing equity fund investment to deliver a broader ESG focus.
1. For this indicator the 2021–22 Portfolio Budget Statements target was $2:00.
2. For this indicator the 2021–22 Portfolio Budget Statements target was $0.8b to $1.0b.
3. For this indicator the 2021–22 Portfolio Budget Statements target was >0.45Mt CO2-e.
4. These figures are estimated using updated Emission Intensity Factors, reflecting the accelerated decarbonisation forecast by the Department of Industry, Science, Energy and Resources. On the same basis, CEFC capital committed per tonne of estimated lifetime emission reductions for new investment commitments in 2020–21 was $126 (reported $78 in Annual Report 2021), and the expected financial return per tonne of estimated lifetime emission reductions for 2020–21 investment commitments was $29 (reported $18 in Annual Report 2021).
5. Adjusted operating result is a self-defined corporate performance metric and is calculated as the statutory operating result, adjusted for (1) administrative funding received from government (2) Clean Energy Innovation Fund gains and losses, (3) concessionality and loan modification charges and unwinds, and (4) loan and bond mark-to-market revaluations.
6. For this indicator the 2021–22 Portfolio Budget Statements target was >$80m.
7. For this indicator the 2021–22 Portfolio Budget Statements target was >$0m.
8. Free cash flow from operations is defined as net cash flow from operations less capital expenditure and government appropriation revenue.
9. The implied cost of government funding is based on the relevant five-year Australian government bond rate associated with amounts drawn and returned as equity from/to the CEFC Special Account.