15 July 2015
The Clean Energy Finance Corporation (CEFC) committed new investments of close to $500m in the past 12 months, taking its total commitments to invest over the two years since inception to more than $1.4 billion. These projects and programs have catalysed a further $2.2 billion in other investment, confirming the CEFC's role as a leading driver of investment in clean technology infrastructure and energy efficiency projects in Australia.
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During its second full year of operation, the CEFC made investments which are helping drive the commercial deployment of new technologies and the development of innovative business models. The CEFC is successfully addressing financing barriers across clean energy markets, from early stage to mature market segments. CEFC investments have benefited commercial, manufacturing, public sector and agricultural activities in every Australian state.
New commitments by technology in 2014-15 included $246m in renewables [solar ($199m), wind ($37m) and waste-to-energy/bioenergy ($10m)], with a further $238m in energy efficiency projects. A ground breaking $15m investment in remote solar and storage was finalised just after the end of the financial year.
During 2014-15, the CEFC widened market opportunities and launched new financing options for small and mid-sized business through co-financing programs with major banks and other financiers, as well as energy companies. These aggregation financing programs, focused on energy efficient equipment and vehicles, and solar energy, are making energy cost saving technologies more readily accessible. These programs extend the benefits of CEFC finance to a broader market than would be possible via CEFC investing alone.
The CEFC has now made over 55 direct investments, with a further 34 projects financed under co-financing programs. The current CEFC portfolio investment comprises 33% solar, wind 21%, waste-to-energy/bioenergy 7%, ocean 2%, energy efficiency 31% and other low emissions technologies 6%.
All these investments are contributing to the CEFC's profitability. Every loan was made at a rate above the yield on the 5 year Australian Government bond rate prevailing at the time of investment. When built and operational, the projects in which the CEFC has invested are expected to abate 4.2 million tonnes CO2-e annually, with a positive net benefit to the taxpayer.
CEFC CEO Oliver Yates said: "The CEFC has been active in working with businesses, developers and co-financiers in accelerating Australia's transformation towards a more competitive economy in a carbon constrained world.
"We have continued to act as a catalyst to increase investment in emissions reduction, by providing finance for renewable energy and energy efficiency projects. During the year we were pleased to support the development of new financing and market delivery models that accelerate the uptake of new technologies.
"In line with its purpose, the CEFC's priorities are to continue to address financial barriers and support increased investment activity across the clean energy sector. In doing so, we deliver wider benefits to the Australian economy, such as assisting technologies to move down the cost curve, and building skills and supply chain capacity designed to assist Australia's move to a lower carbon economy. In particular, there is an important role for projects which provide a demonstration effect that leads to further investment.
"The revised Renewable Energy Target has opened the way for continued development of renewable energy in Australia and should provide investors with greater confidence in the further development and diversification of Australia's clean energy sector, including in the areas of innovative renewable technologies, large-scale solar and energy efficiency. A new post-2020 RET target will be critical to overcoming the long term financing challenges for the sector," Mr Yates added.
CEFC 2014-15 HIGHLIGHTS
The CEFC's new initiatives since July 2014 are:
- A $125m* investment in greener buildings via an equity stake in the EG Group's $400m High Income Sustainable Office Trust (HISOT), which will invest in older office stock to upgrade their energy performance to revitalise and reposition them in the market. Upgraded buildings have lower energy costs and have been shown to deliver higher rental income and higher net operating income, while requiring lower capital expenditure and having lower vacancy rates.
- A $120m Energy Efficiency Bonus equipment financing program by National Australia Bank (NAB) to accelerate the uptake of energy efficient vehicles and clean energy equipment by businesses and agricultural enterprises. The program is designed to boost the switch to low emissions and cleaner vehicles, as well as help businesses upgrade industrial and agricultural equipment and increase their uptake of solar and battery storage. The program is available across a broad commercial base, with a particular emphasis on agribusiness and regional Australia.
- A $100m investment in Origin's Solar as a Service program to drive power purchase agreements (PPAs) for commercial and residential solar. The CEFC provides Origin with access to long-dated finance, which is suitable for a solar and battery storage program of this scale. The CEFC's involvement demonstrates how the CEFC plays a complementary role, investing alongside the private sector to support new financing structures that catalyse market uptake of renewable energy technologies.
- A cornerstone investment of up to $75 million in the inaugural issue of National Australia Bank's Climate Bond issuance, an Australian first for an Australian dollar denominated and Australian asset linked bond of its kind. The CEFC commitment demonstrates the potential in the Australian market for mobilising capital in renewable energy through new financial structures such as green bonds.
- A $50m investment with Firstmac in an innovative securitised financing program to provide options to help accelerate business and personal adoption of low emissions and electric vehicles, as well as solar plus storage and energy efficient equipment.
- A $10m loan to Landfill Gas Industries for investment in Queensland waste-to-energy operations, producing electricity from previously wasted landfill gas. This demonstrates the potential for the CEFC to provide financing to projects which have bid successfully into the Emissions Reduction Fund (ERF), helping ensure their access to the funding necessary for the projects to proceed and facilitating the participation of smaller or newer enterprises in the ERF.
- A $4.7m loan for a yet to be announced solar development in the Northern Territory.
A further financing closed following the end of the 2014-15 financial year:
- Up to $15m loan for Australia's largest solar and battery storage project to date. The CEFC's finance, along with an ARENA grant, enables the development of the 10.6MW solar plant with 6MW of battery storage at Sandfire Resources' DeGrussa copper mine, 900km north-east of Perth, in Western Australia. *UPDATE: The DeGrussa Solar Project was commissioned and achieved full generation capacity in June 2016.
*Adjusted to up to $50 million in January 2019
Continued strength of existing portfolio
2014-15 also saw successful progression in projects committed to in prior years:
- Construction is underway at the award-winning Moree Solar Farm ($46m CEFC commitment, with total project value of $164m), which created a precedent in the Australian market for financing large-scale solar PV on a merchant basis. (UPDATE: Moree Solar Farm began generating solar power in March 2016)
- Rollout of the $200m CEFC/Commonwealth Bank Energy Efficient Loans program, targeted at new energy efficient equipment and solar PV for small business and not-for-profit bodies such as schools, local councils and community clubs. Typically, CEFC finance for these sorts of equipment upgrades has helped businesses lower energy costs by up to 30%, cut base building energy costs up by up to 45% and halve lighting costs.
- Construction and coming on-line of the new Taralga Wind Farm as it moves towards completion. This $280m project involved $37.5m of CEFC finance.
- Completion of the Portland Wind Farm Stage IV with $70m CEFC loan supporting a total project cost of $ 360m. The financing is for construction of stage four and refinancing of stages two and three. (This finance was fully repaid early in January 2016 as part of the sale of the Pacific Hydro group to State Power Investment Corporation.)
- The CEFC's early commitment of cornerstone debt financing helped South Australia's Sundrop Farms to secure growth capital from global investment firm Kohlberg Kravis Roberts (KKR) for its expansion using solar thermal technology. The Sundrop project demonstrates how the CEFC is helping draw in private sources of funding to enable innovative projects to proceed, generating new economic activity and employment in regional areas.
Robust pipeline for the future
In what has been a difficult year for investor confidence in the sector, the CEFC has secured a robust pipeline of innovative investment opportunities. The CEFC has a strong pipeline of investments including:
- Utility scale renewable energy projects
- Bioenergy and biofuels developments
- Projects involving production of inputs into clean energy technology
- Enhanced financing for low emission and electric vehicles
- Campus energy efficiency upgrades in the university sector
- Investment in energy efficient social and affordable housing.
"Since beginning operations in 2013, the CEFC has received proposals from more than 300 project proponents, seeking CEFC finance of almost $8 billion, for total project costs of more than $25 billion," Mr Yates added.
CEFC QUICK FACTS
- Since inception, the CEFC has made over $1.4 billion in total commitments to projects totaling over $3.5 billion in value.
- The CEFC investment activities are catalysing other investment into the sector, with its portfolio achieving matched private sector funds of more than $1.80 for each $1 of CEFC investment.
- The CEFC invests for a positive return. Its contracted investments, fully deployed, are currently expected to earn a portfolio weighted average yield of around 6% across their lifetime. This is around 2.5% above the weighted average yield on the 5 year Australian Government bond rate prevailing at the time the underlying investments were made.
- Annual abatement for investments (including subsidiary transactions), once all projects are constructed and operational, is estimated at more than 4.2 million tonnes of CO2e p.a.
- The CEFC estimates it is delivering abatement at a benefit to the taxpayer of around $2.40 per tonne of CO2e abated (i.e. a positive return net of government cost of borrowing).
- The CEFC's portfolio consists of 55 direct investments and a further 34 projects co-financed under aggregation programs.
- 41% of the CEFC's investments are with aggregation partners for financing programs now available to business, property, government and not-for-profit sectors across multiple states and territories.
- Investments targeting local councils, manufacturing and agribusiness make up 20% percent of the portfolio.
- The weighted average loan term of the portfolio is around 7 years.
- The CEFC has financed projects for businesses that employ over 35,000 Australians.
- The CEFC has partnered with all four major banks and more than 12 other domestic and international banks and financing bodies.
- In projects the CEFC is financing:
- Agribusinesses typically have halved their on-grid electricity or gas consumption by switching to on-site generation;
- Manufacturers upgrading equipment have been able to lower their energy costs by up to 30 per cent; and
- Building retrofits have the potential to substantially reduce base building energy costs.
- The CEFC is currently working on proposals from over 70 project proponents seeking CEFC finance of over $1 billion (for total project costs of over $4 billion).
About the CEFC
The Clean Energy Finance Corporation (CEFC) invests using a commercial approach to overcome market barriers and mobilise investment in renewable energy, energy efficiency and low emissions technologies.
Since its inception, the CEFC has committed over $1.4 billion in finance to investments in clean energy projects valued at over $3.5 billion.
The CEFC invests for a positive financial return, with more than 55 direct investments and 34 projects co-financed under aggregation programs. These projects help to improve energy productivity for businesses across Australia, develop local industries and generate new employment opportunities.
These CEFC investments are expected to achieve abatement of 4.2 million tonnes of CO2e per annum with a positive net benefit to the taxpayer.
The portfolio weighted average yield includes an estimate of all projected income from contracted investments, is based on assumptions made at the time each investment is committed, and as such is an indicative forecast only, given variables such as potential for material movement in assumptions between the time of contractual and financial close, establishment fees and costs, floating rates, timing of draw-down and deployment, penalty fees, early repayment fees, etc.
The CEFC operates under the Clean Energy Finance Corporation Act 2012.