THE CLEAN ENERGY FINANCE CORPORATION HELPING AUSTRALIA COMPETE IN THE RENEWABLE ENERGY RACE. Greenpeace / Markel Redondo

Transcription

1 THE CLEAN ENERGY FINANCE CORPORATION HELPING AUSTRALIA COMPETE IN THE RENEWABLE ENERGY RACE Greenpeace / Markel Redondo

2 INTRODUCTION Australians are great innovators. We re also a country endowed with some of the best renewable energy resources of any country in the world sun, wind, oceans, hot rocks. However as a nation we ve been stumbling along in the global race to take advantage of the global boom in renewable energy a $243 billion industry in and expected to attract $5.7 trillion of investment globally in the next 25 years. 2 Countries like China, South Korea, Germany and the US are leaving us for dead - often using technologies that were developed here. We should be winning this race. We have what it takes to lead the world into a 100 per cent renewable energy future. Instead we ve allowed other nations that have less technological innovation and fewer natural resources to get ahead. Our universities have consistently delivered world leading innovation in renewable energy, but when it comes time for commercialising these technologies, a pattern has emerged that sees the innovations going offshore. Take just two examples: We can put a stop to this Aussie ingenuity going offshore, these missed opportunities for our manufacturing industries and this failure to capitalise on job creation. The Clean Energy Future package announced by the Multi-Party Climate Change Committee in July 2011 includes a critical institution that can help turn this trend around the Clean Energy Finance Corporation (CEFC). 3 The CEFC, first proposed in the Australian Conservation Foundation s Funding the Transition to a Clean Energy Economy report, 4 is designed to take our best renewable energy innovation to full scale commercial operation. This paper outlines how the CEFC can do just that and put Australia back in a world-leading position on renewable energy. 1 Bloomberg New Energy Finance, Low carbon energy investment hit a record $243 billion in 2010, says BNEF, 11 Jan 2011, accessed at 2 International Energy Agency (2010), World Energy Outlook See 4 Australian Conservation Foundation (2010), Funding the Transition to a Clean Energy Economy, access at asp?news_id=3240 nnsuntech Power, now in China and one of the world s largest solar manufacturers, was built on the back of technology developed at the University of NSW nnausra, a company built from a solar thermal technology developed at Sydney University and now a successful company in America 1

3 WHAT IS THE CLEAN ENERGY FINANCE CORPORATION? KEY FACTS nnthe CEFC was announced under the Clean Energy Future Package the Government s package to put a price on carbon pollution nnthe CEFC will be independent, established under legislation and removed from annual budget cycles and politics (like the Reserve Bank of Australia, Future Fund, and Export Finance and Insurance Corporation) n n$10 billion will be seeded into the CEFC over five years for investing in deployment and commercialisation of emerging renewable energy technologies such as solar PV, solar thermal and geothermal nnthe CEFC will start investing from July 2013 nnfunding will be provided in two streams: nn nn 50 per cent of funding is reserved for renewable energy projects ($5 billion) The other 50 per cent of funding is available for renewables plus more general clean energy projects energy efficiency, low emissions technologies and building manufacturing businesses to underpin these sectors ($5 billion) nnthe CEFC will not provide government grants, but rather will invest with private investors using loans, loan guarantees and equity investments generating returns that can be recycled through projects for years to come. In this way, projects that would otherwise not be funded will attract private investment to get off the ground nnthe CEFC will be commercially oriented, staffed by experienced investment, banking and clean energy experts nnwith the $10 billion of public money, the CEFC will be able to leverage up to an additional $100 billion of private investment over coming decades 2

4 AUSTRALIAN GOVERNMENT EXPERIENCE FUNDING RENEWABLE ENERGY To date, Australian government funding to support renewable energy has been primarily delivered through grant funding. 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 commercialisation (see Box 1). BOX 1: THE SHORTCOMINGS OF GRANT FUNDING TO ACHIEVE EMISSIONS REDUCTIONS IN AUSTRALIA A recent report by the Grattan Institute explored the effectiveness of various policies used by Australian government to achieve carbon pollution reductions. The findings relating to grant funding programs is insightful, offering clear evidence why these have been slow to deliver any additional renewable energy deployment or emissions reductions in Australia. Key findings relating to grant funding: The Federal and State governments have announced around $7 billion in grant tendering schemes over the past decade, but very little of this has been spent. This is not due to a lack of demand but because the programs have failed to suit the commercial needs of businesses. Previously, most government funding for renewable energy has been targeted at early stage research and development. This is a critical area for government support but leaves 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. It is precisely here that the CEFC will focus its funding. The CEFC will build on existing government grant funding for R&D (that will continue to be delivered through the recently announced Australian Renewable Energy Agency (ARENA)) and thereby plug the gap between R&D and commercialisation (see Chart 1). This will give a serious kick-start to the renewable energy industry, with a significant pool of government funds that can be used to unleash private investment. Chart 1. Schematic illustration of renewable energy funding programs in Australia Of the three largest grant tendering schemes: nnonly 3 per cent of funding was delivered into actual projects within five years nnand only 18 per cent will be spent on actual projects in 10 years On average, for every million dollars the government commits to such schemes, only $30,000 of operational projects result within five years and only $180,000 within 10 years. Based on experience, government would need to announce an abatement purchasing fund of $100 billion to meet the 2020 emissions reduction target. 5 This presents strong evidence why a new approach to financing carbon pollution abatement and renewable energy is required in Australia, and the CEFC offers this new approach. Funding available $ R&D Grant funding including ARENA Proof of concept Demonstration CEFC CARBON PRICE Valley of death Commercialisation 20% RET 5 Daley, J., Edis, T. and Reichl, J. (2011), Learning the hard way: Australian policies to reduce carbon emissions, Grattan Institute, Melbourne. Mature technology 3

5 A NEW APPROACH TO RENEWABLE ENERGY FINANCING The old way of driving renewable energy investment in Australia is failing Australian innovators and entrepreneurs. A new approach is needed that builds on the patchwork of funding programs and scales them up to drive the creation of a thriving renewable energy industry in Australia. Tens of billions of dollars of investment in renewable energy is needed to transition to a clean energy economy. 6 This will facilitate the shift away from our polluting energy sources and make the kinds of reductions in carbon pollution required to play our part in avoiding the very worst of climate change. Across the globe, it s recognised that this level of investment is well beyond the means of governments alone. More than 85% of the total investments needed to meet the climate challenge will likely have to come from private capital Without government action, however, private sector investment will not reach the scale required to address climate change effectively. 7 This scale of private capital already exists, in places like our super funds. Government has the tools to unlock this private investment and has shown an appetite to support private investment in many other Australian industries from exporters, to film financing, desalination plants to highways. It s time we gave the same support to renewable energy. The CEFC is designed to do just that: to use a range of government financial tools to bridge a market gap sufficiently to attract and catalyse private investment in renewable energy. The CEFC has been designed explicitly to support the deployment of large-scale clean energy technologies which are market-ready but face barriers to commercial deployment. It will not crowd out investment that is already flowing but rather catalyse additional private investment that otherwise wouldn t flow. 6 Australian Conservation Foundation (2010), Funding the Transition to a Clean Energy Economy, access at asp?news_id= Institutional Investors Group on Climate Change, Investor Network on Climate Risk, Investor Group on Climate Change (Australia/New Zealand) and UNEP Finance Initiative, 2010 Investor Statement from New York Summit, accessed at Greenpeace / Markel Redondo 4

6 TURNING $10 BILLION INTO $100 BILLION The CEFC is designed to catalyse and leverage private investment, as well as generate returns that it can reinvest, to unlock total investment well beyond the $10 billion it has at its disposal. Estimates of the amount the CEFC could leverage vary greatly depending on the way it invests and the financial tools it uses. Take for example these international precedents: nnuk Green Investment Bank (under development) estimates are that the GIB could achieve a leverage ratio between 1:10 ($10 private for every $1 public) and 1:20. 8, 9 nnus Green Bank (proposed, Clean Energy Deployment Administration) leverage conservatively 1: nnus Department of Energy Loan Guarantees (operating) has achieved a leverage of 1: nnlow Carbon Australia (operating) had a mandated target leverage of 1:2, but in the first round of projects has achieved 1: Estimates already made for the CEFC include: nnbloomberg New Energy Finance estimates between 1:1 and 1:4. 13 nnclimate Works estimates between 1:0 and 1:2 (in the years to 2020). 14 However, based on international experience, and taking a longer time frame on the investment horizon than other Australian estimates, ACF believes the CEFC could achieve a leverage ratio of 1:10 using loans, loan guarantees and equity investments. This means the $10 billion CEFC could unlock an additional $100 billion in private investment. This could result in 100,000 new jobs to support these investments. 15 There is no shortage of renewable energy projects to fund, and now is the time to invest (see Box 2). BOX 2: THERE IS NO SHORTAGE OF RENEWABLE ENERGY PROJECTS TO FUND The Federal Government s $1.5 billion Solar Flagships program highlights that renewable energy developers are ready to build with a pipeline of large scale projects. The Solar Flagships program attracted applications for over 50 large-scale solar projects from consortia including both domestic and international companies. Together, these projects had the potential to deliver 10,000MW of energy enough to power 2.2 million homes, or about 20% of the national electricity market. Of the 50, eight projects were shortlisted for funding that included both solar PV and solar thermal plants. Only two projects gained final funding from Round 1 of the Solar Flagships: nnbp Solar and Pacific Hydro s 150 MW solar PV farm at Moree in northern NSW nnwind Prospect CWP s 250 MW solar thermal project at Kogan Creek in Queensland Round 2 is still expected to fund further projects, however it is unclear what funds remain of the initial commitment. This program is an insight into the potential for Australian renewable energy, demonstrating that business has the appetite and that if we get the support mechanisms right, projects can quickly become shovel ready. The CEFC will ensure that Australia taps many more of these Solar Flagship type proposals to scale up investment in renewable energy from two large-scale solar projects to many more. 8 Green Alliance (2009), Establishing a Green investment bank in the UK Briefing and FAQs, accessed at Our_Work/Green%20Investment%20Bank%20Briefing%20final%281%29.pdf 9 Green Investment Bank Commission (2010), Unlocking investment to deliver Britain s low carbon future. 10 Center for American Progress (2009), The Green Bank: financing the transition to a low-carbon economy requires targeted financing to encourage private-sector participation, accessed at issues/2009/05/green_bank.html 11 Australian Financial Review, Cloudy outlook for spending $15 billion, 12 July Australian Carbon Trust (2010), Media Release: First energy efficiency program investments announced, 26 November. 13 As reported in AFR article above. 14 Climate Works Australia, Low carbon growth plan for Australia: impact of the carbon price package, August ABC Lateline Business, Renewables industry talks up jobs boom, 11 July Clean Energy Council (2011), Large Scale Solar Policy Roadmap. 17 Energy Supply Association of Australia website, Australian Electricity Markets, accessed 14 September 2011, australian_electricity_markets 5

7 THE CASE FOR A CLEAN ENERGY FINANCE CORPORATION By 2011, at least 118 countries had policies to support renewable energy investment. 18 Far from being hand outs, these constitute investments targeted to address market failures that deliver multiple benefits in the national interest. These market failures include political regulatory risks, commercial lending limits, confidence gaps, and the cost of carbon pollution not yet being considered by energy companies among others. The national benefits that renewable energy investment unlocks include: nncreating jobs in new and traditional sectors nngenerating export opportunities nnreducing dependence on oil, coal and gas, and exposure to their volatile prices nncutting carbon pollution nndriving cost reductions in renewable energy by delivering large scale projects in new technologies and thereby allowing the industry to learn by doing The International Energy Agency recently found that the most efficient way to cut carbon pollution includes both a carbon price AND targeted renewable energy support policies. The latter reduces the overall cost of pollution reductions by bringing forward clean energy and more rapidly reducing its cost. 19 Many countries are already doing this: nnthe United States is currently considering a Clean Energy Deployment Agency, but it already has the very successful Loan Guarantees Program in place (see Box 3) for clean energy projects. On top of this, state specific finance corporations are being developed including the Connecticut Clean Energy Finance and Investment Authority nnthe United Kingdom is currently establishing a Green Investment Bank (see Box 3) nnin the Netherlands a Green Investment Corporation is under consideration nnscandinavia has established the Nordic Environment Finance Corporation nnthe China Development Bank Corporation has a dedicated investment arm focusing billions of dollars on a clean energy funding program nnthe Multilateral development banks - including the Asian Development Bank, World Bank, and the European Investment Bank - have all been successfully using a similar model of financing low carbon assets for many years BOX 3: INTERNATIONAL CLEAN ENERGY FINANCE PROGRAMS The UK Government has committed to the Green Investment Bank (GIB), with seed funding of 3 billion, and the ability to raise additional funds by issuing bonds in future years. The GIB is seen as critical to overcoming market and investment barriers that would otherwise prevent the UK achieving its carbon pollution reductions targets. It is predicted to play a major role in the delivery of offshore wind projects. The US Department of Energy Loan Guarantees is a highly successful program that has supported US$ 38 bill of investment in low carbon pollution energy and cleaner vehicle manufacturing whilst creating 60,000 jobs. It is supporting the delivery of several of the world s biggest solar plants, such as the 390 MW Ivanpah concentrated solar plants being built by BrightSource in California. What s more, investing government funds in this kind of institution in other sectors has long been successfully used in Australia to get a much bigger bang for the limited government buck. Take for example: nnthe Export Finance and Insurance Corporation (EFIC) was established over 50 years ago to support Australian exporters. Like the CEFC, it targets the market gap where commercial banks won t lend, using tools such as political risk insurance and loan guarantees to keep our exporters in business. Strict commercial guidelines and a clear mandate has enabled EFIC to consistently deliver dividends to the government to the value of about $100 million over the last decade with minimum risk. 20 nnnational Infrastructure projects, such as highways and desalination plants, have more often than not required an array of government financing tools to attract private investment such as bridge financing, off take agreements, loan guarantees and subordinated debt. nnlow Carbon Australia (LCAL) is a successful example of a government program that co-invests in low carbon pollution projects along with private investors. LCAL is an independent public company targeting energy efficiency projects and successfully leveraged $13 of private money for every $1 of government money invested REN21 (2011), Renewables 2011 Global Status Report, (Paris: REN21 Secretariat) 19 International Energy Agency (2011), Interactions of Policies for Renewable Energy and Climate, accessed at

8 GETTING AUSTRALIA S RENEWABLE ENERGY SUPPORT RIGHT The CEFC will be a central plank in Australia s renewable energy policy framework. It will work together with ARENA and the 20% Renewable Energy Target (RET) to provide targeted funding to unlock investment in renewable energy technologies across all stages of the development chain. While these policies go a long way to addressing market barriers to renewable energy development, more needs to be done to address the regulatory barriers and lack of network infrastructure that also hamper greater investment in renewable energy. It is vital that this suite of policies is underpinned by: nnreform of energy market rules to remove barriers to renewable energy and network investment nnbroad-scale planning and investment in network infrastructure (coordinated with Infrastructure Australia) It is critical that we get the CEFC right. The CEFC needs to put us on a path to a zero carbon pollution energy supply system by accelerating the development of a diverse renewable energy technology suite in Australia. KEY TESTS FOR AN EFFECTIVE CEFC To maximise its potential, at this early stage ACF will be looking to ensure the CEFC achieves the following: nninvests only in clean and sustainable energy projects that aid the transformation to a clean energy future, have no adverse sustainability impacts and where private investment would not otherwise flow. nnadheres to an emissions standard when investing in non-renewable energy generation projects under the Clean Energy Stream. The performance standard must be set at 0.2 tonnes of carbon pollution per MWh to ensure only the most efficient clean energy is supported by the CEFC. nnis independent of government and this is established in legislation. This is critical to ensure the long-term certainty of the organisation and avoid disruption during political cycles. The CEFC must have independence equivalent to that of the Reserve Bank of Australia, the Export Finance Insurance Corporation and the Future Fund. nnhas guaranteed $10 billion of funding, by enshrining the funding in law or a contract between the government and the Corporation. nnstarts investing quickly, with legislation passing by April 2012 at the latest, and investment starting in July 2013 or before. The Solar Flagships program shows clearly that there is no shortage of renewable energy project proposals in Australia, so delays in investment beyond July 2013 are unjustified. nnis additional to the RET, ensuring that the CEFC leads to truly new investment. Projects funded by the CEFC must be able to generate Renewable Energy Certificates and be additional to the 20 per cent Renewable Energy Target. 7

9 ESTABLISHING THE CLEAN ENERGY FINANCE CORPORATION It is critical that the process to establish the CEFC moves quickly in combination with the carbon pollution price to ensure that Australia does not get left behind in the global renewable energy race. The timeline that must be followed to help Australia compete in the renewable energy race is: nnseptember 2011: The government announces the Chair of the CEFC, who will then be tasked with developing the investment mandate and governance structure. It is vital at this stage to get the mandate right and work with the investment community to build the confidence to invest nnearly 2012: The Chair reports back on the mandate, and drafting legislation begins nnapril 2012: The CEFC must be passed into law nn : Set up of the CEFC, including appointing key experts nn1 July 2013: Investment begins 8

10 The Australian Conservation Foundation (ACF) is committed to inspiring people to achieve a healthy environment for all Australians. For over 40 years we have been a strong voice for the environment, promoting solutions through research, consultation, education and partnerships. We work with the community, business and government to protect, restore and sustain our environment. Australian Conservation Foundation Level 1, 60 Leicester St, Carlton VIC 3053 Tel Image credits: Front cover top & pages 1, 2, 7, 8 courtesy of BrightSource Energy Front cover bottom & page 4 courtesy of Greenpeace / Markel Redondo