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Australian Government - Clean Energy Finance Corporation Review

The Clean Energy Finance Corporation
Report of the Expert Review Panel

© Commonwealth of Australia 2012

ISBN 978-0-642-74795-2

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Letter from Jillian Broadbent, Chair, CEFC Expert Review Panel, to the Treasurer and Minister for Finance and Deregulation (page 2)

Letter from Jillian Broadbent, Chair, CEFC Expert Review Panel, to the Treasurer and Minister for Finance and Deregulation (page 1)

The Expert Review Panel

The Government appointed an Expert Review Panel on 12 October 2011 to advise on the design of the Clean Energy Finance Corporation (CEFC). The panel comprises Ms Jillian Broadbent, AO (Chair), Mr Ian Moore and Mr David Paradice.

Since committing to undertake the Review, the Panel has consulted widely and received over 170 submissions from wind generators, renewable energy companies, integrated and independent electricity retailers, infrastructure operators, financial institutions, community and individuals. These were sourced domestically and internationally. In developing the role for the CEFC, the Panel sought to review the financing experiences in the industry to understand the market failures or barriers that participants encounter and which may prevent the investment required to position Australian industry to be competitive in a future cleaner energy world.

The Panel is grateful for the level of stakeholder interest and support for the Review. Public submissions are at and listed in Appendix A.

The Panel was supported by a Secretariat and Deloitte Touche Tomatsu was engaged as a consultant. Professor Ross Garnaut, Mr Tony Wood and the Investor Group on Climate Change provided valuable comments in the later stages of preparing this report.

Ms Jillian Broadbent AO

Ms Broadbent is a member of the Board of the Reserve Bank of Australia, Non-Executive Director of ASX Limited, Woolworths Limited, and Chancellor of the University of Wollongong. She has extensive executive experience in domestic and international banking, financial markets and risk management, principally with Bankers Trust Australia. Ms Broadbent’s 30 year banking career has given her experience in all forms of financing across the risk spectrum, from equity through to secured debt and the appropriate pricing differentials involved.

Mr Ian Moore

Mr Moore has 35 years of banking, finance, insurance and actuarial experience. He is currently on the Board and Audit Committee of the responsible entity for Challenger Infrastructure Fund and Challenger Diversified Property Fund. He was previously on the Board and Chairman of the Risk Committee of hedge fund, Artesian Capital Management.

Mr David Paradice

Mr Paradice is the founding principal of Paradice Investment Management which has $6.5 billion under management, with offices in Australia and the United States of America. He has 30 years of experience in small company investing across both listed and unlisted investments.

Terms of Reference

Reporting to the Deputy Prime Minister and Treasurer, the Hon Wayne Swan MP and the Minister for Finance and Deregulation, Senator the Hon Penny Wong, the Chair and Review members are requested to:

1. Develop an implementation plan for the establishment of the CEFC.

2. Develop and recommend a proposed investment and operating mandate for the CEFC, with the mandate reflecting:

    2.1 the market area in which the CEFC will operate, including broad guidelines for how the corporation would invest and manage risk;

      2.2 how it will approach the intention that funding be divided into two streams:

      2.2.1 a renewable energy and enabling technology stream which will have one half of the funding allocated,

      2.2.2 an energy efficiency and low-emissions technology stream which will have half of the funding allocated and will be able to fund renewable energy projects in addition to the dedicated stream;

2.3 how the CEFC is positioned within the broader objectives of the Government's Clean Energy Future Package.

3. Consistent with statutory requirements and the guidance set out in Governance Arrangements for Australian Government Bodies, suggest appropriate governance principles and mechanisms, including:

3.1 responsibilities, powers and statutory duties of office holders including the Board, Chair and Chief Executive Officer;

3.2 appropriate Board structure, representation and skills;

3.3 reporting obligations of the Board;

3.4 relationship between the Board and responsible Ministers; and

3.5 duties and functions of the CEFC employees.

4. In the context of the proposed operating mandate, assess how the CEFC will interact with other Australian Government bodies and initiatives, including the Australian Renewable Energy Agency and Low Carbon Australia Limited. Where appropriate, recommend a path for transitioning from the current arrangements to arrangements which streamline support for cost-effective carbon reduction.

5. In conducting the Review, the Chair is to put in place a process for consulting key stakeholders, including wind producers, about the role of the CEFC and its relationship with the Renewable Energy Target.

Executive Summary

The Clean Energy Finance Corporation (CEFC) was announced as part of the Government’s Clean Energy Future Plan. The CEFC will be a $10 billion fund dedicated to investing in clean energy. The Government already has a Renewable Energy Target (RET) and a carbon price will begin on 1 July 2012 to drive investment towards new energy sources. The CEFC will supplement these initiatives to catalyse and leverage the flow of funds for commercialisation and deployment of renewable energy, low-emissions and energy efficiency technologies necessary for Australia’s transition to a lower carbon economy.

In conducting the Review, the Expert Panel (the Panel) consulted widely with the industry and stakeholders. It received over 170 submissions. The submissions supplemented the Panel’s own research in forming the recommendations of this report.

Global Move to Cleaner Energy

Australia is a late starter in the transformation to clean technology due to its access to low cost fossil fuels. This transformation will require substantial capital which the private sector alone may not be able to provide. Governments globally are acting to support a shift to cleaner energy sources. The CEFC can build on the experiences of dedicated government organisations similar to the CEFC that operate in the United States of America, the United Kingdom, Germany, China and Brazil.

Current global financial conditions, the complex nature of Australia’s electricity markets, the cost of renewable energy, and the preference of investing institutions for listed assets inhibit the financing of the clean energy sector.

A Vision for the CEFC

The CEFC is a mechanism to help mobilise investment in renewable energy, low-emissions and energy efficiency projects and technologies in Australia. The CEFC will finance Australia’s clean energy sector using financial products and structures to address the barriers currently inhibiting investment.

The Panel considers an appropriate objective to be:

apply capital through a commercial filter to facilitate increased flows of finance into the clean energy sector thus preparing and positioning the Australian economy and industry for a cleaner energy future.

The CEFC will be challenged in achieving this objective as there is a tension between funding the clean energy sector, applying a commercial filter, and maintaining the financial self-sufficiency of the corporation.

Operating Framework

The scope of the CEFC’s operations will be guided by an operating framework to ensure the CEFC achieves its objective. The operating framework is based on three principles that will direct where and how the CEFC will invest.

CEFC's operating framework diagram

Principle One – Clean Energy Sector Focus

The CEFC will focus its investments in the clean energy sector, namely on renewable energy, low-emissions and energy efficiency technologies in Australia, as well as manufacturing businesses that produce the required inputs.

The CEFC will allocate its funding within two streams: 50 per cent or more of funds will be allocated to the renewable energy stream and up to 50 per cent will be allocated to the low-emissions and energy efficiency stream.

The Panel proposes that the definition of renewable energy should be sufficiently general to afford the CEFC Board flexibility to respond to the dynamic renewable energy market. Accordingly it proposes to adopt the same approach as in the Australian Renewable Energy Agency (ARENA) Act 2011 that takes the ordinary meaning of renewable energy.

Consistent with the Government’s overarching policy of reducing the emissions intensity of the energy sector over time, the threshold for low-emissions technology should be set at a level substantially less than the current intensity of the electricity grid. The preferred threshold for low-emissions technology is at, or below, 50 per cent of the emissions intensity of the grid. This will allow the threshold to be adjusted as the energy sector changes in response to the carbon price and the RET.

The CEFC’s direct investments in the energy efficiency area will focus on large-scale projects where the primary purpose of the capital expenditure is on energy efficiency. Smaller scale energy efficiency projects could be financed indirectly through a third party aggregating these transactions.

Demand management is not energy efficiency. However, to the extent that it lowers future network upgrade costs and defers investment in new generation, it is a valuable tool in minimising the cost of moving to a cleaner energy future. Therefore, the Panel recommends the CEFC consider enabling technologies associated with demand management in the ambit of the energy efficiency area.

Principle Two – Commercial Approach

The CEFC will apply a commercial filter to investment decisions. It will focus on projects and technologies at the later stages of development. It will invest responsibly and manage risk so it is financially self-sufficient and achieves a target rate of return.

The filter will not be as stringent as the private sector equivalent, as the CEFC has a public policy purpose and values any positive externalities being generated. Consequently, it has different risk/return requirements. For a given return, the CEFC may take on higher risk and, for a given level of risk, due to positive externalities, may accept a lower financial return. While focusing on the later stages of project development, the CEFC should still be able to invest in market demonstration projects provided they pass the commercial filter and are assessed to be able to produce a positive return. To achieve the target rate of return, the portfolio will need to earn a rate sufficient to incorporate a margin for losses and operating expenses.

This focus on later stage developments, together with the CEFC’s commercial filter, distinguishes the corporation’s role from some other government initiatives. Interaction between the CEFC and other government initiatives is important to support projects and technologies along the innovation chain.

Investing in the renewable sector, the CEFC will be cognisant of the potential impact on other market participants when considering investment proposals. The Panel considers that any projects it funds should remain eligible for large-scale generation certificates.

Principle Three – Addressing Financial Barriers

Submissions and consultations identified several common financial barriers to funding cleaner energy projects. In addition, certain inhibitors are relevant to the CEFC’s specific investment areas of renewable energy, low-emissions and energy efficiency technologies.

The CEFC, as a financial institution able to offer concessional finance, has capacity to directly influence financial barriers. The individuality of each project necessitates a case-by-case approach. The CEFC can tailor concessionality in each case and apply it through availability, tenor or cost of finance or by absorbing additional risk. In setting the terms, the CEFC will provide only the least generous terms required for the proposal to go ahead (that is as close to market terms as possible).

The CEFC will invest on the premise that existing Commonwealth policies continue to operate, principally the RET and the carbon price. This approach together with: its specially appropriated funds; its clean energy sector focus; a target rate of return around the government’s bond rate; and a recognition of the broader economic benefits of the positive externalities of its investments, can combine to make transactions acceptable to the CEFC where they have been unacceptable to private financiers.

As a dedicated fund seeking to facilitate Australia’s transition to cleaner energy, the CEFC should seek to build a knowledge base, collecting information and, subject to confidentiality agreements, disseminate it to industry and other stakeholders. This includes knowledge about technologies, project development and financial products.

Illustrative Process

An illustrative investment assessment process is in chapter 4. This assessment process brings together the three principles of the operating framework and highlights the case-by-case approach the CEFC will take in assessing proposals and tailoring assistance.

Risk Management

The CEFC will have sound risk management practices in place that instil confidence that risks are identified and managed effectively. This is critical because the CEFC will be operating in an environment with limited opportunities to diversify its portfolio and under a mandate to invest where financial institutions currently have limited appetite. To effectively manage this, the CEFC needs the right people and robust policies, supported by a sound risk management and compliance framework.


To be efficient, effective and accountable, the CEFC will need a robust governance structure. The CEFC will make management, operational and investment decisions independently of the Government. The CEFC will operate in a transparent and publicly accountable way to provide assurance to the Government, taxpayers and the market that the corporation is managing public money prudently within the parameters set by the Government in the enabling legislation and the investment mandate.

To achieve transparency in its operations, the CEFC will produce annual reports. Annual reports will include audited financial statements, set out the CEFC’s establishment and operating costs, remuneration and allowances of Board members and key staff, and details of all contracts. Further, the CEFC will develop and publish guidelines for assessment of potential projects and publish the financial details of all investments made.

The Board will be appointed by the Government and be responsible for making management, operational and investment decisions for the CEFC. The CEO will undertake the day-to-day operations with support from senior executives. Clearly defined lines of responsibility will be developed, with ultimate responsibility for all decisions resting with the Board. The CEFC will remain accountable by operating within the parameters of the investment mandate, to be developed by the Government in consultation with the Board once enabling legislation is passed and the Board appointed. Through the investment mandate, the Government will articulate its broad expectations on how the CEFC invests and is managed by the Board.

Low Carbon Australia Limited

As part of the Clean Energy Future Plan, the CEFC needs to complement other Australian Government policies and programs. The Review highlighted a clear overlap in responsibilities with Low Carbon Australia Limited. The Panel recommends that after the establishment of the CEFC, the Board discuss with the Government options for building on the systems already developed to fund energy efficiency, either by Low Carbon Australia becoming part of the CEFC or the CEFC funding some renewable energy operations through Low Carbon Australia.


It is intended the CEFC begin investment operations from 1 July 2013. Between the passage of the enabling legislation and investment operations beginning, substantial effort will be required to set up the organisation. This pre-investment stage involves establishing the Board, agreeing on the investment mandate, engaging staff and setting up the critical infrastructure that will ensure transparent and accountable governance, strong risk management and best practice administration.

With the complexity in both financial markets and energy markets, the approach to investments will be staged. This is intended to balance the need for the CEFC to begin to deploy its capital early, while providing time for the corporation to build the capacity to identify, assess and manage direct investments. Initially, as the CEFC builds its capability and portfolio, it is anticipated that the majority of its investments will be loans rather than equity.



2.1 The CEFC’s funding of $2 billion per annum for five years from 2013-14 be specially appropriated in its enabling legislation.

2.2 The CEFC has flexibility in executing its investment mandate subject to appropriate risk management and governance frameworks.

2.3 The objective of the CEFC is to apply capital through a commercial filter to facilitate increased flows of finance into the clean energy sector thus preparing and positioning the Australian economy and industry for a clean energy future.

2.4 The CEFC invests only in commercial activities that are principally located in Australia.

2.5 The CEFC makes its investments in two streams:

  • a renewable energy stream
  • a low-emissions and energy efficiency stream.
  • Investing 50 per cent or more of available funds in the renewable energy stream should be a goal rather than a binding constraint. The CEFC will report on the actual allocation between the investment streams.

2.6 The CEFC uses the definition of ‘renewable energy technologies’ in section 4 of the Australian Renewable Energy Agency Act 2011:

Renewable energy technologies includes: (a) hybrid technologies; and (b) technologies (including enabling technologies) that are related to renewable energy technologies.

2.7 The CEFC sets the eligibility threshold for low-emissions technology at 50 per cent of the emissions intensity of electricity generation in Australia and applies an equivalent threshold for projects that do not involve electricity generation. The threshold will be reset annually based on updated data.

2.8 The CEFC can finance capital expenditure that is directed towards the efficient use of energy and the application of demand management enabling technologies.

2.9 The CEFC treats manufacturing businesses as eligible for investment where they produce later stage inputs for renewable energy, low-emissions technology and energy efficiency projects.


3.1 The CEFC uses the disciplines of a commercial organisation in its investment assessments and risk management while operating to achieve a public policy outcome.

3.2 The CEFC will assess investment proposals on a case-by-case basis applying a commercial filter and using a range of tailored financing instruments.

3.3 The CEFC focuses on projects and technologies at the later stages of development but does not exclude projects in the demonstration stage that can pass the commercial filter.

3.4 Any investments by the CEFC will not impact on the project’s eligibility for large scale generation certificates under the Renewable Energy Target. The CEFC will be cognisant of the potential impact on other market participants when considering investment proposals.


4.1 The CEFC, as a general principle, seeks to co-finance investments.

4.2 The CEFC can channel a proportion of its funds to the market through intermediaries and pooled funds. Intermediaries must operate and manage funds under parameters consistent with the CEFC’s investment mandate.

4.3 Consistent with its commercial filter, the CEFC will offer finance on the least generous terms possible for the project to go ahead.


5.1 The Board will have an effective risk management system in place prior to commencing investment operations.


6.1 The Government sets the direction and broad mandate of the CEFC but does not direct the CEFC in relation to specific investments.

6.2 The CEFC will be transparent in its operations and reporting.

6.3 The CEFC will develop and publish guidelines for potential proponents.

6.4 The CEFC Board should:

  • comprise up to seven members, including the Chair
  • be appointed on a part-time basis for a set term, with a provision for re-appointment` and with remuneration set by the Remuneration Tribunal
  • comprise members with substantial experience and expertise who have professional credibility and appropriate standing in the community
  • comprise people with skills and experience in: banking and finance; investment management; venture capital and private equity; clean energy sector technologies and engineering; and/or the environmental sector
  • exclude Commonwealth employees.

6.5 The CEFC Board is to:

  • set policies on the CEFC’s investment strategy and its risk management and determine benchmarks for assessing its performance
  • have governance responsibility for investment decisions, risk management and operations
  • be able to delegate selected powers to the CEO and senior executives but remains accountable
  • be able to appoint and remove the CEO and set their remuneration
  • be able to engage consultants to provide services.

6.6 The CEFC be exempt from the Government’s Commonwealth Procurement Guidelines but demonstrate value for money in all procurements through consistent and transparent procedures.

6.7 CEFC employees are engaged under an alternative employment framework developed by the CEFC, and not under the Public Service Act 1999.

6.8 The CEFC’s operations are reviewed by the end of 2016-17.

6.9 After it is established, the CEFC enters into direct discussion with the Government on whether Low Carbon Australia could be absorbed into the CEFC or if the CEFC could direct some of its funding through Low Carbon Australia. Any consideration would need to address:

  • how Low Carbon Australia aligns with the governance structure of the CEFC
  • how Low Carbon Australia’s carbon neutral accreditation program could be implemented outside the CEFC
  • how Low Carbon Australia’s experience in the energy efficiency area aligns with the CEFC’s model.

Next: Chapter 1: Operating Environment
Return to: Contents