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New Head of Australia's Green Fund Sees First Investment by July 2013

The new head of Australia's Clean Energy Finance Corporation (CEFC) expects the fund, set up by the ruling Labor government to invest A$10 billion (US$10.4 billion) in renewable energy, energy efficiency and low emissions technologies, to make its first investment in July 2013.

Oliver Yates, the CEFC’s inaugural chief executive and formerly Macquarie Group’s head of climate change services, was keen to stress the bank’s conservative approach and its initial preference for providing loans over equity.

“We are effectively here to use this money to generate a return and in so doing, do it in a way that provides as much catalytic benefit to the industry,” he told Renewable Energy World in an interview. “Our investments will be at the lower risk end of the spectrum, supporting projects where we can to meet our targets.”

The fund is expected to coax cautious investors out of the woodwork, where they have been hiding from a volatile policy outlook and unstable capital markets. 

“What we need to do now is encourage investors to try again,” Yates said. 

The CEFC will aim for a rate of return comparable to the government’s bond rate and finance will go to projects at later stages of development. As a co-investor, it will be sharing risk with other financiers and investors and, unlike its US Department of Energy counterpart, will keep government at arms length. 

As well as the CEFC, the Labor government has deployed the A$3.2 billion grant-making Australian Renewable Energy Agency (ARENA), a carbon-pricing scheme and a renewable energy target (RTET), aimed at sourcing 20 percent of Australia’s electricity from renewable sources by 2020.

Only the RET has bipartisan political backing, yet Yates shrugged off the Liberal-National Opposition’s resolve to disband carbon-pricing, the CEFC and ARENA.

Opposition finance spokesman Andrew Robb in September 2011 called the CEFC a “slush fund” going further to warn the CEFC will be all borrowed money, “and many of the projects it will support would be like someone borrowing $10,000 from the bank and putting it on the horses and doing it again, and again, and again.”

His leader, Tony Abbott, who — with an election due before the end of November 2013 — is currently tipped to be Australia’s next prime minister, has sworn a “blood oath” to axe Labor’s carbon-pricing scheme.

“When people understand the application of the [Clean Energy] Act and the way the CEFC operates, they may change their view,” Yates said. “If you read the legislation, it is unclear how the money would be applied. Once there’s clarity that the money is to be applied with a strong intent not to have a negative impact to the taxpayer, then that may change their view.”

“In application, it’s very clear that we are mandated to return to the government its capital and achieve a return equal to the government’s cost of funds — that’s the way it will be operating. A slush fund doesn’t do that — a slush fund is used to give money away and we are definitely not in the business of doing that,” Yates added. 

He said the CEFC has the “ability to go anywhere” across capital structures — from equity to debt, but it will not be providing loan guarantees as in the U.S. “But like any institution, if you want to preserve capital then you need to apply your money conservatively in consideration of the risk for whatever class of asset you are using.

The CEFC is at a very early stage — Yates has yet to recruit a team to assess and explore the gamut of opportunities across the country. “My objective is to try to get some money out there by July 2, and from thereon invest A$2 billion each year for five years,” he said. 

Yates is conscious of the concern in the markets that CEFC funding might “crowd out” private capital. He said the objective will be to "crowd in” by encouraging incumbent investors in the sector to bring more money in. The CEFC will in effect lower the cost of capital in the sector. 

He did not rule out investing in transmission for the purpose of mobilising Australia’s renewable energy sector. “Our transmission system is based on the old world scenario of coal and big power stations and certainly some of Australia’s renewable energy resources that lack the ideal infrastructure. We certainly have the flexibility to invest in projects that might enable that potential to be unlocked,” Yates said.

On the fifth day of his job, Yates said he had been inundated by calls from prospective investees. “I’m obviously delighted with the interest the CEFC has received. I’m keen for people to understand how the CEFC might help their projects and talk to us about it.”

Yates is planning to tap overseas expertise to strengthen his investment team, abd told Bloomberg News of plans to ask the UK’s Green Investment Bank and Germany’s KfW development bank to consider temporarily assigning a few staff members to Australia to assist with the start-up.

“I’d love to have that international experience down here in our market, people who have seen the good sides and the bad sides,” Yates said.

Last week, the UK launched its Edinburgh-based Green Investment Bank, which will have £3 billion (US$4.8 billion) of government money to invest in areas such as renewable energy, carbon capture and storage and energy efficiency measures.

First to benefit from the fund will be a project in northeast England that will generate energy from waste. Around £8 million (US$12.8 million) will go to the construction of an anaerobic digestion plant at Teesside, the first of six planned over the next five years.

The bank will also invest £5 million (US$8 million) to fit manufacturer Kingspan's UK industrial facilities with systems that will reduce its energy consumption by 15 percent.

Lead image: Green plant growing from coins via Shutterstock

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