Established a decade ago as a green bank, the Clean Energy Finance
Corporation (CEFC) is investing $10 billion on behalf of the Australian
Government to accelerate Australia’s transition to low emissions. It has
financed large-scale renewable energy projects and also invested in
investment funds that reduce emissions across a range of sectors. When the
CEFC backs a private equity fund, it needs to be assured of two outcomes -
a market-based investment return and a meaningful decarbonisation impact.
The CEFC was established by the Clean Energy Finance Corporation Act (2012) to increase
the flow of finance into renewable energy, low emissions and energy
efficiency solutions. Its latest annual report shows that it completed 22
transactions in 2020-21, amounting to $1.37 billion in new investment
commitments with a total project value of $5 billion. These commitments are
spread across a range of sectors and technologies, including transmission
and grid infrastructure, energy storage, hydrogen, embodied carbon, and
green housing. In the same period, its specialist cleantech fund, the Clean
Energy Innovation Fund, which helps match investors with leading Australian
entrepreneurs, backed a record 11 diverse projects, including a lightweight
solar panel maker, an e-bike delivery service, a livestock management
platform and an energy software developer.
“The key is to make sure that we are philosophically aligned,” says
Executive Director – Infrastructure, Rory Lonergan, regarding co-investment
with private equity. “Hopefully, it becomes a partnership because, as an
engaged investor, we want to contribute to the outcome. We create a forum
for ongoing discussions about the emissions objectives.” This can include,
for instance, the use of battery power or new decarbonisation technology.
By seeding investments, it aims to give other limited partners, such as
superannuation funds, opportunities to invest too.
The CEFC sets ambitious goals to reduce the carbon footprint of assets they
have invested in by requiring the development of a pathway to net zero over
a given timeframe. It wants to know their carbon footprint and how that can
be reduced. People are held to account, Lonergan says, for investments made
in new assets. The CEFC sometimes helps to design an outcome with the
manager. If it’s a new fund, they will sometimes work with the manager to
design the portfolio. And, if there’s a fund model that particularly meets
its goals, it might look for a manager to develop the concept and implement
the strategy.
The CEFC also measures and acts to reduce its own emissions and has been
certified carbon neutral since 2016-17. It continues to act to reduce
emissions, including by restricting employee travel. Recently, it moved to
conduct more business via video conferencing to help mitigate any
post-COVID increase in travel by employees. It also upgraded the office
equipment of its managers and its own servers to enable more staff to work
from home.
“We are genuinely interested in getting the funds management community
focused on the theme of decarbonisation,” Lonergan says. The CEFC tries to
work with fund managers to embed decarbonisation in how they manage their
assets. “Increasingly, that involves them understanding and getting their
head around the fact that decarbonisation will just become good business
practice. We believe that when it makes economic sense, we will get the
greatest uptake – the biggest flows of capital.”
“Clearly, there’s a long way to go (in reducing emissions). If you take a
Melbourne Cup analogy, we’re a third of the way through the first lap. We
may be in a scenario where emissions continue to rise in the short term.”
“For managers to attract capital, they have to have increasingly ambitious
objectives on these issues,” he says. “But projects have to make economic
sense, because that is where you get the biggest uptake and biggest flows
of capital.”
When the CEFC invests, the first critical point is to ensure the manager is
philosophically aligned, in addition to an appropriate market-based
investment return and a decarbonisation outcome. A forum is established to
focus on emissions objectives, which can include information sharing on
issues such as clean energy funding for projects and technical innovations.