Accelerating Clean Energy Investment
The CEFC achieved a substantial increase in investment commitments in 2016-17, with more than $2 billion in new commitments to 35 individual transactions.
The increased value and scale of CEFC activity eclipsed prior year commitments, with the breadth and depth of the CEFC investments signalling strong business and investor appetite for clean energy assets.
At 30 June 2017, after four full financial years of operation, the CEFC had made cumulative commitments of $4.3 billion, to projects with a combined value of $11 billion. Each $1.00 of CEFC investment commitments in 2016-17 was matched by more than $2.00 from the private sector, with the investment portfolio expected to generate a return above the Government’s cost of funds.
The portfolio of current investment commitments almost doubled, to $3.4 billion at 30 June 2017, after accounting for loan amortisation, full repayments of some of our investments, and other exits during the year.
The accelerated pace of CEFC commitments in the 2016-17 financial year was the result of significant origination, marketing, research and stakeholder engagement activities across targeted industry sectors. It also reflected an improved policy environment, greater awareness of the importance of clean energy investment, and increased investor confidence.
Where we invest
The CEFC investment strategy seeks to maximise the impact that finance into the clean energy sector can have on Australia’s emissions reduction efforts.
CEFC commitments in 2016-17 focused on industry sectors with strong potential for decarbonisation. By transforming investment in these sectors, the CEFC is working to address the most promising pathways to decarbonisation, which is essential for the Australian economy to achieve net zero emissions in the second half of the century. These decarbonisation pathways are:
- Low carbon electricity – through the increased deployment of renewable energy technologies, battery storage and improvements to the electricity grid
- Ambitious energy efficiency – which will play a critical role in reducing energy consumption and, in turn, carbon emissions in all sectors of the economy
- Electrification and fuel switching – moving from high emissions to lower emissions fuel sources, including from fossil fuels to bioenergy, and increasing electrification, including vehicles.
CEFC portfolio emissions
CEFC investment priorities are focused on opportunities with strong potential to accelerate the decarbonisation of the Australian economy, contributing to Australia’s commitments under the Paris Agreement to reduce its 2005 carbon emissions by 26-28 per cent by 2030. This targeted approach, working alongside investors and project proponents, saw a substantial increase in anticipated carbon abatement associated with CEFC finance in the 2016-17 year.
New investment commitments in the 2016-17 year are expected to abate 5MtCO2-e annually. Across the CEFC portfolio of current investments (assuming all reach financial close, are constructed to design and fully operational), CEFC financed projects are estimated to achieve annual abatement of almost 7.3 million tonnes CO2-e, and more than 121 million tonnes CO2-e over their lifetimes.
The CEFC does not claim that this abatement occurs independently of complementary government policies such as the Renewable Energy Target.
The emission challenge
Australia ratified the Paris Agreement on climate change in November 2016. Australia’s commitments under the Paris Agreement are forecast to lead to a 50 per cent reduction in per capita emissions, and a two thirds reduction in the emissions intensity of economic activity. The Australian Government has reported that this is among the strongest targets of major economies on that basis. Figure 4 illustrates a linear trajectory for Australia to reduce emissions by 26-28 per cent below 2005 levels by 2030.
In its New Energy Outlook 2017, Bloomberg New Energy Finance (BNEF) said it expected the Australian power sector to fundamentally change by 2040, re-orienting from fossil fuels to renewables. BNEF said solar, wind and batteries would make up the bulk of new investment in power generation due to four key market forces:
- An influx of behind-the-meter generation
- Continued renewable energy cost declines
- An ageing and inflexible coal fleet
- The advent of smart and flexible technologies.
BNEF estimated that as wind, solar, batteries and pumped hydro replace retiring coal and gas, renewable energy would provide 42 per cent of Australia’s generation in 2030 and 59 per cent in 2040.
The CEFC Strategic Framework describes our approach to transforming investment in emissions reduction, with a clear focus on the areas of the economy where CEFC finance can have a high impact in contributing to Australia’s decarbonisation. Through our focus on these decarbonisation pathways, the CEFC is supporting industries as they transition to a lower emissions environment, to ultimately achieve the Paris Agreement vision for a net zero emissions global economy in the second half of the century.
Australia’s energy system is seeing significant new investment, with clean energy solutions and new technologies entering the market at increasing scale and price competitiveness. In 2016-17, the CEFC worked with project proponents, financiers and investors to help ensure these come together to deliver a system that is secure, affordable and sustainable.