Wednesday, 23 May 2012
Clean Energy Finance Corporation Bill 2012; Second Reading
That this bill be now read a second time.
The Gillard government has passed historic reforms to build a clean energy future which will strengthen the economy and protect our environment.
The Clean Energy Finance Corporation is a key part of the government's plan. It will encourage private investment and help overcome financial barriers to commercialising and deploying cleaner energy technologies.
There is global recognition of the importance of moving to cleaner energy sources. Due to its endowment and use of low-cost fossil fuels, Australia is a late starter in the transformation to clean technology.
The clean energy future plan, along with the Renewable Energy Target, will cut carbon pollution and drive investment and innovation in clean energy technologies. This will ensure our economy and industries remain competitive in a world that is becoming carbon constrained.
The transformation of our economy will be most evident in the electricity sector. It is expected that the sector will over time move away from coal fired generation to more renewable generation, with renewable energy growing from 10 per cent to 40 per cent of the generation mix by 2050, and conventional coal fired generation falling from 70 per cent to below 10 per cent; however, this will be a gradual transition.
The Clean Energy Finance Corporation will facilitate increased flows of finance into the clean energy sector to support this transformation, removing barriers that would otherwise prevent the financing of projects.
Several factors can inhibit the financing of clean energy projects, including the current global financial conditions, the complex nature of Australia ' s electricity markets, the cost of renewable energy, the preference of investment institutions for listed assets and a limited track record of returns.
Given the complexities involved, the Gillard government appointed an expert review panel to design the $10 billion Clean Energy Finance Corporation. The review was chaired by Ms Jillian Broadbent, an eminent Australian with extensive experience in the financial sector.
The review recommended a framework for how the corporation should operate. The government is implementing the recommendations through this bill.
The Clean Energy Finance Corporation will be independent from government, with no ability for the government to direct the c orporation in relation to specific projects for investment. This will ensure an independent decision - making process.
The corporation will operate based on three principles.
Firstly, th e c orporation is a mechanism to help mobilise private investment in renewable energy, low-emission s and energy efficiency projects and technologies in this country. The c orporation will also invest in manufacturing businesses that provide inputs to the clean energy sector.
The c orporation will focus on catalysing private finance into Australia ' s clean energy sector. It will provide financial products and structures that address the financial barriers currently inhibiting private investment. Such facilitation is critical in transitioning the Australian energy market.
To ensure the effectiveness of this capital mobilisation the c orporation is expected to require private co-investment in projects. It is unlikely ever t o be a sole financier. This approach will build investor experience and confidence in the clean energy sector.
The c orporation will invest at least half of its funds in renewable energy technologies. The other half will be available to fund energy efficiency and low-emissions technologies.
Secondly, t he c orporation will apply a commercial filter when making its investment decisions. It will focus on projects and technologies at the later stages of development, consistent with the r eport of the expert review panel.
The commercial filter will apply priva te- sector skills and disciplines to investment selection. Having a public policy purpose, the c orporation has different financial risk and return requirements and values any positive externalities from investments. For a given financial return, the c orporation may take on higher risk and, for a given level of risk, due to positive externalities, may accept a lower financial return.
Thirdly, the corporation has the capacity to offer concessional finance and directly influence financial barriers that inhibit the financing of this sector. The individuality of each project necessitates a case-by-case approach.
The corporation can tailor concessionality in each case and apply it through availability, tenor or cost of finance. In setting the terms, the corporation will provide only the least generous terms required for a proposal to go ahead.
The funding that the corporation will receive for making investments is set out in this bill. This will provide long-term support and continuity to the clean energy sector.
The corporation will receive $2 billion per year for five years from 2013-14 through the special appropriation in this bill. The corporation will also be provided three years of funding through the annual appropriation bills to assist with the establishment and operations of the corporation.
The corporation is intended to be self-sustaining once mature—that is, it will not require further assistance from the budget. Rather, the corporation's profits and funds returned from its investments will be available for reinvestment.
To allow the corporation to focus on its primary function of investing in the clean energy sector, a special account is being created to manage surplus funds and limit the corporation's need to undertake a cash management function.
This b ill establishes mechanisms for flows of payments between the special account and the c orporation that guarantees access to funds as needed to undertake its investment function.
This bill establishes the Clean Energy Finance Corporation as a Commonwealth authority under the Commonwealth Authorities and Companies Act 1997.
The c orporation will be managed by an independent board comprised of experts in areas such as banking, finance, economics and energy markets to ensure a robust and rigorous organisation.
The board will be appointed by the g overnment and will be responsible for the management, operational and investment decisions of the c orporation.
The board will be responsible for appointing the chief executive officer, who will take on the day-to-day administration of the corporation under the directions of the board.
The staff of the corporation will be well experienced to provide the necessary support to the board and CEO to determine the best investments and manage taxpayers' money appropriately.
The g overnment will also provide the b oard with an investment mandate that, when combined with the legislation, will set the parameters for its management of investments. This allows the b oard to develop its own investment strategy, in line with the g overnment ' s broad directions. S imilar to the Future Fund, this b ill ensures the b oard is consulted on the investment mandate and its response tabled in parliament.
The government expects the corporation to apply a commercial filter when making its investment decisions. Investments will focus on projects beyond the research and development stage, have a positive rate of return and have the capacity to repay capital. This approach will ensure the corporation invests responsibly and manages risk to achieve a targeted rate of return and ultimately be financially self-sufficient.
Technologies with a track record have generally had fewer problems accessing finance as the financial market has experience with their risk/return metrics. As such the corporation is not expected to fund these projects. One example of this would be conventional gas which may technically be eligible for funding as a low-emissions technology.
The g overnment also intends on requiring the c orporation to apply Australian industry participation plans through the investment mandate. Industry participation plans ensure Australian industry is afforded full, fair and reasonable opportunity to participate in projects.
As a part of the clean energy future plan, the Clean Energy Finance Corporation will complement other Australian g overnment policies and programs. This includes the Renewable Energy Target, the Australian Renewable Energy Agency (ARENA), the Clean Technology Investment Program and the Clean Technology Innovation Program.
It will be particularly important for the corporation and the Australian Renewable Energy Agency (ARENA) to maintain an active ongoing dialogue as projects funded by ARENA provide a potential pipeline of projects for the corporation.
The Clean Energy Finance Corporation will bring to bear the utmost rigour in assessing its investments, but will also give effect to its important public policy objectives by facilitating transactions where financial barriers are inhibiting the mobilisation of private sector funds.
Passing the legislation in this sitting will enable the c orporation to undertake the necessary preparations to commence its investment operations from 1 July 2013.
I commend the b ill to the House.