01 Performance INVESTMENTS BY TECHNOLOGY

CEFC ANNUAL REPORT / 2014–15

INVESTMENTS BY TECHNOLOGY

Across the main technology types, the CEFC’s portfolio remains well-diversified, with 56 per cent of investments in renewable energy ($673 million), 38 per cent in energy efficiency ($458 million) and six per cent in low emissions technology ($75 million).

Since 2013, the technology mix for the portfolio has been within the range of 56-63 per cent renewables, 29-38 per cent energy efficiency and 0-8 per cent low emissions technology. This range will fluctuate from year to year as investment commitments enter and exit the portfolio.

Energy efficiency

The CEFC invested approximately $238 million in energy efficiency technologies across the year, attracting a further $133 million in private sector investment, to catalyse a total of $371 million investment in energy efficiency.

The experience of rising energy prices over recent years and the anticipation of this trend continuing, particularly for those businesses which utilise gas, has created strong demand for energy efficiency and onsite generation as a hedge against future higher prices.

These areas offer significant opportunity for least cost emissions reductions and major productivity improvements across the economy.

An increasing share of business effort is already being directed towards energy efficiency improvement, with the biggest drivers for action being concerns about energy prices and the desire to maintain or enhance profit margins. Businesses can implement projects which produce quick payback periods, such as lighting upgrades.

Access to upfront finance, information about available technologies, global economic pressures, and uncertainty surrounding government policy direction, remain very real impediments to business seeing the benefits of the energy productivity and costs savings that investment in energy efficiency would provide for them.

The CEFC’s energy efficiency programs give businesses improved access to finance so they can achieve the energy productivity gains and cost reductions available through implementing more efficient and cleaner technologies, whether this be in manufacturing and industry, SME, commercial building, government, agribusiness, mining, retail or utilities.

CEFC financing programs have been designed to cater for a broad spectrum of business needs, and include leasing finance, on bill finance, and finance for commercial property retrofits.

In terms of industry sectors targeted, CEFC new investments in 2014–15 were primarily directed at commercial, manufacturing and agricultural activities through efficiency in buildings, equipment and fuel efficiency in vehicles.

Solar PV

The 2014–15 year saw the CEFC make investments of approximately $199 million in both residential and commercial scale solar.

  • CEFC investment in solar PV was the largest area in 2014–15, with around 80 per cent of this devoted to small-scale solar and 20 per cent to large-scale generation.
  • The CEFC financed one new large-scale generation project: $4.7 million for Epuron to install 1.8MW of solar PV at the award-winning Ayers Rock Resort.
  • An additional project was financed just after the end of the financial year: a $15 million investment towards what will be Australia’s largest solar and battery storage project at Sandfire Resources’ DeGrussa copper mine in Western Australia. This is not included in the aggregate figures in this Annual Report.
  • The Royalla Solar Farm in the ACT was included in assets underpinning the NAB Climate Bonds.
  • CEFC-supported finance programs for small-scale residential and commercial solar focused on the early stage commercial development of new market delivery models, such as power purchase agreements (PPA), which can bring down the cost of deployment. These programs for deployment of small-scale solar included the CEFC’s investments in:

- A $100 million investment to support Origin’s deployment of solar PV through its “Solar as a Service” PPAs, removing the need for business and residential customers to contribute upfront capital to finance the installation of solar PV, and helping accelerate the take up of solar and battery storage.
- A $120 million investment to support NAB’s clean energy equipment financing program across a broad commercial base, with a particular emphasis on agribusiness and regional Australia.
- Similarly, the CEFC’s investment with Firstmac will also be used to help customers access small-scale solar PV.

The CEFC’s participation in solar-related investment activities in 2014–15 reflected the comparatively low risk associated with small-scale solar PV and the Small-scale Renewable Energy Scheme (SRES), where payments are received in full upfront, compared with the perceived risk for large-scale solar and the Large-scale Renewable Energy Target (LRET), where payments are received over the operating life of the project.

The CEFC’s pipeline of $500 million in solar-related projects evidences emerging opportunities for large-scale solar as costs reduce and solutions emerge for end-of-grid capacity and remote off-grid solutions. The CEFC’s ability to offer longer-dated finance for large-scale projects is enabling financial partners to provide project finance for projects involving new technologies, such as battery storage, and for projects deploying new technologies where specialist understanding is required.


Figure 13: CEFC portfolio by main technology type

At 30 June 2015 ($m and %)


Solar thermal

Solar thermal is an earlier stage renewable energy technology and the CEFC is continuing to consider opportunities to promote and catalyse investment in this area.

The CEFC was an early supporter of a solar thermal opportunity with Sundrop Farms, underwriting the initial debt package on the project. Sundrop Farms will use solar thermal to produce greenhouse grown vegetables for the domestic and export markets.

Bioenergy

The CEFC made one new investment into the bioenergy sector this year, to support Landfill Gas Industries in its generation of energy waste methane from municipal landfill sites at several locations in Queensland. This project was the beneficiary of a successful bid at the inaugural ERF auction.

The CEFC considers there are significant opportunities in the bioenergy and waste-to-energy sector. However, these are typically complex projects which require specialist understanding of the required technology, as well as deep industry knowledge. Consequently, this sector has typically been under-serviced by traditional financiers.

Local government authorities in particular are considering more effective ways to deal with landfill waste. Waste-to-energy can be deployed to address landfill issues and can have the added benefit of reducing local government energy costs.

The CEFC expects to see further interest in this area, in part stimulated by the next ERF round, and will continue to consider ERF-eligible projects.

The CEFC remains actively engaged in a selection of other large-scale bioenergy projects, including those with the potential to bring new export opportunities to the Australian forestry and agriculture sectors in particular. These projects typically have very long development cycles.

These projects also require large-scale infrastructure investments that can benefit from the longer-dated finance models offered by the CEFC, which support the start-up development of emerging areas of economic activity. These projects are attracting interest from experienced international operators who have experience deploying the specialist technology in the US, China and Brazil in particular.

Wind

The CEFC made no new investments into wind technology within 2014–15, although had indirect exposure to wind through the NAB Climate Bonds investment. General uncertainty in the sector was magnified by increased policy risk specific to wind around social licence and perceived health issues, including a Senate Committee of Inquiry and a National Health
and Medical Research Council (NHMRC)
review into the technology.​

Figure 14: CEFC portfolio by technology type – detailed

At 30 June 2015 ($m)

Low emission technologies

Low emissions technologies which have been defined by the CEFC Board as being eligible for investment are those where the amount of emissions reduction is equal to, or greater than, 50 per cent of the baseline activity. The CEFC’s investment with Energy Developments Limited provides a good demonstration of the potential for low emissions technologies to contribute to Australia’s emissions reduction task.

As at 30 June 2015, six per cent of the CEFC’s portfolio was in low emission technologies. We see further opportunities in the following areas:

  • Methane gas combustion for energy generation. Examples of this include capturing and combusting waste coal mine gas (which is not considered renewable) to provide a source of energy
  • Fuel substitution and switching in the transport sector
  • Low emission technology solutions to meet energy network and transmission constraints.


Figure 15: Historical portfolio of investment commitments by main technology type

At 30 June (% of total investment commitments)