01 Performance THE CEFC'S NEW INVESTMENTS IN 2014-15

CEFC ANNUAL REPORT / 2014–15

THE CEFC’S NEW INVESTMENTS IN 2014–15

During 2014–15, the CEFC made seven investment commitments, totalling $484 million. An additional $15 million investment into remote solar and battery storage at Sandfire Resources’ DeGrussa copper mine was finalised just after the end of the financial year.

New CEFC commitments by technology in 2014–15 included $246 million in renewables and $238 million in energy efficiency. No new low-emissions technology investments were made in the year.

The downturn in the large-scale renewable energy market throughout the financial year resulted in few projects seeking large-scale project finance involving the CEFC.

Renewables projects that were not as exposed to the economics of black and green electricity prices continued to seek CEFC finance. These projects are often too small, too complex or involve technologies new to the Australian market, making them harder for the private sector alone to finance.

Two new projects demonstrated the growing investment case and potential for remote renewables: the CEFC’s $15 million investment in solar and battery storage development at Sandfire Resources’ DeGrussa copper mine in Western Australia, and the $4.7 million investment into Epuron for the installation of solar PV at the Ayers Rock Resort in the Northern Territory. These investments are supporting some of Australia’s largest export industries, in mining and tourism.

Globally, green bond and climate bond markets have grown rapidly, providing new opportunities for investors to support the acceleration of clean energy technology take up. The CEFC’s $75 million cornerstone investment in the NAB Climate Bond was the first Australian dollar denominated and Australian domestic asset-linked certified bond of its kind in the market. The NAB Climate Bond was made up of 17 utility-scale renewable energy projects in operation or under construction across Australia at the time of issuance 2. The cornerstone position of the CEFC assisted the NAB in generating strong investor demand, resulting in the $150 million offering ultimately being two times over-subscribed, resulting in a total debt raising of $300 million despite the relatively long seven-year term of the bond. Additional green bond issuances in the Australian market this year were made by ANZ and Stockland.

Reflecting the trend in the wider market, and in contrast to the weak levels of investment in large, utility-scale renewables, the CEFC’s level of investment in small-scale renewables was a highlight of the year’s activities. BNEF reported some $2,095 million was invested in small-scale distributed generation in 2014–15, mostly relating to rooftop solar. To further this deployment of solar in Australia, the CEFC and Origin joined forces via a 12-year $100 million CEFC financing commitment. The CEFC finance is helping support the roll out of Origin’s offering of power purchase agreements (PPAs) to business and residential customers, and expand the opportunities for solar and battery storage at consumer level.

There continues to be strong interest by business in investment in energy efficiency, which helps improve energy productivity and achieve lower business energy and operating costs. The CEFC experienced continued strong interest in investment in energy efficiency, and during the year was able to develop several new individual investments and new structured financial products.

These are being made available to the market nationally across various sectors of the economy.

The CEFC is providing $120 million through the NAB for a major new investment program, known as the NAB Energy Efficient Bonus, to incentivise Australian businesses to cut their energy and operating costs and lift business performance. The program is designed to help accelerate the switch to cleaner vehicles, as well as help businesses upgrade industrial and agricultural equipment and increase their take up of solar. NAB is making this $120 million CEFC-supported program available across a broad commercial base, with a particular emphasis on agribusiness and businesses in regional Australia.

This financing program is also the CEFC’s first commitment to vehicle efficiency. According to ClimateWorks 3, Australia’s cars and light commercial vehicles are still far less efficient than those in most developed economies. The broader economic benefits of increasing fuel efficiency to European Standards is estimated to save up to $7.9 billion per year through reduced fuel use within 10 years and presents the lowest cost opportunity to reduce emissions across our economy. For these reasons, vehicle efficiency is an area in which we expect to see continued strong interest.

Innovations in electric and hybrid vehicle technology and infrastructure, including declining costs of batteries and drivetrains, are set to transform the transport sector. In an effort to help accelerate business and personal adoption of low emissions and electric vehicles, as well as solar and energy efficient equipment in Australia, the CEFC has entered into a $50 million asset finance agreement with Firstmac, a leading Australian non-bank lender. This CEFC-backed financing program is initially focusing on vehicle and solar opportunities with Firstmac’s existing 25,000 mortgage customers. Firstmac’s online platform, loans.com.au, is targeting additional consumer finance demand, and the origination of commercial asset finance opportunities is being driven through Firstmac’s network of brokers and equipment manufacturers.

Figures include one transaction which closed just after year end


The CEFC’s $125 million cornerstone investment in leading real estate fund manager EG Group’s $400 million High Income Sustainable Office Trust (HISOT) is designed to accelerate the upgrade of inefficient office properties, and highlight how this can be of benefit to both property owners and tenants, as well as the commercial centres in which these properties are located. These so-called ‘split incentives’ have worked as inhibitors to wider investment in office upgrades.

EG Group will manage the HISOT, which will acquire, refurbish and introduce sustainability improvements in up to a dozen commercial office properties. HISOT is seeking to meet the demonstrated demand for higher performing commercial space in metropolitan areas outside central business districts. The improvements will target outcomes equivalent to at least 4.5 stars under the National Australian Built Environment Rating System (NABERS). The investment program is designed to serve as demonstration of a new and profitable investment model involving the acquisition of older properties for the purpose of completing environmental upgrades. HISOT will expand upon EG Group’s successful track record in this area which, in turn, is expected to attract wider interest in this activity in the property sector.

The CEFC has a number of financing programs directed at assisting Australia’s local government sector address rising energy costs and carbon emissions.

Landfill tends to be the biggest source of greenhouse gas emissions for Australian councils, accounting for the majority of the smaller, regional councils’ total carbon footprint. The CEFC’s finance for Queensland-based Landfill Gas Industries (LGI), one of Australia’s specialist landfill gas service providers, will expand its waste-to-energy operations with up to $10 million in projects which help address local council waste-to-landfill issues, reduce methane emissions and generate clean energy. The finance is also supporting the company’s delivery of carbon credits under the Emissions Reduction Fund (ERF). LGI was a successful bidder in the ERF first round and, with CEFC finance support, has developed two new abatement projects to participate in the second ERF auction.

The CEFC’s new investment commitments over 2014–15 are listed in Figure 4.


Figure 4: CEFC contracted investment commitments in the 2014–15 reporting period (to 2 August 2015, from largest to smallest investment commitment)

Investment Focus Location CEFC
commitment
Total funds to
be mobilised
incl. CEFC
commitment
EG Group
High Income
Sustainable
Office Trust
Investing in older office stock to
upgrade their energy performance
to revitalise and reposition them in
the market with a view to an eventual
divestment. This fund will pioneer
a new, more sustainable approach
to investing profitably in property
in Australia.
National 125 252
National
Australia Bank
Energy Efficient
Bonus loans
program
A major new investment program to
incentivise Australian businesses to cut
their energy and operating costs and lift
business performance.
National 120 120
Origin Solar as a
Service Program
Accelerating the deployment of solar
energy and battery storage in Australia.
National 100 100
National
Australia Bank
Climate Bond
Demonstrating the potential in the
Australian market for mobilising capital
in renewable energy through a green
bond and developing the capital
markets that support this new form of
debt issuance.
National 75 300
Firstmac Finance for highly efficient cars and
light vehicles, solar PV and energy
efficient equipment.
National 50 59
Neoen Australia* Finance towards Australia’s largest solar
and battery storage project to date at
Sandfire Resources’ remote DeGrussa
copper mine.
WA 15 43
Landfill Gas
Industries
Expansion capital for waste-to-energy
operations, which also supports the
delivery of carbon credits under the
Emissions Reduction Fund.
QLD 10 15
Epuron Installing 1.8MW of Solar PV at the
award-winning Ayers Rock Resort.
NT 4.7 7


Note: * investment closed just following end of financial year 2014–15 figures in AUD million, at 30 June 2015


Figure 5: CEFC value of portfolio investment commitments

CEFC value of portfolio investment commitments

At 30 June ($m)

2. DNV GL (2015) Third Party Opinion: National Australia Bank Climate Bond, https://www.climatebonds.net/ files/files/nab-climate-bond-verification-statement- nab-final-issued-9-mar-2015.pdfDNV GL (2015) Third Party Opinion: National Australia Bank Climate Bond, https://www.climatebonds.net/ files/files/nab-climate-bond-verification-statement- nab-final-issued-9-mar-2015.pdf

3. http://climateworksaustralia.org/project/buildings- transport/vehicles-emission-standards