A recent report by Deloitte, based on consultation with over 40 senior executives in Australian banks, super funds, venture capitalist firms and major investors, has revealed that they see clean energy as a good bet. This should come as no great surprise: last year, local investments in renewable energy totalled $5.2 billion, while globally the pool reached more than $260 billion.
What was perhaps surprising about the Deloitte findings was the overwhelming support respondents gave to the government’s $10 billion Clean Energy Finance Corporation (CEFC), to be funded by carbon price revenue collected from the country’s 500 biggest polluters.
Although the design of the CEFC is still being developed by Reserve Bank board member Jillian Broadbent, the independently-run institution will likely provide loans for companies and projects across a range of new clean energy technologies like large scale solar, geothermal and ocean power. Investors are also interested in seeing the CEFC support investments in electricity networks and energy efficiency projects.
There is an obvious question here. If the outlook for these technologies is so rosy, why would the federal government need to commit $10 billion to a special body to get them off the ground? The Deloitte report showed that there are a few simple reasons why this new institution makes good sense.
The largest barrier identified for investors in clean energy was the risk of the unknown – in this case a technology they haven’t invested in previously. Super funds are familiar with investing in toll roads; banks are used to lending money for shopping centres. But the first time a large scale solar power station is built in Australia, investors are understandably cautious – irrespective of whether such a project may have already been successful in Spain or California.
Secondly, few private investors are prepared to make the major long-term investments necessary to return a profit from energy technologies. The recent global financial turmoil and credit crunch has only compounded this issue.
The Deloitte report shows that Australia’s finance sector agrees the CEFC can be a catalyst to give renewable energy technologies the leg-up they need to meet these challenges and attract serious investment from major players.
Sceptics say that governments should get out of the way and leave it to the market to decide which energy technologies will power our future. But this ignores the fact that no new energy technology has ever been developed without the support of governments.
The first hydro power station in Australia was built over 100 years ago in northern Tasmania by the state government-owned Hydro Electric Corporation. Almost every coal-fired power station in Australia was built with public funds. Without government support for clean energy, Australia will have few options but to keep burning coal.
On the balance sheet, the CEFC also makes sense: even at a modest leverage ratio of two to one, its $10 billion can drive some $30 billion into clean energy investment over the next decade. But its real objective should be to put itself out of a job, as banks and super funds become familiar with renewable technologies and their great returns on investment.
In summary, the Deloitte report showed that Australia’s finance sector agrees that, if the government gets it right, the CEFC is a good first step towards unlocking significant private capital into Australian clean energy projects and technologies, and helping to ensure we retain our competitive advantage in low cost (clean) energy.
Kane Thornton is acting chief executive of the Clean Energy Council.