Green bank seeks money and mandate

The renewable energy sector in Australia needs early stage investment and may be able to access some of that funding in the form of soft loans rather than equity investment if a planned federal government-owned financer gets up and running.

Yesterday, Treasury released the report of the expert review panel engaged to report on the mandate and operations of the Clean Energy Finance Corporation. The Government proposed creation of this specialist financier last year as part of its policy package to reduce carbon emissions in Australia.

Legislation to establish the corporation, let alone provide the mooted A$10 billion in funding, is yet to be introduced into Parliament.

Access to this funding features as the panel's number one recommendation in the face of a probable change of government in Australia next year. It calls for the entire amount to be "specially appropriated in its enabling legislation."

Assuming the CEFC gets up and running, the panel sketched out how its board might invest the funds. One theme is that the panel favours as a "goal" rather than a "binding constraint" that it allocate 50 per cent of its funding to renewable energy investments directly.

The panel considers that low-emission technology and energy efficiency investments may produce more superior returns (both financial and in terms of a reduction in carbon emissions) compared with the hunt for more promising returns from a diverse range of energy sources, including increased use of co-generation.

The report said that as the CEFC "builds its capability and portfolio, it is anticipated that the majority of its investments will be loans rather than equity."

The panel also said that it sees "limited application for loan guarantees". It said guarantees were "unlikely to be the most cost-effective mechanism for the borrower."

It proposes that the CEFC target the government's bond rate. The government has endorsed this target, along with every other recommendation in the report.

The panel also offered a rationale for its creation.

The panel - which comprises a trio of former Bankers Trust executives - argues that Australian banks do not have a role "to act as frontier lenders or investors [and] are reluctant to take risks on new technologies or invest in the scaling up of technologies to commerciality."