01Performance

CEFC ANNUAL REPORT / 2015–16

Detailed analysis of 2015-16 performance

1. Portfolio Benchmark Return target

The Portfolio Benchmark Return target (PBR target), and the methodology for calculation of both the target and performance against the target, are set by the Australian Government in the CEFC Investment Mandate. During the 2015-16 financial year, there were two PBR targets in effect:

  1. For the period from the commencement of the financial year through 9 May 2016, the PBR target was the five-year Australian Government bond rate plus four to five per cent per annum, with performance measured before operating costs. From 10 May 2016 the PBR target was set as the five-year Australian Government bond rate plus three to four per cent per annum, again measured before operating costs.
  2. From 10 May 2016, the relevant Investment Mandate specifies a separate PBR target for the new Clean Energy Innovation Fund. This target is the five-year Australian Government bond rate plus one per cent per annum. The Clean Energy Innovation Fund became operational on 1 July 2016.

From inception through 30 June 2016, the PBR was 4.65% versus a PBR target of 5.95% to 6.95% (calculated in accordance with the May 2016 Investment Mandate).

The Board has expressed the view that, while the one per cent reduction in the PBR target from 16 May 2016 was a welcome change, it remains an unrealistically high return target. The Board’s view remains that targeting such a high rate of return requires the CEFC to seek out-of-market returns, which will be difficult to achieve.

The Corporation has continued to employ a strong preference for senior debt investments as this enables us to pursue our public policy objective while participating in the lowest risk part of the capital structure. We note that other institutions with large senior debt portfolios, such as Australia’s big four banks, reported falling net interest margins during the year. The CEFC’s return experience is in line with this.

CEFC Staff

2. Operating expenditure

The CEFC adopts a commercial approach to investing in the clean energy sector. Our objective is to increase the flows of finance into the clean energy sector while generating a positive return for the Australian Government. The CEFC generates a profit, although it is classified as a not-for-profit entity for accounting purposes. 

In generating a positive return, the CEFC provides investment support to the clean energy sector with no negative impact on the Government’s underlying fiscal balance. The level of operating expenses incurred (i.e. total expenses less concessional and loan impairment charges) impacts the level of surplus the CEFC can generate. During the reporting period, the CEFC delivered increased investment commitments of $837 million while operating expenditure was $23 million, which compares favourably with the target of not more than $26 million.

3. Average full-time equivalent staff

The CEFC is effectively a financial services business, with staff costs representing a relatively high percentage of total expenditure. In the reporting period, staff related costs accounted for approximately 60 per cent of total expenses. Maintaining appropriate staffing levels is critically important to enabling the CEFC to deliver on its objective. Understaffing may adversely impact the level of finance the CEFC can deliver to the clean energy sector, while overstaffing would adversely impact our ability to generate a positive return to Government.

During the reporting period, the average full time equivalent staff (FTE) number was 61. This was in line with the resourcing plan for the reporting period. Importantly, we achieved a 73 per cent increase in the level of investment commitments while FTE numbers increased only 18 per cent, from 57 at the start of the reporting period to 67 (including the CEO but excluding the Board) as at the end of the reporting period. 

4. Placement of funds into Australia’s clean energy sector ($ deployed)

At 30 June 2016, the CEFC had a portfolio of investment commitments of $1.7 billion. During the reporting period $416 million of capital was deployed into the clean energy sector, which compares favourably with the targeted $400 million.

 CEFC staff visit the SGCH project

5. Expected carbon abatement from projects committed to

Total projected lifetime carbon abatement from the CEFC’s committed investment portfolio of $1.7 billion at 30 June 2016 is 38.5 million tonnes of CO2-equivalent emissions. Note the CEFC does not claim that this abatement occurs independently of complementary policy, such as the RET.

6. Financial leverage in projects committed to

The CEFC’s objective is to increase the flows of finance into the clean energy sector. This is best achieved through combining our finance with finance from the private sector in order to “leverage up” the amount of overall investment in the sector.

During the reporting period, for every $1 invested by the CEFC, the private sector invested $1.95. This compares favorably with a target of $1:$1. A major contributor to this higher than planned level of leverage was the increase in new large-scale renewable energy projects, after very low levels of sector activity in the previous year.

7. Investment in renewable energy, low emissions and energy efficiency technologies ($ committed)

The level of investment commitments is directly correlated with the objective of the CEFC, to increase the flows of finance into the clean energy sector. During 2015-16, investment commitments totalled $837 million, comparing favourably with a target of $800 million for the reporting period. This was a 73 per cent increase on the previous year’s investment commitments. At 30 June 2016, the portfolio of investment commitments exceeded $1.7 billion, including $827 million in renewables and $915 million in energy efficiency. We are on track to meet the requirement that at least half of the investment portfolio is invested in renewable energy technologies by 1 July 2018, in accordance with section 58(3) of the CEFC Act. This performance information is also provided in accordance with section 74(1)(a) of the CEFC Act.

Every $1 helps catalyse $1.95

CEFC staff visit the Ararat wind farm

8. Building industry capacity

Industry capacity building and skills development involves a process of knowledge sharing, learning through doing and providing experiential opportunities. This capacity building is illustrated in the following ways:

  • Cost reductions and productivity gains resulting from CEFC-financed projects enable funds to be deployed to more productive alternative purposes.
  • By increasing the critical mass and scale of the clean technology industry through greater investment and an increased number and size of projects, the CEFC assists the renewables and energy efficiency sectors to achieve economies of scale and drive down deployment costs and investment risk.
  • CEFC activities assist project proponents by helping them to develop the business case, and introduce the proponents to other financiers, who may subsequently, or concurrently, provide finance.
  • The CEFC contributes to increasing capacity within the private finance sector, familiarising co-financing institutions with the attributes and benefits of investments in new asset types, financial structures or investment products.
  • By establishing arrangements with co-finance partners, the CEFC accesses the established distribution channels of our co-finance partners to reach small and mid-sized businesses and extend the availability of capacity-building finance.
  • The CEFC identifies and facilitates new sources of finance for the Australian clean energy sector, with CEFC participation helping to improve the flow and diversification of funds into the sector. CEFC engagement in the project development market has also assisted in:
    • bringing new commercial banks and international sponsors to Australia
    • developing new transactions which more closely match the term of the financing to the life of the assets
    • establishing new investment vehicles to draw finance providers, institutional investors and superannuation and other funds into investment in clean energy.
  • The CEFC works with industry bodies to build knowledge and promote opportunities in reducing energy costs.
  • Large-scale projects are required to develop Australian Industry Participation Plans (AIPPs), which help to open proponent purchasing programs to Australian suppliers of goods and services.
  • The CEFC’s investments are distributed broadly across Australia, including rural, regional and remote areas, as this is where most of the best renewables resources are located.
  • The size of the investment pipeline is an important indicator of the potential breadth and reach of the CEFC. At 30 June 2016, the CEFC reported a $7 billion pipeline of investment opportunities, at various stages of development.

Meeting with stakeholders

9. Continue to develop the organisation with highly-skilled people, efficient systems and processes for scalability as an institution

The organisation has maintained and added, as appropriate, skilled people. An organisational restructure during the reporting period better aligned the operating and investment structure with the needs of the growing business. As a relatively young organisation, we continue to implement improvements in our systems and process with a view to ensuring the business has adequate infrastructure to support a growing business. Specific technology systems improvements are discussed further under key business systems.

10. High level of employee engagement and effective team behaviours

As a financial services organisation, the quality and integrity of our people is critical to the successful delivery of our objectives. To this end, the business has operated in an increasingly integrated manner, with cross functional working groups, collaboration and information sharing. Morale is high and the organisation has embraced a new motto: Purposeful Passionate Professional: See Figure 18. During the reporting period, unplanned staff turnover was eight per cent.

CEFC staff planning day

Figure 18: CEFC motto and  values

Purposeful

Our organisation is founded upon a sense of purpose. We’re about drawing in finance to the clean energy sector, making the seemingly unfinanceable financeable and enabling projects to be built. We provide a clear sight and pathway to the most efficient ways to reduce emissions across the economy.

These are the Values you can expect from CEFC staff when you work with us:

Intent

Understanding the challenge

Outcome oriented

Leading by example

Influencing

Driving force for ‘doing good’

Changing the status quo

Challenging

Stretching boundaries

Effective

Passionate

We are passionate about what we do and why we do it. We care about the environment and we care about good financial management. We are caring capitalists. We have been given an important opportunity to help fellow Australians and the environment make this clean energy transformation efficiently and effectively.

These are the Values you can expect from CEFC staff when you work with us:

Inspiring

Motivational

Supportive

Enabling

Courageous

Insightful

Liberating

Aspirational

Sharing knowledge

Inquisitive

Professional

We want to be held in the highest professional regard by those we work with. We operate and earn that respect each day and with every deal we make. We are solutions oriented, courageous and innovative, taking calculated risk-aware positions. Our actions, risks and rewards are balanced and measured. We are commercial, accountable and transparent with the use of taxpayers’ money. To be most effective, we collaborate with other financial institutions and investors to amplify our effect.

These are the Values you can expect from CEFC staff when you work with us:

Solutions oriented

 Respectful

Excellence

Leading

Innovative

Accountable

Transparent

Collaborative

Respected and trustworthy

Risk aware

11. Effective Risk Management Framework

As a financial institution, the CEFC is in the business of assessing, managing and pricing risk in relation to the CEFC’s investments and the operation of the Corporation itself. Effective risk management is therefore a core capability at all levels of the organisation. The CEFC maintained a rating of “advanced” in the Comcover Risk Management Benchmarking Survey 2016 and recorded improvements on the results from the 2015 survey.

12. Key business systems installed and implemented

The business made significant progress with a number of new and improved systems implementations during the reporting period. Most notably the organisation completed the implementation of:

  • a new finance and payroll system
  • a customer relationship management (CRM) system
  • an employee learning and training management system.

Improvements and enhancements were also made to our Contract Management System (CMS), alongside additional enhancements to the CEFC external website.

13. Dissemination of information to industry stakeholders

The CEFC occupies a unique place in the Australian clean energy economy, creating an important opportunity to share insights and knowledge about trends and developments in the clean energy sector. Our purpose in these activities is threefold:

  1. To aid the deployment of CEFC finances through deeper connections with project proponents and co-financiers
  2. To support increased understanding about the economic benefits of clean energy
  3. To provide timely and transparent information about our investment activities.

During the year we delivered a coordinated external engagement program, centred around thought leadership, external speaking opportunities, conference participation and media and social media outreach.

We conducted two Board-hosted functions to provide interested parties with an opportunity to discuss clean energy developments with the Board and members of the Executive.

We also made greater use of technology to provide investors and other stakeholders with timely information about new investments and key developments. This included participation in a webinar to connect with Australian universities regarding CEFC finance for eligible clean energy opportunities to reduce emissions and help better manage university energy costs.

Oliver Yates discusses clean energy in Queensland

CEFC Market Reports

A key area of activity during 2015-16 was the introduction of CEFC-authored Market Reports providing timely research, market intelligence and insights into investment opportunities in the clean energy sector, while also highlighting the CEFC’s capacity to effect transformation in clean energy investment in the Australian economy.

Market Reports help us understand industry dynamics and identify investment opportunities in the sectors we cover. By publishing our market reports, we share our knowledge with stakeholders, and we signal to the market our investment focus areas, helping to bring forward transaction opportunities.

The three Market Reports developed and delivered in 2015-16 brought together new data and insights into areas where the CEFC has identified strong investor potential, namely: Bioenergy, Community Housing and Local Government. Further reports will be delivered in 2016-17 following positive market interest in the initial reports.

ARA Awards

External engagement

The CEFC actively engages with the news media to share information about our investments. We also continue to explore and develop complementary channels to help us ensure we effectively engage with stakeholders and the broader community. This has included:

  • Active engagement with key organisations active across the clean energy sector including, among others, the Clean Energy Council, Bioenergy Australia, the Australian Local Government Association, the Investor Group on Climate Change, the Green Building Council of Australia and the National Farmers’ Federation. This engagement helps strengthen our external relationships, build organisational goodwill and enhance our ability to reach broader audiences.
  • In December 2015 the CEFC became a founding partner of the Green Bank Network, which also includes the UK Green Investment Bank, the Connecticut Green Bank, the New York Green Bank, the Green Fund of Japan and the Malaysian Green Technology Corporation. The network links institutions that will benefit from each other’s experience in catalysing private sector capital in clean energy markets. It also has the potential to drive the faster rollout of successful business models and clean technologies globally.
  • A continued strong focus on conferences and seminars relevant to the CEFC’s strategic priority areas of investment, including CEFC-hosted initiatives as well as webinars and industry stakeholder events. The CEFC participated in 56 external conferences and seminars in 2015-16, with CEFC executives delivering 86 presentations across a range of subjects in support of our investment priorities.
  • The development of a forward program of marketing and communication activities to support CEFC investment priorities, including developing collateral and other promotional materials, enhancing our web presence and delivering a targeted approach to project and transaction announcements.

IPAA Awards

During the year we were pleased to receive external recognition for our 2014-15 Annual Report, including:

  • The Gold Award from the Institute of Public Administration of Australia in our category as a small PGPA entity. The assessment was based on the online version of our printed document.
  • The Silver award from the Australasian Reporting Awards, which benchmarked the CEFC against listed companies and other private and public sector organisations.

Figure 19: CEFC external engagement