Clean Energy Finance Corporation

Date

Section 1: Agency overview and resources

1.1 Strategic direction statement

The Clean Energy Finance Corporation (CEFC) was established to facilitate increased flows of finance into the clean energy sector. The CEFC invests in accordance with its legislation, the Clean Energy Finance Corporation Act 2012 (CEFC Act) and the Clean Energy Finance Corporation Investment Mandate Direction 2013 (Investment Mandate), as issued by the former Treasurer and the former Minister for Finance and Deregulation on 24 April 2013.

The CEFC is a statutory authority under the Commonwealth Authorities and Companies Act 1997 (CAC Act). The CEFC commenced funding investments on 1 July 2013.

The CEFC is governed by an independent Board who have statutory responsibility for decision‑making and managing the CEFC's investments. The Board reports to parliament through its responsible Ministers.

The CEFC's investment objectives are to catalyse and leverage an increased flow of funds for the commercialisation and deployment of Australian based renewable energy, energy efficiency and low‑emissions technologies.

The CEFC achieves its objectives through the prudent application of capital, in adherence with its risk management framework, the Investment Mandate and the CEFC investment policies issued by the Board.

The Government has announced its intention to abolish the CEFC. Legislation to abolish the CEFC and transfer the CEFC's existing assets and liabilities to the Commonwealth is currently before Parliament.

1.2 Agency resource statement

Table 1.1 shows the total resources for the CEFC.

Table 1.1: Clean Energy Finance Corporation resource statement Budget estimates for 2014‑15 as at Budget May 2014
  Estimate of
prior year
amounts
available in
2014‑15
$'000
+ Proposed
at Budget
2014‑15
$'000
= Total
estimated
2014‑15
$'000
Actual
available
appropriation
2013‑14
$'000
Opening balance/Reserves at bank 401,707   -   401,707  14,133 
REVENUE FROM GOVERNMENT            
Ordinary annual services -   -   - 8,000
Total revenue from Government -   -   - 8,000
FUNDS FROM OTHER SOURCES            
Interest -   38,166   38,166 36,554
Payment from the CEFC special account -   -   - 1,131,600
Total funds from other sources -   38,166   38,166 1,168,154
Total net resourcing for CEFC 401,707   38,166   439,873 1,190,287

1.3 Budget measures

Budget measures relating to the CEFC are summarised below.

Table 1.2: Clean Energy Finance Corporation 2014‑15 Budget measures
  Programme 2013‑14
$'000
2014‑15
$'000
2015‑16
$'000
2016‑17
$'000
2017‑18
$'000
Expense measures            
Repeal of the Carbon Tax - abolishing other measures1 1.1 (177,150) (320,539) (322,423) (323,946) (54,668)
Total expense measures   (177,150) (320,539) (322,423) (323,946) (54,668)
Related capital            
Repeal of the Carbon Tax - abolishing other measures1 1.1 (125) (250) (250) (250) (250)
Total related capital   (125) (250) (250) (250) (250)
Related revenue            
Repeal of the Carbon Tax - abolishing other measures1 1.1 112 (43,863) (131,267) (263,854) (201,692)
Total related revenue   112 (43,863) (131,267) (263,854) (201,692)

1. This measure was included in the Mid‑Year Economic and Fiscal Outlook 2013‑14 and has not previously appeared in a portfolio statement.

Prepared on a Government Finance Statistics (fiscal) basis.

Section 2: Outcomes and planned performance

2.1 Outcomes and performance information

Government outcomes are the intended results, impacts or consequences of actions by the Government on the Australian community. Commonwealth programmes are the primary vehicle by which government agencies achieve the intended results of their outcome statements. Agencies are required to identify the programmes which contribute to government outcomes over the budget and forward years.

The CEFC's outcome is described below, specifying the strategy, programme objective, programme deliverables and programme key performance indicators used to assess and monitor the performance of the CEFC.

Outcome 1: Facilitate increased flows of finance into Australia's clean energy sector, applying commercial rigour to investing in renewable energy, low‑emissions and energy efficiency technologies, building industry capacity, and disseminating information to industry stakeholders

Outcome 1 strategy

The scope of the CEFC's operations is guid
ed by an operating framework based on three principles that direct where and how the CEFC will invest.

Principle One Clean Energy Focus

The CEFC focuses its investments in clean energy, namely on renewable energy, low‑emissions and energy efficiency technologies in Australia, as well as manufacturing businesses that produce the required inputs.

The CEFC seeks diversity of technology and sector exposure. All sectors of the economy can contribute to emissions reduction and projects are drawn widely. The CEFC's portfolio is expected to evolve over time, noting the CEFC Act requirement that, on or after 1 July 2018, at least half of the funds invested must be invested in renewable energy.

In accordance with the requirements of the CEFC Act, the CEFC Board has published its investment policies and guidelines on low‑emissions technologies. In addition, the Board has published policy guidance as to the renewable energy technologies and energy efficiency technologies the CEFC will invest in. These documents are available on the CEFC's website

www.cleanenergyfinancecorp.com.au.

Principle Two Commercial Approach

The CEFC applies commercial rigour when making investment decisions and delivers a return on its investments above the CEFC's portfolio benchmark return. It focuses on projects and technologies at the later stages of development. The CEFC invests responsibly and manages risk appropriately to ensure that its investment portfolio performs in line with the portfolio benchmark return as set out in the Investment Mandate. The current portfolio benchmark requires the CEFC to target a portfolio above the five‑year Australian Government bond rate after recovering all operating costs.

The CEFC undertakes rigorous due diligence and financial modelling analysis along with assessments of other key investment risks, including credit risk, to determine appropriate investment structures, financial covenants and the required legal undertakings for an intended investment, all designed to enhance and protect the CEFC's position.

Principle Three Addressing Financial Barriers

The ways in which the CEFC addresses financial barriers include by:

  • attracting finance to the Australian market to improve the flow and diversification of funds for investment into the sector;
  • assisting project proponents as an arranger, helping to develop the business case and introduce the proponents to other financiers to seek transaction close;
  • building knowledge and capacity within the finance sector by participating in transactions to de‑risk the investment, familiarising financiers with new asset types or through reducing their size of exposure;
  • working with the finance sector to develop and deliver new financial products to the market, tailored to the needs, attributes and emerging delivery models for new technologies, which in turn enables small‑ and mid‑sized businesses to access finance for energy productivity enhancing capital investment;
  • building knowledge and capacity within industry through demonstration and case studies to promote successful models and opportunities in energy productivity and clean energy investment; and
  • providing loans at commercial and concessional rates. Where it is necessary and justified in the CEFC's assessment, it may choose to deploy concessional finance to assist in overcoming financial impediments and facilitate realisation of an otherwise bankable project;
    • Such concessionality is made available on an individual transaction basis through availability, tenor or cost of finance or by absorbing additional risk. The CEFC sets terms on a case‑by‑case basis, lending at the rate that is commercially reasonable and on the least generous terms possible for the project to proceed (that is, as close to market terms as possible). This might happen where necessary under the project or where the CEFC is lending to public sector organisations like universities and local councils.

Outcome expense statement

Table 2.1 provides an overview of the total expenses for Outcome 1.

Table 2.1: Budgeted expenses for Outcome 1
Outcome 1: Facilitate increased flows of finance into Australia's clean energy sector, applying commercial rigour to investing in renewable energy, low-emissions and energy efficiency technologies, building industry capacity, and disseminating information to industry stakeholders 2013‑14 Estimated actual expenses
$'000
2014‑15 Estimated expenses
$'000
Programme 1.1: Clean Energy Finance Corporation    
Revenue from Government    
Ordinary annual services (Appropriation Bill No. 1) 8,000 -
Revenues from other independent sources 10,159 -
Expenses not requiring appropriation 13,646 3,709
Total expenses for Outcome 1 31,805 3,709
     
  2013‑14 2014‑15
Average staffing level (number) 48 -

Contributions to Outcome 1

Programme 1.1: Clean Energy Finance Corporation
Programme objective

The objectives of the CEFC are:

  • to invest, directly and indirectly, in clean energy technologies, which can be any one or more of the following:
    • renewable energy technologies, which include hybrid technologies that integrate renewable energy technologies and enabling technologies, that are related to renewable energy technologies;
    • energy efficiency technologies, including enabling technologies that are related to energy conservation technologies or demand management technologies; and
    • low‑emissions technologies;
  • to catalyse and leverage an increased flow of funds for the commercialisation and deployment of Australian based renewable energy, energy efficiency and low‑emissions technologies;
  • to liaise with relevant persons and bodies, including the Australian Renewable Energy Agency, the Clean Energy Regulator, other Commonwealth agencies and State and Territory Governments, for the purposes of facilitating its investment function;
  • to act as a catalyst to increase investment in the clean energy sector by working with industry, banks and other financiers, and project proponents; and
  • to do anything incidental or conducive to the performance of the above functions.
Programme expenses

The Government has announced its intention to abolish the CEFC. Legislation to abolish the CEFC and transfer the CEFC's existing assets and liabilities to the Commonwealth is currently before Parliament.

Given the uncertainty regarding the timing of the passage of legislation, it is assumed that the CEFC is to be abolished from 1 July 2014. Accordingly, estimates been prepared on the assumption that there are no new investments entered into by the CEFC post 30 June 2014, that all operational expenses cease effective 30 June 2014 and that revenue from those contracts executed prior to 30 June 2014 continues through the life of those investments.

Table 2.2: Programme expenses
  2013‑14
Revised
budget
$'000
2014‑15
Budget
$'000
2015‑16
Forward
year 1
$'000
2016‑17
Forward
year 2
$'000
2017‑18
Forward
year 3
$'000
Annual departmental expenses:          
Ordinary annual services 8,000 - - - -
Expenses not requiring appropriation 23,805 3,709 5,387 5,147 5,082
Total programme expenses 31,805 3,709 5,387 5,147 5,082
Programme deliverables

The CEFC co‑finances and invests, directly and indirectly, in clean energy projects and technologies which:

  • meet the CEFC's Australian clean energy sector criteria;
  • offer a commercial return and demonstrate a capacity to repay capital;
  • are above the minimum transaction sizes which are set by the CEFC Board;
  • result in an acceptable concentration of risk within the CEFC portfolio; and
  • have priority against competing proposals within the balance of the $2 billion per annum investment budget.
Programme key performance indicators

The CEFC's Investment Mandate specifies a portfolio benchmark return for the performance of funds invested by the CEFC, net of operating expenses, based on a weighted average of the five‑year Australian Government bond rate. The portfolio benchmark return is a long‑term target and expected to be earned across the portfolio and over a period of time. Individual investments may be made with expected individual returns above or below the portfolio benchmark return.

The performance of the CEFC will be measured by reference to the following key performance indicators:

  • performance against the portfolio benchmark return set out in the Investment Mandate;
  • placement of funds into Australia's clean energy sector;
  • investment in renewable energy, low‑emissions and energy efficiency technologies;
  • building industry capacity; and
  • dissemination of information to industry stakeholders.

A number of sectors have benefited from CEFC financing, including agribusiness, property, manufacturing, utilities and local government. This is building momentum in the market by demonstration effect, helping clean energy technologies move down the cost curve and encouraging increased investment flows from the private sector and development of new clean energy technologies.

The total investment portfolio to date stands at over $700 million. The CEFC has catalysed investments without providing significant levels of concessionality. The total value of concessions forecast to be provided by the CEFC through the end of 2013‑14 is $17.4 million. In all concessional loans, the CEFC's lending rate exceeds the five‑year Australian Government bond rate.

With matched private sector funds, the CEFC has been able to catalyse over $1.8 billion in non‑CEFC private capital investment in projects with over $2.5 billion in total value.

The CEFC is on track to reach its 2013‑14 target of investing more than $800 million in its first full financial year of operation.

Section 3: Explanatory tables and budgeted financial statements

Section 3 presents explanatory tables and budgeted financial statements which provide a comprehensive snapshot of agency finances for the budget year 2014‑15. It explains how budget plans are incorporated into the financial statements and provides further details of the reconciliation between appropriations, programme expenses, movements in administered funds and special accounts.

3.1 Explanatory tables

3.1.1 Movement of administered funds between years

The CEFC does not have any administered funds.

3.1.2 Special accounts

The CEFC does not administer any special accounts. The CEFC special account is administered by the Department of the Treasury. Details of the special account can be found in Table 3.1.2 in the Department of the Treasury's section of this Portfolio Budget Statement.

3.1.3 Australian Government Indigenous expenditure

The CEFC does not have any Australian Government Indigenous expenditure.

3.2 Budgeted financial statements

3.2.1 Differences in agency resourcing and financial statements

There are no material differences between agency resourcing and financial statements.

3.2.2 Analysis of budgeted financial statements

The budgeted financial statements have been prepared on the basis of Australian Accounting Standards and the basis of the Government's intention to abolish the CEFC.

Legislation to abolish the CEFC and transfer the CEFC's existing assets and liabilities to the Commonwealth is currently before Parliament.

Given the uncertainty regarding the timing of the passage of legislation, it is assumed that the CEFC is to be abolished from 1 July 2014. Accordingly:

  • no new investments are forecast to be entered into by the CEFC post 30 June 2014;
  • revenue from those contracts planned to be executed prior to 30 June 2014 is forecast to continue through the life of the investments (including revenue associated with the unwind of previously recorded concessionality charges);
  • no additional concessionality charges are forecast to be incurred (consistent with the assumption of no new investments being entered into by the CEFC post 30 June 2014);
  • all departmental funding from the Department of the Treasury for start‑up operational expenses ceases in 2013‑14;
  • all operational expenses (employee benefits and supplier costs) are anticipated to cease effective 30 June 2014;
  • an allowance for impairment has been provided in each period of the forward estimates in relation to the existing investment portfolio; and
  • all outstanding liabilities to suppliers and employees are assumed to be settled at 30 June 2014.

The budgeted financial statements do not include an allowance for the following expenditure items:

  • termination costs for facility operating leases;
  • wind‑up costs such as redundancy payments for staff, consultant or contractor termination costs, and service contract termination costs;
  • legal and administrative costs associated with the abolition and orderly transition of the investment portfolio from CEFC to the Department of the Treasury;
  • write‑down of prepayments which would have no value post abolition; or
  • costs to the Department of the Treasury for administering the existing investments for which revenue is being forecast.

The estimated actual surplus for 2013‑14 and the budget and forward estimates for 2014‑15 through 2017‑18 contain a number of significant non‑cash charges including a concessional loan charge in 2013‑14, and a provision for loan impairment and the non‑cash revenue from the unwind of the concessional loan charges in each of the forward estimate periods. After eliminating the impact of these non‑cash charges and revenue, the CEFC is forecasting operating surpluses of $28 million in 2013‑14, $35 million in 2014‑15, $41.3 million in 2015‑16, $46.2 million in 2016‑17 and $45.7 million in 2017‑18.

The estimated actu
al budgeted departmental balance sheet for 2013‑14 includes the impact of the Low Carbon Australia Limited net assets being transferred to the CEFC during the period.

3.2.3 Budgeted financial statements tables

Table 3.2.1: Comprehensive income statement (showing net cost of services)
(for the period ended 30 June)
  Estimated
actual
2013‑14
$'000
Budget
estimate
2014‑15
$'000
Forward
estimate
2015‑16
$'000
Forward
estimate
2016‑17
$'000
Forward
estimate
2017‑18
$'000
EXPENSES          
Employee benefits 13,098 - - - -
Suppliers 5,037 - - - -
Depreciation and amortisation 345 313 134 - -
Write-down and impairment of assets 1,799 3,396 5,253 5,147 5,082
Borrowing costs 11,526 - - - -
Total expenses 31,805 3,709 5,387 5,147 5,082
LESS:          
OWN-SOURCE INCOME          
Own-source revenue          
Interest and dividends 39,785 37,125 43,842 48,635 47,848
Total own-source revenue 39,785 37,125 43,842 48,635 47,848
Total own-source income 39,785 37,125 43,842 48,635 47,848
Net cost of (contribution by) services 7,980 33,416 38,455 43,488 42,766
Revenue from Government 8,000 - - - -
Surplus (Deficit) attributable to the Australian Government 15,980 33,416 38,455 43,488 42,766
ADD NON-CASH CHARGES          
Concessional loan charge 11,502        
Provision for loan impairment 1,799 3,396 5,253 5,147 5,082
Total non-cash charges 13,301 3,396 5,253 5,147 5,082
LESS NON-CASH REVENUE          
Unwind of concessional loan charge (1,233) (1,850) (2,448) (2,429) (2,129)
Total non-cash revenue (1,233) (1,850) (2,448) (2,429) (2,129)
Surplus (deficit) attributable to the Australian Government after eliminating non-cash adjustments 28,048 34,962 41,260 46,206 45,719

Prepared on Australian Accounting Standards basis.

Table 3.2.2: Budgeted departmental balance sheet
(as at 30 June)
  Estimated
actual
2013‑14
$'000
Budget
estimate
2014‑15
$'000
Forward
estimate
2015‑16
$'000
Forward
estimate
2016‑17
$'000
Forward
estimate
2017‑18
$'000
ASSETS          
Financial assets          
Cash and equivalents 401,707 - - - -
Advances and loans 864,961 821,885 796,909 746,448 598,251
Interest Receivable 4,184 3,924 5,158 6,207 7,072
Investments 300 565 565 565 565
Total financial assets 1,271,152 826,374 802,632 753,220 605,888
Non-financial assets          
Infrastructure, plant and equipment 431 134 - - -
Intangibles 16 - - - -
Prepayments and other assets 687 - - - -
Total non-financial assets 1,134 134 - - -
Total assets 1,272,286 826,508 802,632 753,220 605,888
LIABILITIES          
Provisions          
Employees 3,883 - - - -
Concessional loan liability 23,358 21,508 19,060 16,631 14,502
Other 960 - - - -
Total provisions 28,201 21,508 19,060 16,631 14,502
Payables          
Deferred revenue 4,509 7,140 5,876 4,573 3,301
Total payables 4,509 7,140 5,876 4,573 3,301
Total liabilities 32,710 28,648 24,936 21,204 17,803
Net assets 1,239,576 797,860 777,696 732,016 588,085
EQUITY          
Contributed equity 1,217,439 742,307 683,688 594,520 407,823
Retained surpluses 22,137 55,553 94,008 137,496 180,262
Total equity 1,239,576 797,860 777,696 732,016 588,085
Current assets 406,578 3,924 5,158 6,207 7,072
Non-current assets 865,708 822,584 797,474 747,013 598,816
Current liabilities 9,352 7,140 5,876 4,573 3,301
Non-current liabilities 23,358 21,508 19,060 16,631 14,502

Prepared on Australian Accounting Standards basis.

Table 3.2.3: Budgeted departmental statement of cash flows
(for the period ended 30 June)
  Estimated
actual
2013‑14
$'000
Budget
estimate
2014‑15
$'000
Forward
estimate
2015‑16
$'000
Forward
estimate
2016‑17
$'000
Forward
estimate
2017‑18
$'000
OPERATING ACTIVITIES          
Cash received          
Interest 36,554 38,166 38,896 43,854 43,582
Grants 8,000 - - - -
Total cash received 44,554 38,166 38,896 43,854 43,582
Cash used          
Employees 10,308 3,883 - - -
Suppliers 5,113 960 - - -
Total cash used 15,421 4,843 - - -
Net cash from or (used by) operating activities 29,133 33,323 38,896 43,854 43,582
INVESTING ACTIVITIES          
Cash received          
Loan advances 999 71,235 23,703 46,314 143,115
Total cash received 999 71,235 23,703 46,314 143,115
Cash used          
Purchase of property, plant and equipment and intangibles 154 - - - -
Loan advances 821,111 31,555 3,980 1,000 -
Purchase of investments - - - - -
Total cash used 821,265 31,555 3,980 1,000 -
Net cash from or (used by) investing activities (820,266) 39,680 19,723 45,314 143,115
FINANCING ACTIVITIES          
Cash received          
Contributed equity 1,178,707 - - - -
Total cash received 1,178,707 - - - -
Cash used          
Return of equity - 474,710 58,619 89,168 186,697
Total cash used - 474,710 58,619 89,168 186,697
Net cash from or (used by) financing activities 1,178,707 (474,710) (58,619) (89,168) (186,697)
Net increase or (decrease) in cash held 387,574 (401,707) - - -
Cash at the beginning of the reporting period 14,133 401,707 - - -
Cash at the end of the reporting period 401,707 - - - -

Prepared on Australian Accounting Standards basis.

Table 3.2.4: Departmental statement of changes in equity summary of movement
(Budget year 2014‑15)
  Retained surpluses
$'000
Asset revaluation reserve
$'000
Other reserves
$'000
Contributed equity/ capital
$'000
Total equity
$'000
Opening balance as at 1 July 2014          
Balance carried forward from previous period 22,137 - - 1,217,439 1,239,576
Adjusted opening balance 22,137 - - 1,217,439 1,239,576
Comprehensive income          
Surplus (deficit) for the period 33,416 - - - 33,416
Total comprehensive income recognised directly in equity 33,416 - - - 33,416
Transactions with owners          
Contributions by owners          
Distribution of equity - - - (475,132) (475,132)
Total transactions with owners - - - (475,132) (475,132)
Estimated closing balance as at 30 June 2015 55,553 - - 742,307 797,860

Prepared on Australian Accounting Standards basis.

Table 3.2.5: Departmental capital budget (DCB) statement
  Estimated
actual
2013‑14
$'000
Budget
estimate
2014‑15
$'000
Forward
estimate
2015‑16
$'000
Forward
estimate
2016‑17
$'000
Forward
estimate
2017‑18
$'000
NEW CAPITAL APPROPRIATIONS          
Capital budget - Bill 1 - - - - -
Total new capital appropriations - - - - -
Provided for:          
Purchase of non-financial assets - - - - -
Total Items - - - - -
PURCHASE OF NON-FINANCIAL ASSETS          
Funded internally from departmental resources 154 - - - -
TOTAL 154 - - - -
RECONCILIATION OF CASH USED TO ACQUIRE ASSETS TO ASSET MOVEMENT TABLE          
Total purchases 154 - - - -
Total cash used to acquire assets 154 - - - -

Prepared on Australian Accounting Standards basis.

Table 3.2.6: Statement of asset movements — departmental
  Buildings
$'000
Other infrastructure,
plant & equipment
$'000
Intangibles
$'000
Total
$'000
As at 1 July 2014        
Gross book value - 1,413 164 1,577
Accumulated depreciation/amortisation and impairment - 982 148 1,130
Opening net book balance - 431 16 447
Capital Asset Additions/Disposals        
By purchase - appropriation ordinary annual services - - - -
Disposals - gross value - - - -
Total asset additions/disposals - - - -
Other movements        
Depreciation/amortisation expense - 297 16 313
Disposals - accumulated depreciation/amortisation - - - -
Total other movements - 297 16 313
As at 30 June 2015        
Gross book value - 1,413 164 1,577
Accumulated depreciation/amortisation and impairment - 1,279 164 1,443
Closing net book balance - 134 - 134

Prepared on Australian Accounting Standards basis.

3.2.4 Notes to the financial statements

Basis of accounting

The departmental financial statements, included in Tables 3.2.1 to 3.2.6 have been prepared in accordance with the requirements of the CAC Act, the Finance Minister's Orders (Financial Statements for reporting periods ending on or after 1 July 2014), Australian Accounting Standards issued by the Australian Accounting Standards Board and the Department of Finance guidance for the preparation of financial statements.

The financial report has been prepared on an accrual basis and is prepared in accordance with the historical cost convention.

Notes to the departmental statements

The budget statements and estimated forward years should be read taking into account the following matters:

Concession loan discount

The CEFC is in the business of making loans that may be at a discount to the prevailing market equivalent rates or terms. For each investment, the CEFC attempts to maximise its return and provide only the level of discount from market rates/terms that is required to ensure the project proceeds, however, this will typically involve the CEFC taking a position that is not generally offered by other market participants (for example, longer term fixed‑rate debt or sub‑ordinated debt) at rates that may be below those that an equivalent market participant would demand if it were to participate in this market.

The CEFC is required to record a non‑cash charge referred to as a concessional loan discount in relation to any such loans and it is a matter of judgment as to the market equivalent rate used to ascertain the extent of the implicit discount attached to the loan.

Impairment of loans

The CEFC is required to ascertain the extent to which its portfolio of loans is likely to be recoverable. Given the CEFC is in the business of lending and earning a margin it takes credit risk and it is appropriate to provision for expected credit losses. As the CEFCs portfolio is mainly senior secured debt and secured project finance facilities, and there have been no specific impairments identified to date, a statistical probability of default must be used to determine the level of appropriate provisioning. The forecast impairment change is a provision determined as reasonable and appropriate when looking at the risks within the CEFC's current loans and in particular the current environment faced by the borrowers.