Performance statement and analysis
Demonstrate entrepreneurship and catalyse investment in innovation and the rollout of (emerging and evolving) technologies, consistent with the Investment Mandate.
Performance measure
Evidence of investment in innovation and the focus areas under the Investment Mandate, notably the security and reliability of the grid, the Advancing Hydrogen Fund and the Australian Recycling Investment Fund.
Evaluation
2020–21 technology commitments
Performance analysis
CEFC investment commitments in 2020–21 reached new areas of economic activity, innovative technologies and large-scale energy storage and grid transmission projects.
Grid-related investment commitments including finance for infrastructure critical to the Snowy 2.0 pumped storage project, as well as the development of the Victorian Big Battery. Other investments in the year included:
- First investment through the Australian Recycling Investment Fund to help deliver Circular Plastics Australia PET recycling facility in NSW
- First CEFC hydrogen-related investment, delivered through the Clean Energy Innovation Fund to Wollongong University start-up Hysata
- Investment in innovative financing models, including the first all-green residential mortgage-backed securitisation, the first forward-looking climate transition equity index and sustainability linked loans
- Investment in innovative technologies across the agriculture, property, resources and solar sectors.
Be financially sustainable and maintain an investment portfolio that, over the longer term, facilitates emissions reductions and generates positive returns within risk appetite.
Performance measure
Achieve a total adjusted operating result of $90 million.
Evaluation
Performance analysis
The total adjusted operating result1 for the 12 months ending 30 June 2021 was $178.8 million, significantly ahead of target. This result was driven by a $58.5 million positive variance in relation to net fair value gains on CEFC equity investments, a $12.7 million positive variance from lower than budgeted charges for impairment, reduced travel expenses and lower than budgeted staff costs.
1. Adjusted operating result is a KPI performance-specific metric calculated as statutory operating result, adjusted for (1) administrative funding received from Government (2) Clean Energy Innovation Fund gains and losses, (3) concessionality and loan modification charges and unwinds, and (4) loan and bond mark-to-market revaluations.
Performance measure
Achieve free cash flows from operations after the implied costs of government funding of $20 million.
Evaluation
Performance analysis
Free cash flows from operations2 for the 12 months to 30 June 2021 were $155.6 million. After accounting for the implied costs of government funding of $85.7 million3, the result was $69.9 million, significantly ahead of target. A major contributor to the result was the receipt of $26.6 million from previously capitalised interest and fees as a result of accelerated repayments in refinanced transactions that occurred during the year, together with higher revenues and lower costs.
2. Free cash flow from operations is defined as net cash flow from operations less capital expenditure and government appropriation revenue.
3. The implied cost of government funding is based on the relevant five-year Australian government bond rate on the date balances are drawn as equity from the CEFC Special Account.
Performance measure
Actively manage the portfolio and demonstrate sound navigation through heightened uncertainty; evidence that comparable elements of the portfolio, such as project finance in the renewables sector, compare favourably with the market.
Evaluation
Performance analysis
The CEFC has a large and complex portfolio of $6.5 billion at 30 June 2021, after allowing for almost $2.5 billion in amortisation and repayments on lifetime commitments of $9.5 billion. Active management of the portfolio in the year, with a particular emphasis on minimising the disruption of the pandemic and associated economic uncertainty and sectoral dynamics, saw a substantial improvement in the risk profile, with the share of the portfolio rated as performing below expectations falling from 14.6 per cent at 1 July 2020 to 5.1 per cent at 30 June 2021.
Of this 5.1 per cent, 3.6 per cent are debt investments where a full return of principal and interest is expected. These investments require closer monitoring and, in some cases, restructuring of terms to reflect current operating conditions. Mitigating actions may include de-leveraging. Once the investment is operating in line with expectations, the investment is re-rated.
The CEFC also benefited from $436.6 million in proceeds on the sale of bonds which had a face value of $397.5 million, generating a cash profit of $34.3 million. The bonds, originally acquired as part of the CEFC wholesale bank asset financing programs, were deemed surplus due to repayment of underlying loans.
Over the year, the CEFC worked collaboratively and engaged widely with counterparties and stakeholders to address project and industry related issues. In doing so, we maintained our standing with industry participants and alignment with private sector financiers while ensuring satisfactory risk outcomes.
Increase investment in clean energy technologies and infrastructure
Performance measure
Provide $0.8 billion of investment commitments to renewable energy, energy efficiency and low emission technology transactions.
Evaluation
Performance analysis
The CEFC made total investment commitments of $1.78 billion in the 2020–21 year, including $1.37 billion in new investment commitments and $410 million in capital committed and classified as a refinance or restructure of existing assets in the portfolio. The new investment commitments included $810.1 million for renewable energy technologies, with an additional $493 million to energy efficiency technologies and $65 million to low emissions technologies.
The $410 million of capital committed to refinancing and restructures helped support existing clients as they faced the challenges of COVID-19, particularly in renewable energy where grid constraints and the economic contraction saw lower wholesale electricity prices, which were further impacted by reduced demand due to mild summer temperatures. Supporting counterparties via restructuring and refinancing arrangements demonstrates the important role of the CEFC in ensuring capital continues to flow into the clean energy sector, particularly in periods of economic uncertainty.
Performance measure
Evidence of supporting the electricity grid’s transition to a lower emissions energy market.
Evaluation
Performance analysis
Integrating new clean energy generation into the electricity grid requires significant investment in the transmission and distribution systems, including transmission interconnectors, storage technologies and grid stability technologies. These projects are necessarily complex, requiring considerable planning, development and investment.
The CEFC prioritises investments to support grid reliability and security across the portfolio, in addition to the specific funding programs established through Investment Mandate directions. New investment commitments of $365 million in grid infrastructure in the 2020–21 year included finance across four significant projects. These were the Victorian Big Battery; the extension of the Hornsdale Power Reserve large-scale battery in South Australia; capital for Snowy 2.0 grid infrastructure and investment in Australia’s largest virtual power plant in South Australia.
Performance measure
0.45 million tonnes per annum of estimated emission reductions from projects and activities funded by new investment commitments.
Evaluation
Performance analysis
New investment commitments in 2020–21 are estimated to achieve emission reduction of 0.78 Mt CO2-e per annum against the 0.45 Mt CO2-e target.
Emissions abatement achieved through direct CEFC investment commitments in renewable energy generation projects were the largest contributor to this result. It should be noted that CEFC investment commitments in grid enhancements and energy storage are not included in the CEFC estimate of emission reduction secured as part of our investment activities. These are very substantial investments and will play a critical role in unlocking additional investment in renewable energy to create a low emissions electricity grid, positively impacting emissions reduction at the user end. While we recognise the indirect link between CEFC commitments when they are made and the expected emissions outcome of grid and storage projects they will enable in the future, we have conservatively elected not to include an associated direct emissions estimate for these future projects at this early stage.
CEFC capital committed per tonne of estimated lifetime emission reductions for new investment commitments in 2020–21 was $78.00. The expected financial return per tonne of estimated lifetime emission reductions for 2020–21 investment commitments was $18.00. We continue to monitor the capital intensity and expected return ratio of abatement across our portfolio, in conjunction with an absolute abatement target per year, to ensure a balanced outcome.
Increase private sector capital flowing to the Australian clean energy sector and attract new investor classes into the sector.
Performance measure
Achieve private sector leverage of $2 for every $1 of capital invested by the CEFC.
Evaluation
Performance analysis
Each dollar of CEFC capital invested in 2020–21 was matched by an additional $2.68 in private sector capital. This leverage saw the CEFC participate in new low emissions investments with a total value of $5 billion, delivering a significant lift in clean energy investment in the 2020–21 year despite the economic challenges of the year. While the CEFC reports leverage at the primary point of investment, it should be noted that secondary leverage also occurs as additional investors ultimately replace CEFC capital as our investments mature.
Performance measure
Evidence that the CEFC has attracted new private sector finance, including superannuation funds, domestic and international funds, insurance groups and family offices.
Evaluation
Performance analysis
During the 2020–21 year, CEFC investment commitments in five transactions attracted new private sector market participants. The total capital committed by these new market entrants was $288 million, across diverse investment areas, including in the resources and cleantech innovation sectors as well as new financing models. As with private sector leverage, attracting new investors into low emissions opportunities in Australia is an important indicator of the role of the CEFC in increasing the flow of finance into the clean energy sector.
Demonstrate leadership across the clean energy sector and positively contribute and adapt to Australia’s COVID-19 situation.
Performance measure
Be productive, available and support existing and prospective clients, and key stakeholders. Evidence of the CEFC participating in a post-pandemic recovery.
Evaluation
Performance analysis
The CEFC continued to invest across the economy in 2020–21. In addition to new investment commitments, capital deployment of $1.3 billion accelerated the delivery of emissions reduction activities, complemented by the provision of discounted finance for 5,800 smaller-scale asset finance projects, delivering new investment of $175 million.
The CEFC worked collaboratively with key stakeholders and counterparties to address project and industry related issues throughout the pandemic. The CEFC also contributed to the various workstreams under the National COVID Coordination Committee.