Jillian Broadbent has only just been formally appointed to her new role as head of a review designing the new Clean Energy Finance Corporation, but her first research on the subject may give her some early insight into the challenges and the delicate issues that lie ahead.

Broadbent revealed in an interview with Climate Spectator on Tuesday that her first reading had taken her to the US and the problems with Solyndra, a high profile solar firm that collapsed in controversial circumstances last month, taking a $530 million loan guarantee from the US government and a lot of skin out of President Obama’s clean energy program.

“That’s as far as I have got,” was her only comment. It is clear, however, that Solyndra is shaping up as quite a scandal, and it will provide some valuable lessons around the governance measures that need to surround such schemes. But Solyndra is also a foretaste of the political polemics that surround such schemes. In the US, the political debate around green energy is nearly as toxic as the one about climate change. Hopefully, those extremes can be avoided in Australia, but don’t hold your breath, given Tony Abbott’s blood pledges.

Broadbent finds herself in a critical and pivotal position for the future of clean energy in this country, and her finance background and RBA board membership makes her a welcome appointment. (Indeed, with former RBA Governor Bernie Fraser as head of the Climate Change Authority, the central bank is providing a useful source of expertise and credibility for the emerging green economy).

The creation of the CEFC, which will be progressively armed with $10 billion of government money once it opens for business in 2013, and the Australian Renewable Energy Agency, which will gather $3.2 billion of previously announced funding into a new independent body, are seen as critical for the future of clean energy in Australia, which has found itself restricted by a poorly conceived series of grants programs that have largely failed to deliver the promised funding.

The government says the CEFC will play an important role in overcoming capital market barriers to commercialising clean energy technologies. When bankers don’t understand stuff, they charge more for their money, if they grant any loans at all. The CEFC is designed to help reduce that risk and increase the capital flows. It will be crucial for the government to demonstrate that it can deliver green jobs. For the Greens, the creation of CEFC and Arena are the two principal measures that distinguish this carbon pricing package from the one rejected in 2009. Economically and politically, there is a lot invested in these two new institutions.

Arena is essentially a bringing together of a hotch-potch of grants-based schemes designed to support early-stage research and technology development under the one roof, and to get those funds moving. The CEFC is designed to focus on the next stage of development, the commercial roll-out, and its principal task will be to identify the type of mechanisms that can unlock private investment.

Potentially, there is a lot lot of private investment to unlock. Applications for grants-based schemes have attracted tens of billions of dollars in proposals, but only a few have been allowed through the door. The lessons of similar institutions overseas suggests that the CEFC could unlock more than $100 billion of private capital, and that does not include re-investment (the CEFC has a brief to actually make a commercial return).
 
Low Carbon Australia, which invests smaller sums in carbon abatement projects, has found that it leveraged $13 of investment for every $1 paid in its first round of projects. The US loan guarantee program has reportedly achieved a leverage of 1:10 (apart from Solyndra, no other money has been lost, and the nuclear industry depends on them), while the UK Green Investment Bank estimates it could achieve a leverage ratio between 1:10 and 1:20. All these institutions, including other measures such as feed-in tariffs used in Europe (and more than 70 other countries), will be investigated by Broadbent and her team.

So far, the government has produced legislation for Arena (it did so on Tuesday after the carbon pricing mechanism went through), but with no titular head. With the CEFC, it’s working the other way around – finding a chair and two key advisors, who will then work with a seven-strong team from Treasury to produce a review by March that the government will then use to produce legislation that will go before parliament by June next year.

The appointments to the CEFC and its choice of market expertise have been well received. Broadbent is a former Bankers Trust executive, who has an impressive CV of board seats including the RBA, Woolworths, Woodside, Qantas, CC Amatil, and the ASX. She will be supported by David Paradice, the head of a $5 billion funds management company, and Ian Moore, a former BT executive and an expert in risk and return profiles of debt and equity financing.

In her brief interview with CS, and with other media, Broadbent gave little away at such an early stage in the process. She acknowledged the “tension” between the goals of supporting the commercialisation of new technology, and getting a decent return. She intends to fully explore the experience of clean energy programs domestically and overseas.

But it is clear that the CEFC will be a hotly contested area. The Coalition has vowed to dismantle the organisation, along with the rest of the Clean Energy Future package, and some fear the CEFC may be the most vulnerable of the measures, as legislation has not yet passed parliament, and it is not due to commence operations until around the time of the next election. And only $1 billion has so far been committed from the forward estimates. It may simply be starved of funds.

Indeed, the vehemence of Abbott’s “blood pledge”, which apparently included the CEFC, is worrying many in the clean energy industry. They fret that it will deter investment and, while a carbon price may provide a long-term signal, the threats of repeal, and the fact that the CEFC does not take effect for another two years, means many developers of emerging technologies will continue to stuggle for funds in the interim. 

Indeed, there was some surprise that Broadbent was only appointed as the head of an advisory group on the CEFC, rather than chair of the institution itself. There has been talk that uncertainty around the CEFC's future has made it difficult for the government to appoint a permanent chair. (Note: CS didn't get around to asking Broadbent that question. We should have!)

There will be tension between the dual investment mandates proposed by the government and the Greens and independents. One is for emerging technologies, presumably such as solar, geothermal, wave and others, and the other is for projects such as “low emissions technologies” – but not CCS – energy efficiency, enabling technologies such as infrastructure and manufacturing. Some of this pot may also be accessed by the renewable technologies.

There is already evidence of some tension with the established renewable energy market, mostly wind, which is looking over its shoulder at rival technologies falling down the cost curve, particularly solar PV, and is fretting about further “market distortions” and being crowded out of the private finance market. Those fears have been expressed by AGL managing director Michael Fraser, who is also the chair of the Clean Energy Council.

Interestingly, the terms of reference require the review panel to consult key stakeholders, including wind producers, about the role of the CEFC and its relationship with the renewable energy target.

One way to solve that problem, suggests the Australian Conservation Foundation, is to make projects supported by the CEFC additional to the RET. Others suggest this could be problematic for technologies such as biomass, which could reasonably be expected to leverage from the RECs, but need some extra funding help.

But the ACF says the RET additionality would be one of the key tests of its sucess. Other measures would be to see that it remains independent, it actually gets the money promised, that it starts investing quickly, and it adheres to emission standards when investing in non-renewables (no more than 0.2t/Co2e per MWh) .

“It will not crowd out investment that is already flowing but rather catalyse additional private investment that otherwise wouldn’t flow,” the ACF said in a report release this week, which quoted the leveraging ratios cited above.

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