The Government’s $10 billion green bank (more formally known as the Clean Energy Finance Corporation) is one step closer to existence with the introduction of the Clean Energy Finance Corporation Bill (Bill) into Parliament last week.

The Government will be keen to pass this Bill quickly and its progress has been fast-tracked. The Bill was referred to the House Standing Committee on Economics immediately after being introduced and read in the House of Representatives. There is a short window for general submissions which will close this Thursday, 31 May.

This alert analyses the key elements of the Bill such as certainty of funding, where the money will come from, how the money will be invested and the investment mandate.

What is the green bank?

The Clean Energy Finance Corporation (CEFC) is part of the Government’s Clean Energy Package which includes the introduction of the carbon scheme on 1 July 2012. While the carbon price is a demand side mechanism which is intended to change our behaviour through our wallets, the CEFC is a supply side measure which has the ability to directly stimulate the development and supply of clean energy technologies.

The object of the CEFC is to increase the flow of finance into the clean energy sector. Surprisingly, the Bill stops short of including any defined outcome for this flow of money such as reducing greenhouse emissions or transitioning Australian to a low carbon economy.

Getting the money

Under the Bill, the Government will be required to allocate $2 billion per year from 2013 to 2017 to a special account which is controlled by the Government, not by the CEFC. In order for the CEFC to get access to the money it will need to make debit requests for its expenses and investments. While this request and approval process appears reasonably mechanical, there is more scope for the Government to resist approving a particular debit than there would be had the funds been immediately paid to an account controlled by the CEFC. The CEFC is only permitted to borrow money out of necessity in limited circumstances.

Spending the money

Once funds hit the CEFC’s bank accounts it can invest directly and indirectly into clean energy technologies through debt, equity or via the acquisition of other financial assets (ie assets which are treated as such under the ABS’ publication “Australian System of Government Finance Statistics: Concepts, Sources and Methods”). In addition, the CEFC can provide guarantees. This flexible approach is broadly in-line with our expectations based on our review of the Broadbent report which underpins the design of the CEFC (as described in our alert dated 18 April 2012 which can be accessed here).

The CEFC can invest in a broad range of technologies as long they can be described as being:

  • energy efficiency technologies;
  • low-emission technologies; or
  • renewable energy technologies (which expressly includes hybrid technologies).  

However, the CEFC is prohibited from investing in technology for carbon capture and storage and in nuclear energy and nuclear technology. The good news for new clean energy technologies and projects is that the Bill forces the CEFC to invest at least $5 billion (half of its committed funding) by 1 July 2018. An interesting feature of the Bill is that it will encourage the CEFC to spend the funds which it debits from the Government’s special account in order to avoid having surplus funds in its own accounts (anything over $20 million is deemed to be surplus) as the Government can take this money back at any time.

The investment policies prepared by the CEFC will be publicly available on its website which is important to provide guidance to the market, and shows transparency in policy-making. The policy will detail the CEFC’s investment strategies, benchmarks and standards of assessing the performance of the CEFC’s investments and also its risk appetite. However, at this stage the structure of, and extent to which, the CEFC will require co-contributions from other investors or from the recipients of its funding is unclear.

Spending limitations and Government control

The Treasurer and the Finance Minister must give the CEFC’s Board at least one direction regarding the performance of the CEFC’s investment function which is known as an investment mandate. There is no upper limit on how many or how often such mandates can be made by the Government. Having an investment mandate is not uncommon and it will be interesting to see the similarities and differences between the CEFC’s mandate(s) and that of existing investment funds such as the Future Fund.

The mandates could extend to almost anything including the risk and return of investments, the types of technologies or projects which are eligible for investment and the allocation of investments between various classes of clean energy technologies. This means that lobbying efforts may not be wasted as the Government could effectively cherry-pick technologies and opportunities but not necessarily specific projects. The other significance of this level of Government input is that the Government of the day has a lot of opportunity to steer the course of the CEFC or, perhaps, to frustrate its purpose.

The Bill has a transparency mechanism which forces any submission made by the CEFC in respect of a draft mandate to be tabled in Parliament. This means that there will be at least some level of public and political scrutiny of a mandate before it comes into effect.


The CEFC will have a 4 to 6 person board which is to be appointed by the Treasurer and the Finance Minister. Each of the board members must have substantial experience and expertise in at least one of the predetermined fields such as law, economics or engineering. The Government will also have input into the appointment (and termination) of the CEO who must be appointed within 6 months of the commencement of the act. On the staffing front, the CEFC will have flexibility in determining the terms and conditions of employing staff and engaging consultants.