AFR article: Green bank backs electrification, but offshore wind too risky

This article was in the AFR on 14 March 2025.

The federal government’s $33 billion green bank has shifted towards supporting household electrification and major poles and wire projects vital to Australia’s green energy transition, after moving on from large-scale solar and standard batteries that are now established technologies.

Clean Energy Finance Corporation chief executive Ian Learmonth said it was likely to be a few years before the corporation was prepared to risk taxpayer money on offshore wind projects that Climate and Energy Minister Chris Bowen is trying to establish in Victoria, NSW and Western Australia.

“We are monitoring that sector closely. It has potentially a very important role to play. I just think we’ve got to get the economics right,” he said in an interview with AFR Weekend.

The CEFC was reducing its exposure to green technologies where private investors were now very active and skewing more to underinvested areas to help Australia achieve its carbon emissions reduction goals, he said.

Learmonth spoke after private grumbles from bond investors about being crowded out by the CEFC on a $1.4 billion subordinated debt sale by Transgrid last week.

Transgrid is building the crucial HumeLink transmission project that will link the electricity grid to the Snowy Hydro 2.0 project in NSW and to Victoria.

Whether the CEFC is luring in or crowding out private capital for the energy transition is a question that has fuelled debate about the purpose of the green bank and its future after the federal election.

Key role to play

The CEFC was set up by former Labor prime minister Julia Gillard in 2012 when private sector knowledge and interest in green energy was much more limited. The Coalition vowed to scrap the CEFC under the Abbott government and remains circumspect about it, with its position unclear if Peter Dutton wins the election.

Richie Merzian, chief executive of the Clean Energy Investor Group, whose members include BlackRock, Neoen, Macquarie Bank and Andrew Forrest’s Squadron Energy, said the CEFC had a key role to play in financing crucial poles and wires projects.

“The scale of the transmission investment we need is probably even greater than the funding that the CEFC has been allocated via Rewiring the Nation, so it could be an even greater role,” Merzian said.

“But you do question whether you need the CEFC to compete head-to-head with private investment on commercial terms, especially where it’s oversubscribed.

“They should be leaning into the riskier investments. There is a clear role and need in that space.”

On the Transgrid debt sale to fund the HumeLink project, total bids for the hybrid bonds were more than $7 billion. The CEFC received more than 90 per cent of the $600 million it bid for. Private investors were allocated only about 15 per cent of their demand.

Realm Investment House associate portfolio manager Andrew Jones said there was strong investor demand for the Transgrid debt. “We were happy to support Transgrid’s energy transition goals and investors would have loved to have more available,” he said.

Learmonth said the CEFC’s total financing package of $1.9 billion negotiated with Transgrid over two years helped accelerate HumeLink’s final investment approval last December.

“We didn’t know how successful this thing was going to be 2½ years ago,” he said.

“That’s an incredibly important project for the country, and it wouldn’t have happened in the timeframe and in the way that it has without us.”

The CEFC’s hybrid bond investment in Transgrid was a condition of the government bank earlier providing senior debt when the project was more uncertain and helped deliver taxpayers a satisfactory blended return, he said.

Transgrid chief financial officer Nadine Lennie said the participation of the CEFC supported the outcome by providing strong validation for the rating agencies and market-based investors.

‘We continue to evolve’

Learmonth said backing big electricity transmission projects was crucial to hook up renewables to the grid to hit the Albanese government’s 43 per cent emissions reduction goal by 2030 and 82 per cent of electricity to come from renewables.

For example, he said the CEFC may end up being the only financier of the proposed $3 billion Marinus Link undersea electricity and data interconnector between Tasmania and Victoria.

The CEFC is also working with commercial banks to provide concessional loans to households to take up energy-efficient technologies.

“We continue to evolve. We continue to look for those gaps. We still have a very important role to play in clean energy transition,” Learmonth said.

The CEFC has $8 billion of capital deployed – about 70 per cent in debt and 30 per cent in equity stakes. That includes $270 million of taxpayer money into 34 climate-specific tech start-ups via Virescent Ventures, which was spun off from the green bank and is run by former CEFC employees. The CEFC retains a one-third stake, alongside private investors including Westpac.

Economist and former ASX official Dimitri Burshtein questioned the CEFC being given more than $30 billion of taxpayer money to invest “off budget” on behalf of the government, often in unlisted vehicles with valuations that were not transparent.

“It moved from being a climate bank to an asset manager,” Burshtein said.

“It’s the same issue ASIC and APRA are talking about with superannuation funds holding unlisted assets and the valuations done by judgment.”

In the 2024 financial year, the CEFC’s general portfolio achieved an annualised return of 3.94 per cent, within the targeted return range of an average 2 per cent to 3 per cent above the five-year Australian government bond rate.

Big financial institutions including Westpac and Commonwealth Bank of Australia have moved into the climate finance space.

The energy transition has led to a rise in specialist venture capital funds, including Martijn Wilder’s Pollination and early-stage investor Jekara Group. Former Macquarie Capital chief Tim Bishop has set up a climate investment firm, Wollemi Capital.

Learmonth said the CEFC stepped back from deals where there was enough private capital.

This week, a battery project proposed by a large international player the CEFC was preparing to invest in had initially faced a shortage of commercial bank finance, he said. Ultimately, the project was able to secure private funding.

“We said, great, we’ll step out of this deal. You do not need us now. So we are prepared to step out of transactions.”

A decade ago, the CEFC was the first financier of grid-scale solar panels in Victoria and South Australia, when the nascent technology was struggling for financial backing.

“Today, if there’s a garden variety PV [solar] battery deal, we’ve moved on from that market,” Learmonth said.

Nonetheless, an investor at a major fund said it competed against the CEFC and its satellites for equity deals that lowered the cost of capital for green innovators, but made it harder for other investors to deploy capital at acceptable rates of return.

The Clean Energy Investor Group and another private investor both suggested the CEFC should move further up the risk curve.

The private investor, speaking on the condition of anonymity, said the CEFC could do more to support new technology companies and have a higher risk appetite than venture capital or private equity.

Learmonth said there was a delicate balance between being at the forefront of investing in new renewable energy, low-emissions technology and energy efficiency projects, and ensuring adequate returns for taxpayers.

“We need to be taking risks that the private sector isn’t prepared to take today, [but] it may take them tomorrow,” he said.

“We think we take the right degree of risk, but you must balance that with a prudent use of taxpayer dollars because [otherwise] you can lose your licence to operate.”

Taleen Shamlian, a former Treasury economist and financial services expert, said the CEFC was set up at a time when private markets were fragile and lacked confidence.

“We need to regularly assess its effectiveness given the government’s deteriorating fiscal position in the coming decades,” she said.