Welcome to Zero. I'm Akshatrati. This week elections, electrification and energy storage. Over the past few weeks, I've had the pleasure of traveling to Singapore and Australia, visiting startups, companies, and even the Great Barrier REEF to meet the people behind some of the most pioneering climate solutions coming out of these regions. We'll be playing some of those interviews on Zero over the next few weeks, and we begin
in Sydney where I met Ian Leermanth. He's the chief executive officer of the Clean Energy Finance Corporation, or the CEFC, which describes itself as the world's largest green bank. The CEFC was set up by the Labor Greens coalition government in twenty twelve with an initial funding of ten billion Australian dollars or six and a half billion US too. It was tasked with financing green projects at a time when large scale investments in things like wind and solar
were seen as too risky for many private players. As uncontroversial as that might sound today, it almost never happened. The CFC was nearly shut down in twenty thirteen when the climate skeptic Liberal National coalition government took power with a campaign promise of closing the bank. There was a lot of drama, but the fatal event didn't come to pass. Now, the CFC has become a big part of the energy transition in Australia, with over twelve and a half billion
dollars invested to date. In twenty twenty two, the CFC celebrated its tenth year and its star is still rising. It has just received twenty and a half billion Australian dollars from the government to accelerate the country's energy transition. For context, last year, the country's total investment in all things energy transition was about twenty three billion Australian dollars. This new cash injection is the first in a decade, and bills on what became known as Australia's Climate elections,
which took place in May twenty twenty two. We covered those elections in an episode we published last year, which we'll put in the show notes. But to cut a long story short, a wave of new independent politicians campaigned successfully on tackling climate change, and a climate progressive labor
government took over from the incumbent climate skeptic government. Since then, the government has been busy passing some ambitious climate policies, including a target for the country to reach eighty two percent renewable electricity by twenty thirty, up from a little over thirty percent today. It's a massive undertaking and the CFC has been tasked with distributing billions of dollars to
make it happen. Today I'm zero. I talked with Ian about how this huge amount of money will be spent, why the CEFC had so many enemies early on, and what kind of innovative start up and fintech projects. Ian is looking diffund Ian, Welcome to the show. Nice to be here and we are joining you at an exciting time. The CFC has just been given a massive new round of cash to invest. But first, can you give us the context of why the CFC was created and what its purpose has become?
Certainly so, the CFC was created just over ten years ago by the Australian government. The Labor government at the time was forming a coalition with Greens and the Greens said we want a green bank. It was a prescient move by the politicians at the time and we had ten bin in Australian dollars to invest in renewable energy, energy efficiency, lower mission technologies.
We could do debt, we could do equity.
We'll hear more about equity and debt as we go through this episode. So a quick explainer, Equity is the money you can put into a company in exchange for shares. Debt is a little more conservative effectively alone to the company, which the company has to pay back with interest. The CFC is able to invest money both as equity and as debt.
We had to invest in Australia otherwise we were kind of on our own scenes. So it really came out of I guess, you know, the motivation of the government at the time to have capital, very substantial capital, certainly relative to Strategy DP, to invest in climate change, carbon abatement and the clin energy transition.
Now, in that ten years political change in Australia has been quite substantial. There have been swings left and right, and of course politics of climate around the world has become more polarized. The CFC came under lots of criticism from the opposition when it was first created. How close did it come to being shut down.
Within a whisker?
It was really close, because not long after we were set up, and it took it. It takes a year or more for something of this scale to be put together. And by that time there was an election in came a new coalition government, a kind of conservative government, and one of their undertakings was to shut down the CEFC because they saw it as symbolic of one of the kind of bargaining chips that kept them out of power in the previous election. So they put up a couple
of abolition bills. This is when the CFC was in its early days and out there trying to write its first project finance deals and wind farms and other things, and they struggled to get it through the upper house here in Australia, through the Senate, and there was at the time a guy called Clive Palmer, very kind of quite a divisive character. Clive Palmer to be run in the country.
He can work.
If it can't work, it can't be private this. Claive Farmer is a billionaire businessman and a former member of Parliament who made his fortune in mining, mostly iron and call. After the twenty thirteen elections, the party he founded held the balance of part in Australia Senate. Which played a crucial role in keeping the CFC alive in the face of attacks from the ruling Liberal National Coalition.
He had control of the Upper House at the time. I don't know whether he was unsure about which way he was going to go. Al Gore happened to be in town. Someone put them together. Al said, hey, let's I think it's really important that you vote against the abolition bill. They held a press conference and the rest is history. And funnily enough, I reminded al Gore of that just about when I started six years ago, and
he still remembered it very fondly. So yes, we were within a whisker of being abolished.
What is the CFC's relationship with government now?
It's interesting.
I mean, we always play a very straight hand with these with governments. We have a responsible Minister of the day, and for nine years we had Coalition or Liberal and
National Government representatives or ministers as our responsible ministers. So we do as directed in a sense, although it's important to note that the CFC Act says that no minister can tell the CFC what deal to do and what deal not to do, so there's a very strong sense of independence with the new government who have been empowered just over a year now they have you know, they obviously have a quite a different gender. You know, they are embracing the CFC in in a much great way.
They've changed our Act first time really ever to say that not only do we have the object of creating in funds into the clean energy sector, but we are to deliver on their climate ambitions, which of course is to reduce emissions by forty three percent by twenty thirty competed to two thousand and five, and through the investment mandate, also helped get to twenty two percent renewables by twenty thirty,
so that has been a very significant thing. And of course, as you mentioned, the twenty in fact twenty point five billion, just not to forget that last five hundred million of additional funds have been appropriate to us. So yes, they see us as a very significant platform to deliver on their climate policy.
Now thirty two percent to eighty two percent renewables in the electricity mix within a span of seven years.
It's a big challenge and you are identifying something that does of course speculated widely in the Australian media. We're up to the challenge we're going to do everything we can to help the country get to that place, but we don't shy away from the obstacles and the challenges, and I think we.
All know what they are.
Inflationary pressures, grid connection challenges, the supply chain, the cost of money has gone up, all those issues and social license. Of course, when you're you know, your building out, particularly wind farms on shore, and you're building transmission, you're going to get people who are acutely interested in where it's going because it might be across the bottom paddic and they might want to talk about that. Of course, So
there are all those things. But we've got a vast amounts of capital, we've got the States putting their shoulder to the wheel as well, So a lot of work to be done. But yes, it is a big challenge.
So the target here is to try and focus on renewable deployment. But the climate challenge is really an emissions challenge, and building clean energy will help reduce emissions, no doubt. There are other ways in which you also have to reduce emissions. Australia could build nuclear, it could build carbon capture. Those are not things you fund.
Why when the CFC was established.
The negotiations with the political parties, the Greens and Labor decided they were two technologies that the clein Energy Finance Corporation will and invest in. It was generally a feeling, I think with carbon capture and storage that it could potentially be used in a way to extend the life of colified power stations, so that I think was something that discouraged the Greens. So I mean having said that, we haven't seen necessarily any great opportunities in that space
to date. And nuclear of course is whilst a conversation in Australia is still.
A long way off I think being a reality.
What's different about this twenty point five billion dollars relative to the money you already manage.
Yeah, well, the first ten as I say, has had a very broad remit and you know we've invested right across the economy with it. That twenty point five has
broken up into three different categories. Nineteen billion is part of the Rewiring the Nation funding, which is the government's policy to build out transmission to help reach eighty two percent renewables by twenty thirty and that's building out poles and wires across the countryside capture winds, soulard storage long duration batteries like Snowy two point zero.
Snowy two point zero is a hydro electricity generation and storage project being built in the Snowy Mountains in Southeast Australia. In November twenty twenty, the CEFC invested one hundred and twenty five million Australian dollars to help build out grid infrastructure and transmission lines for Snowy two point er, which is due to open in twenty twenty nine.
So nineteen billion dollars for the rewiring the nation and with probably more direct instructions if you like, than the first ten billion, which is very much you're on your own out there in the economy. A further billion dollars for a housing Energy Upgrade Fund, which is to use that money with intermediary banks and securitization houses and other credit unions other non bank lenders to help provide low cost finance to allow people to renovate their homes and
improve energy efficiency in the home. And then the last half a billion dollars is for equity investments either directly or through funds in growing interesting Australian companies with innovative clean tech companies.
It's one thing to get to eighty two percent renewables, to build wind and solar. We know that getting to that level of penetration requires them to be connected and that requires huge cables. And everywhere democratic governments have traded to do it, they've been met with opposition. It's no different here in Australia. So what is being done to overcome the opposition to transmission lines?
Yeah, look, it's a very good question.
And as you say, Australia's embarking on literally thousands and thousands of kilometers of transmission, and the state governments and the federal government are acutely aware that there is a very significant social license question around that we haven't built transmission like this in a decade. So for many farmers having these transmission lines potentially go through their land is a real challenge. So there's a whole lot of engagement.
That's going on.
There's a massive sort of social license strategy that's been devised to see how we can that this transmission can be built. Can it be in the least intrusive way in the right places. Maybe it even needs to go underground. Obviously that's far more expensive and we're going to have to look at this compensation. Some of the states have come out with reasonably generous compensation packages.
Although that may be debated by a.
Farmer who may say that's not sufficient. So I hope that it doesn't add many years onto the buildout of rewarring the nation, but it will look it will be a little bit of a bumpy ride. But you know we are as the financier to many of these big projects, we are also extremely sensitive to it.
So going down that list, then a billion dollars for the household energy upgrades? What are they and how exactly will you deplay it?
The finishing touches on the policy are still being made, but the broad understanding and policy objective is to help Australian households mayhap certainly have access to low cost finance so they can go out and double glaze their windows, they can electrify their homes so get rid of gas put in induction heating and cooking, those sorts of things to improve energy efficiency kind of in the home and idea,
and of course reduce power bills. As a result, the government would also like there to be a particular focus on middle to low income households because they see that's kind.
Of where the need is.
So we're in the process of talking to the financial sector, you know, the sort of people who who have a consumer finance reach whereby we can you know, we can get to these people. And we're also talking to industry and regulators to talk about what standards should we require before this cheap finance is made available, and making sure that if people are going into Australian homes and installing various pieces of equipment technology, that they are fit for purpose.
So we are in the process of developing all.
That and then the last five hundred million dollars, which is to try and invest in companies and technologies that Australia can grow. You've had some experience doing that already. What have you learned from that past experience that you would apply for a larger sum of money that's going to be invested in front of your technologies.
You're right.
We have been in that business for some time and we've probably for well over six and a half years or so. We have invested in a very exciting and interesting portfolio of innovative companies, effectively clean tech, benure capital and a terrific team, which we've now partly spun out for and Ventures, who are a very exciting clean tech manager, very much still connected to the organization, and they're kind
of raising their first funds. But I guess what we've learned when we look at the twenty seven or so companies that we've invested in over the years.
I mean some obvious things that not.
Everyone will get past the valley of death, as they say, which is when you know your cash flow negative and trained to get to break even. Some of the technologies will struggle to reach a commercial phase, and you know, you've got to kind of make a decision about whether you continue to support those companies.
Or you let them go.
There'll be some that will roll along quite comfortably and then you'll have your starts of course that will shine and you'll continue to support them with what they refer to us follow on rounds, and you know at some point there'll be hopefully a liquidity event, there'll be a trade sale or an IPO. Venture capital is a numbers game. You've got to try and make sure that every day is a good one. Even though you can't predict the future,
you have to manage them very actively. It's hugely labor intensive. Of course, there's probably two out of three or three out of four of our investments we have a board seat on. There's a very high engagement with these companies. But I guess one thing that I've been incredibly impressed by is the ingenuity and just the innovation in the Australian clinic sector, particularly around sectors like distributed energy, solar and the household batteries and even in agriculture, things that
Australia is very strong on, and that's very exciting. We look forward to using this additional half a billion dollars to make further investments across that sector.
Are there examples of startups that just shin or stand out or are sort of the diversity that Australia has to offer, because the nice thing about technology is they don't have to remain in Australia.
Yeah, that's absolutely right.
And maybe just to pick one or two, there's a next generation solar panel company called Sunman, which has come out of the extraordinary alumni of the University of New South Wales. And Sunman makes an ultra light solar PV panel. It's about a seventh of the weight of a conventional glass topped panel and it as already flourishing. It's selling
into many markets Australia, Europe, North America. We've had companies like Zumo, which is an electric buy company that doing last mild delivery sundry that's looking at replacing the silver that's used in solar PV with copper and maintaining there or thereabouts the same efficiency but considerably cheaper. There's also agriculture technologies in that AC sector, like Lowing Buyer, which is a soil carbon company which is growing rapidly and
has huge amounts of support. There's software companies that are regulating the flows of power in the home. A wide variety of very exciting companies.
After the break, what lessons can other countries learn from the CFC and why is Australia betting big on batteries. In Junior also announced one hundred million dollar investment in the super Battery, the largest standby network battery in the Southern Hemisphere. Could we use this as a case study of how the CFC chooses what to finance and how much money it ends up giving them.
Yeah.
The Watch super Battery was the largest battery to be built in New South Wales, the largest Australia possibly the world for a short period of time when someone else will ever take it. It was being developed by an exciting new company called a Kaisha who had some mixed Tesla execs and had recently been a by black Rock, so they had a terrific pedigree of players, knew what they were doing. They had a contract for part of
the capacity with the new South Wales government. It was going to provide some very significant grid stability and reliability, which is sort of incredibly important to us. So we have kind of come in as as one hundred million dollar equity investor in what's a very substantial investment, a billion dollars all up the capitol, and it gives us I guess you know one. I think the CFC's name attached to as an investor helped their fundraising and help
crowd in other investors. It gave us a ringside seat at the biggest battery in the country. Also predicted to make a reasonably good return, and we obviously keep an eye on that because we do seek to make a return these days at about two to three percent above the five year government bond rate, so we try and make a good return to tax pus whilst abating carbon emissions.
Here in Australia, that investment mandate to try and get two to three percent return above the bond rate is written into the law that created CFC, But according to the National Audit Office, it has failed to keep up with that return so far, and while it attempts to reach that, it doesn't yet have a plan to do so. So why hasn't the CFC been able to meet this target yet?
Maybe just to go back a step the original more certainly for the last seven or eight year is the target return the government had given us was three to four percent above the five year government bond rate. And yes, you're right, we haven't met that particular target, but we we only even saw it as a guiding light because when you're doing a lot of project finance, you know, we were seventy percent debt give or take over that
period of time with thirty percent equity. You're not going to reach those sorts of returns, and to try and do so, we'd have to take a lot of probably unnecessary risks.
So we were.
Always about a percent below the bottom end of that range. Now the new government came in and we said the time has come to revisit this target, and we gave them all the reasons why, we showed them our performance and we said that it's probably not that helpful to have an unrealistic target return. They considered that, went to Finance, did the numbers and said yes, all right, we'll lower
it five percent. You guys now need to target two to three percent above the five year government bond rate and we're now squarely within that.
So good news.
The government and the CFC have kind of come to a landing on what is a sensible return and we now fit snuggly in it.
So compared to a commercial bank, a high street bank, Australia has the Big Four, what is it that CFC does that makes it a more attractive partner to have than just going to a commercial bank.
It's a very good question and an important question.
CFC is always trying to play a role to fill a gap in the marketplace and help draw in the Big Four or the investment banks, or the international equity in the Infrastructure Fund and whatever it might be, and we do that in different ways. We take risks that others might not be prepared to take. So we might provide a much longer duration for our debt, which allows shorter term debt to come in from the private sector or the Big Four or the Japanese banks or the
European banks, for example, in a big win farm. You know, that's a true live example. So we might commit early and people go. CFC has underwritten part of this. We know that they're a sensible investor. They've been around a long time, we know the people there, and they're owned by the Australian government. That's a vote of confidence in this particular project or company. For the reasons we've been around,
we've invested. You know, we've done over you know, two hundred kind of large deals and there's been tens of thousands of smaller deals using intomediories. We've lost very little money, almost immaterial amount of money, and you know, we've made a good return for the taxpayer.
Now, CFC users it's money to leverage two point five dollars from private investors for every dollar it spends. Can this number go higher?
Yeah, it's it's an interesting kind of question, the one of leverage, and governments are always very focused on not being the only dollars in things. We've always tried to push leverage as far as we can, But this was a bit of a natural tension between If you have very very high leverage, it sort of suggests that there was a lot of people there alongside you. Did they really need you? So sometimes you've got to kind of
keep that in mind. Could we go higher? I think in fact we in the last twelve months our leverage was even a bit higher than that. Again, so I guess we're always trying to shoot between two and four times if we can. There are some deals when it's much higher. In other times we might put in nearly all the capital because we're providing concessional debt to a bank which is on learning to Remote Australia to try and put more SOLA on the rooftops out there in the country.
We spoke with Jigashan the podcast earlier this year. He runs the Lawn Program's office and the US Department of Energy, but he'd said that they had received a lot of interests from other countries around the world for setting up similar institutions. Have you received interest from other countries to figure out a CEFC tape model in their countries.
We have had a lot of interest from Asian countries, even some African countries. Everyone has a slightly different take on it. Sometimes it's state government, sometimes it's a federal government. Sometimes there's a model where people want to talk to you about combining the lending activity with the grant making activity, whereas in Australia it's bifurcated. We do the lending and
investing an arena. The Australian Renewable Energy Agency, which is a terrific organization, does grant making, so that we have separate governance and but a very complementary approach and often in on the same deals from time to time, and we try and share our experience knowledge as widely and broadly as we can. We help the New Zealand Green Bank Investment Bank become established, stay in close touch with
the team over there. We active members of the green banking network which kind of gets together around cop So
it's interesting. The only other green bank green investment bank that's probably been quite similar to us was the UK's Green Investment Bank, which was two and a half million pounds, so smaller than US despite a bigger economy, but maybe a little more focused and they did a lot of offshore wind and then, of course after a number of years, sold themselves to my old employer, Macquarie, and.
I think Australian jan Yeah, that's.
Right, and look we work with private sector players like Mcquarie. I think the Brits did a good job with that in the sense they got something up and running.
And sold it.
But yes, so it's an ongoing dialogue where you know, we're very flattered that people are constantly coming to us and asking you can hear about how we were established and what lessons will learned, what's you know, what's been good, what's not been not so good? And I think when I look at the US, there are some states that have, you know, green banks. You probably as well plugged into
this stuff as I am. And I think through the Inflation Reduction Act, there's a move to purvacly wholesale capital and push it out to various banking agencies, non bank lenders and others down at the state level, so they kind of reach communities, which is something that we have done a bit of. But yes, I expect to see more of it overcoming years.
You completed ten years last year, we did, and you've now got this massive new capital injection to do more. But if you were to sum up the last ten years in lessons learned, how would you beast sum it up?
I think the flexibility and reach that we've had debt equity and being able to invest across nearly all sectors, but nuclear carbon capture storage has allowed us to see so much. And there's such an enormous interconnection now between various sectors that built environment, agriculture, residential Australia, distributed energy, utility scale energy, and I think all of that coming together is something that I've really witnessed over the last well I've been CEO over six and a half years.
I've really witnessed that the world is coming to the transition. We were, in some way at the forefront of it, and now we've seen capital, regulators, governments, industries, everyone signed on too. Netz. If you're not, you're probably kind of concerned. And markets are changing all the time. You know, what was kind of made sense in a utility scale solar in twenty ten is a very very different proposition in
twenty twenty three. So things are changing all the time, the sectors moving more quickly than ever, taxonomy and regulation is coming.
Down the pipe. We're having to adapt to that.
That's probably another new frontier that we yet to really tackle financed emissions reporting on that. Corporate Austrade is going to have to report on its exposure to climate. So, in a nutshell, it's probably the most dynamic and fast moving environment that I've ever witnessed.
Thank you for coming on the shew my absolute pleasure. Thanks for having me.
A lot more money is needed to finance clean energy projects and cut emissions, which is why it's so exciting to see a government commit large sums of money to doing just that. Since recording this conversation with Ian, the CFC has announced a three billion dollar investment in the state of Western Australia. It comes out of the Rewiring the Nation Fund and will help expand the state's transmission
lines and renewable sector. If you enjoyed listening to this episode, I recommend you go back and listen to our interview with Jiggersha. He's playing a role that's similar to Ian's, but in the US and with a lot more money to work with. Thanks so much for listening to Zero. If you liked this episode, please take a moment to rate and review the show. Subscribe on Apple podcasts or Spotify. Send it to a friend or send it to someone who loves Australia. Get in touch at zero pod at
Bloomberg dot Net. Zero's producer is Oscar Boyd and senior producer is Christine driscoll Our. Theme music is composed by Wondering. Special thanks this week to kiramintern I am Akshatrati.
Back next week.