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Apr 20, 2012

CEFC: a look at green loan programs around the world

Australia's new $10 billion Clean Energy Finance Corporation, which will provide investment and green loans to businesses, is similar in concept to policies underway in the United Kingdom and the United States.

Australia’s new $10 billion Clean Energy Finance Corporation, which will provide investment and green loans to businesses, is similar in concept to policies underway in the United Kingdom and the United States.

Half of the money from the CEFC will go to energy efficiency and low emissions measures and the other half will go to renewable energy projects. But success overseas has been varied, with high expectations, company collapses and problems with financial viability.

In the UK — where Prime Minister David Cameron promised to lead the “greenest government ever” — his administration is still in the processing of developing its Green Investment Bank. Its executive director Oliver Griffiths announced this week that the GIB should be fully operational by the end of 2012 — several months later than originally planned — although initial investments were beginning this month.

The £3 billion project will be the world’s first environmental investment bank, and plans to invest £775 million in its first financial year. It won’t have any borrowing power until at least 2015, but there are other programs already up and running, including UK Green Investments which will invest in green infrastructure — £200 million in total — until the GIB receives state aid approval.

Offshore wind has proved a popular renewable investment in the UK, although they cost double as much as onshore turbines and offshore wind companies remain reliant on the £1 billion paid annually in government subsidies.

Plus, a three-year deal between Siemens and the Carbon Trust was recently announced which will see £550 million worth of business loans handed out to help increase energy efficiency measures in businesses, with the reduction in energy bills expected to match loan repayments. The Carbon Trust is a government-funded organisation, although Cameron sliced its funding by 40% last year.

Across the Atlantic, the  US government has been guaranteeing green loans over the last few years rather than fronting up the cash. Not that loans are the most critical part for businesses investing. “The cash is almost a secondary issue, it’s who takes the credit risk on the guarantee,” Dr Stuart Nettleton, a senior lecturer in management and systems and energy policy at UTS, told Crikey.

Yet just this week it was announced that First Solar — a US solar panel manufacturer — will close a German plant and lay off 2000 workers internationally, partly due to a reduction in solar subsidies in Germany. It will now be forced to write down US$150 million in assets and return US$30 million in government funding. First Solar has previously received a US$1.46 billion loan guarantee from the US Department of Energy.

“We have to carefully distinguish between energy projects and production of devices such as solar panels,” Nettleton told Crikey. He noted Germany — whose KfW bank will commit 100 billion euros for green loans over the next five years — is phasing out its solar power subsidies due to high costs and inefficient returns.

First Solar is not the only high-profile government-backed renewable company with problems, reports Sunil Sharhan in Fortune:

“Solyndra, the solar company that received US$535 million and shuttered last summer; battery company Ener1, which after receiving US$118 million declared bankruptcy this year; and auto company Fisker, which was awarded US$529 million from a US$25 billion Advanced Technology Vehicle Manufacturing program created in 2007, received US$193 million in 2010, but is struggling now to draw down the remaining US$336 million from the Department of Energy. Reportedly over US$16 billion of federal green loans have been given to companies either run or primarily owned by Obama financial backers.”

What CEFC investments are likely to succeed in Australia? “Perhaps the only renewable energy technology approaching cost-effectiveness is indeed fourth-generation nuclear,” said Nettleton. “Nuclear at the moment is illegal in Australia, but I suspect that will change over time because the answer in the future is a mixture of nuclear and solar and geothermal if that’s possible.”

Solar technology will also struggle to viability. “[It] depends how much the government is prepared to suffer financial hurt as to how much it will go with solar,” Nettleton said. “For a solar project to proceed at the moment would actually be very unlikely in terms of feedback of financial returns and risks that I’ve seen in the market.”

Don’t discount solar energy projects yet though. “It does have a future role, but it doesn’t yet fulfil the potential that people had hoped it would in terms of driving viable projects,” he added.

And another issue: the Greens demanded carbon capture and storage technology be banned from the CEFC. “There is no solution at the moment without the success of carbon capture and storage or without the acceptance of nuclear power or without the fortuitous ability to use geothermal,” said Nettleton.

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8 thoughts on “CEFC: a look at green loan programs around the world

  1. Stuart Nettleton

    Ever wondered why countries are no longer trying to get rid of their nuclear waste? Despite elements of skepticism in some of the comments above, generation 4 nuclear is equivalent to a “renewable” resource for the next 500-1,000 years. This because the fuel, which is nuclear waste, is plentiful (for confirmation see http://www.guardian.co.uk/environment/2012/feb/02/nuclear-reactors-consume-radioactive-waste). Perhaps we might all celebrate a fuel that has a “negative cost” due to the major savings and risk avoidance advantages in reinterpreting a negative as a positive and using another form of existing pollution as green fuel. As to whether fast reactors do or don’t exist, it is worth recalling that there is over 300 years accumulated experience with generation 4 reactors (see “Current Fast Reactor Development” at http://thesciencecouncil.com/tom-blees-president.html). Nuclear energy has only just come of age with generation 4. My own priority is climate change amelioration and I believe that our continuous transition away from carbon pollution will sort itself out in an orderly, low risk and economic way. The imperative for low risk and low cost means that each technology will need to win its spurs the hard way. For many investors any sort of energy production technology is becoming too high a risk compared to other infrastructure. This is where a layer of supplementary support from the CEFC is needed. Speaking from my experience in the Australian Industry Development Corporation, those hoping the CEFC will invest in loss making or economically marginal projects for ideological reasons, provide subsidies in lieu of government or myopically pursue single technologies will be disappointed.

  2. Mark Duffett

    @5, who’s talking down green energy? Nuclear is the greenest there is. The likes of Gina Rinehart will prefer solar and wind to nuclear, because kWh for kWh, nuclear uses something like five times less steel (similarly for other mined materials).

    @6, technically maybe not, but when you’re talking about a tech that will extend our supply of fissionables for millennia if not longer (we could sustain civilisation for several centuries just on the waste we’ve already generated), the practical difference is negligible at the current juncture. Big strides have indeed been made.

  3. lindsayb

    “Perhaps the only renewable energy technology approaching cost-effectiveness is indeed fourth-generation nuclear”

    WTF??? Nuclear is renewable now? Alchemy must have made big strides while we were not looking.

  4. wallman alex

    What a one-sided, selectively-evidenced article. If I feel any more leaning toward talking down green energy and thus making fossil fuel or nuclear look like inevitable solutions for rational minds I’ll stop reading Crikey articles. Yuck. Did Gina Rhinehart or one of her pals get at you guys too? Not fooled, sorry guys.

  5. Mark Duffett

    @1, indeed, confirmation bias is a powerful thing. I imagine it isn’t nice to read that you’ve spent a fair chunk of your life making the climate problem worse, by actively working to exclude certain solutions.

  6. michael r james

    Oops. My statement: “and winning US$8.4 billion in loan guarantees from the Obama administration” was possibly ambiguous. These loan guarantees refer to the twin reactors under construction (kind of) in Georgia, USA. I wrote about it here:

    (theage.com.au/opinion/society-and-culture/nuclear-its-just-too-expensive-for-us-and-the-rest-of-the-world-20100225-p4y3.html)
    Nuclear? It’s just too expensive, for us and the rest of the world
    MICHAEL R. JAMES February 26, 2010

  7. michael r james

    ““Perhaps the only renewable energy technology approaching cost-effectiveness is indeed fourth-generation nuclear,” said Nettleton.”

    I suspect Amber included this quote just to get some lively comments flowing. So ok, I’ll bite. To even think about so-called 4th gen nuclear when it doesn’t exist is beyond the ridiculous, and obviously–regardless of any Oz laws–Australia will play zero role in its possible development, which is so far off the horizon…. The current reactors being built, such as the Areva EPR, are feasibly described as 3rd gen. It is dubious whether the Westinghouse AP1000s being built in China–and winning US$8.4 billion in loan guarantees from the Obama administration–deserve the appellation 3rd-gen because they are really barely 2nd-gen compared to the 30+ year old reactors at Fukushima, of which they are direct descendants (but ok safer, we hope–there is not much track record yet!).

    Seriously, without being gratuitiously insulting, I hope Dr Nettleton is not on the board of the CEFC because he seems confused about its function. If there is one important thing the CEFC could do is to bring some focus to what Australia could realistically do. Because the recent history surely narrows the field. Solar PV is experiencing all kinds of trouble but mostly because the technology and the competition (much of it due to alleged loss-leading by China) is what is driving some companies close to the wall. On the other hand solar-CSP is not subject to quite the same problems, and we have geothermal almost to ourselves.

  8. Dan Cass

    I’ve never heard of Dr Stuart Nettlelton before.

    Now I know why.