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Standing Committee on Economics - 28/05/2012

WASLIN, Mr Mike, Head, CEFC Secretariat, Treasury

NICOL, Mr David, First Assistant Secretary, Budget Group, Department of Finance and Deregulation

YOUNGBERRY, Mr Tim, First Assistant Secretary, Department of Finance and Deregulation

MURRAY, Ms Eliza, Director, Carbon Farming Initiative Design, Carbon Farming Initiative Policy Branch, Department of Climate Change and Energy Efficiency

PANKOWSKI, Dr Andrew, Director, Coverage, Coverage and Legislation Branch, Department of Climate Change and Energy Efficiency

PRYOR, Mr Joseph, Analyst, Coverage and Legislation Branch, Department of Climate Change and Energy Efficiency

STUART-FOX, Ms Maya, Assistant Secretary, Carbon Farming Initiative Policy Branch, Department of Climate Change and Energy Efficiency

WILKINSON, Ms Jenny, First Assistant Secretary, Climate Strategy and Markets Division, Department of Climate Change and Energy Efficiency

WRITER, Mr Simon, Special Advisor, Carbon Pricing Legislation, Coverage and Legislation Branch, Department of Climate Change and Energy Efficiency

YOUNG, Mr Peter, Assistant Secretary, Coverage and Legislation Branch, Department of Climate Change and Energy Efficiency

Committee met at 11:32

CHAIR ( Ms Owens ): I declare open this public hearing of the House of Representatives Standing Committee on Economics inquiry into the Clean Energy Legislation Amendment Bill 2012, the Clean Energy Finance Corporation Bill 2012, the Clean Energy (Customs Tariff Amendment) Bill 2012 and the Clean Energy (Excise Tariff Legislation Amendment) Bill 2012. I remind witnesses that although the committee does not require you to give evidence under oath, this hearing is a legal proceeding of parliament and warrants the same respect as proceedings of the House. The giving of false or misleading evidence is a serious matter and may be regarded as contempt of parliament. The evidence given today will be recorded by Hansard and will attract parliamentary privilege. Before introducing the witnesses, I will refer members of the media who may be monitoring this hearing to the need to fairly and accurately report the proceedings of the committee. I welcome the witnesses to the hearing today. Please each state your full name and the capacity in which you appear before the committee.

Mr CIOBO: Before we go to that, I have something I would like to raise. As deputy chair I would like to move a motion before this committee to the following effect. I move:

That the House of Representatives Standing Committee on Economics hereby extend this public hearing into the clean energy package of bills until 2 pm today and resume immediately following question time, and further extend the hearing program as outlined for this package of bills to such other locations and with other witnesses, and calls for submissions until 30 August.

Ms O'DWYER: I second that motion.

CHAIR: We could move to a private meeting.

Ms O'DWYER: We are happy for it to be public.

CHAIR: I will take advice from the secretary.

Secretary: We had a situation previously where it was considered that the notice of meeting referred to the public hearing only, and this is a new item. If you are going to deal with this new motion, then you could argue that a new notice of meeting would have to be issued so that all members of the committee who are entitled to attend the meeting can attend the meeting to deal with this motion. That is consistent with previous advice I have given on this type of issue.

CHAIR: It is.

Mr CIOBO: So is that your ruling?

CHAIR: Yes.

Mr CIOBO: I dispute that because the reality is that there is nothing in the standing orders that prevents the consideration of this motion before this committee now. I have moved this motion, and the motion should be dealt with.

CHAIR: In which case I, or someone else, can move another motion later.

Mr CIOBO: Sure. But I move this motion now, along the terms that I have outlined. That motion is now before the table.

CHAIR: Are there any further speakers to it?

Ms O'DWYER: I second the motion; I agree with the motion.

CHAIR: Can you read the motion again.

Mr CIOBO: Hansard can possibly repeat it verbatim, but I moved that the House of Representatives Standing Committee on Economics hereby extends this public hearing into the clean energy package of bills until 2 pm today and resumes immediately following question time, and further extends the hearing program in other capitals with other witnesses and calls for submissions until 30 August this year.

CHAIR: Are there any speakers against?

Dr LEIGH: We have had a committee specifically set up to inquire into the clean energy bills. We have taken a substantial number of submissions. The committee has travelled the country. It is not as though debate around the clean energy bills has not been occurring over recent months. It is hard for me to see what more would be added to this.

Ms O'DWYER: You are arguing against the whole existence of House of Reps Standing Committee on Economics in that case. The first notice of this inquiry by the House of Representatives into this particular issue was a press release that was issued on Friday. The hearing is now today, on Monday, and the report, according to the current tabling, is going to be on Wednesday. That is, we have less than a week to deal with a $10 billion bill. My view would be that not enough scrutiny has been applied to this bill. There would be substantial witnesses who would be prepared to come before this committee to provide evidence. It is simply not enough for us to have a two-hour hearing today that has been called on effectively in the dead of night to try to deal quickly with this legislation because the government wants to avoid scrutiny.

Dr LEIGH: Since 1992 there have been 36 committee inquiries into clean energy.

CHAIR: I am entitled to call this as a private meeting. We need to suspend and move into a private meeting.

Proceedings suspended from 11:37 to 11 : 46

CHAIR: The proceedings will resume. I apologise for that interruption. We were up to the witnesses stating their full names and the capacity in which they appear before the committee. As no-one wishes to make a short opening statement, we will move on. There are four bills that we are looking at today. One is the Clean Energy Finance Corporation Bill, which I assume is the one that will attract the most scrutiny today. Of the other three, I am assuming from reading the papers and other things, that they are completely noncontroversial and that the industry is happy with those—that they have actually been asked for. Is there anything in those other three bills that you are aware of that anyone is expressing any concern about?

Mr Writer : No. They implement the commitments that were made last year by the government to do certain things or make technical or minor amendments to ensure the legislation works as effectively as it can in response to stakeholder concerns in many cases.

CHAIR: And the move from, say, the natural gas guise into the carbon prices is at their request.

Mr Writer : Yes. That is correct.

CHAIR: Does anyone have questions on the other three bills before we move from them?

Mr CIOBO: Madame Chair, I do not see the benefit of doing that. Why do we not just consider it as a cognate inquiry rather than dealing with each one in turn? There may be implications that arise that spread across the operations of the bills. I do not see the benefit. Why shut down any line—

CHAIR: Having read them I doubt that is the case.

Mr CIOBO: Then you have nothing to worry about then do you?

CHAIR: That is fine. Let us go to the Clean Energy Finance Corporation Bill. Again, there have been a number of press releases and comments from people in this space over the last few days, essentially saying it is time for this to be set up and it is time for us to get on with it. I know that there has been extensive consultation over the last six months and that the government bill pretty much reflects the expert panel's recommendations. All the comments I have seen have been favourable, and saying, 'Please get on with it.' Are you aware of any particular areas where there is a concern in either the finance sector or the green energy sector about the way this is being set-up?

Mr Waslin : Not in the way that it has been set up. There is a spectrum of views: 'We need to do it now and we need to do it quickly' to 'We should do more' to some sectors that question the need for the corporation. So there is a broad spectrum of views, but the bill, as you, Chair, mentioned, reflects the findings of the expert review panel into the Clean Energy Finance Corporation, which was chaired by Jillian Broadbent. Also on that panel were Ian Moore and David Paradice. All three members have extensive experience within the financial sector and the corporate sector.

In conducting the review, they had an open inquiry process where they asked for submissions, and over 170 detailed submissions were received from all sectors of the economy—from from the financial sector, the clean energy sector and communities. In addition, the panel held discussions with a broad range of stakeholders to test their views. Those views and the findings were then produced in the expert review panel's report to the government, which was completed in March 2012 and released by the government in April. When the government released the report, it announced that it had accepted all of the findings and recommendations of the expert review panel. Those recommendations have formed the basis for the bill.

The basic philosophy behind the panel's report is that they need to consider proposals on a case-by-case basis to tailor the financing to specific projects and that they need the flexibility to do that. Accompanied with that flexibility are transparency arrangements, which are included in the bill, to open up any decisions to public scrutiny, including broad details of any specific project that gets financing. The bill also incorporates a strong corporate governance arrangement to allow the corporation to assess proposals on a project-by-project basis but with strong governance and accountability at the board level and going through to the corporation itself.

CHAIR: The legislative instrument which will contain a lot of the detail about the way the corporation works, which is the investment mandate, is still to come. My understanding is that that is based on the model for the Future Fund. It is the same process.

Mr Waslin : Yes. Whilst it is the investment mandate, the Future Fund investment mandate remains at a very high level, essentially it is about the rate of return that is expected of a corporation and any broad guidelines on how the corporation will invest. Importantly, the investment mandate will not have directions as to any specific investment that the corporation may make or not make. So there is no direction capability by the government or a minister to the corporation to say, 'You must invest in project X or Y' or, 'You may not invest in project X or Y.'

CHAIR: The recommendation on the bill itself refers to the investment in a later stage, rather than the R&D. Is there a rationale behind that?

Mr Waslin : When the expert review panel examined where the gaps are in the market, it was also cognisant of the fact that it was going to be primarily an investment vehicle. It saw the initial R&D stages as investments that are more likely to require grants because, at that stage, a project is unlikely to make a financial return into the future. By focusing on later stage developments and the commercialisation of the project, the commercial filter that they spoke about is about projects that have a real prospect of making a return. The early-stage R&D is more appropriate for grants programs such as ARENA.

CHAIR: There are a number of organisations. There is ARENA and there are a few others that fund various things. How do those organisations work together?

Mr Waslin : The bill provides a liaison function to the CEFC and the board. They have the ability and in a sense the duty to liaise with, say, ARENA, and there are also linkages between ARENA and the CEFC in common definitions of what renewable energy is. In essence, ARENA will provide potentially a pipeline of projects to the CEFC. In addition there are provisions within the bill for the CEFC to share information with ARENA and the regulator, and the other amending legislation provides like abilities for those organisations to share with the CEFC.

CHAIR: The corporation is expected to achieve a rate of return still to be finally determined, which obviously implies that at least most of the projects they will fund will be viable in one way or another. What are the reasons they are not attracting commercial investment now? What are the failures?

Mr Waslin : There are a number of areas that have inhibited the provision of finance to this sector. In conducting the review, the expert review panel noted that the purpose of the corporation was to overcome financial barriers, so they wanted to understand the nature of those barriers. They are many and varied and they also vary between projects. At the very broad level there are global financial conditions, particularly in Europe, where we have seen European banks, which have the most experience in lending for clean energy, pulling back in their operations to their home countries or reducing lending. That has reduced the availability of project finance in Australia for clean energy.

Another consequence is that there has been a move to more closely align the term of the liabilities of banks with their loans. They are tending to shorten the available tenor of investments, which is an issue particularly for the renewable energy sector, where projects typically involve high upfront capital costs and a long-term payback period with very low operating expenses. I will come back to that point. There are other risks, issues such as the complex nature of the electricity market and how renewable energy projects interact within that market. There is the cost or renewable energy itself, but that is addressed by other programs, such as the carbon price and the Renewable Energy Target scheme.

Importantly, there is really a limited track record of dealing with these projects within the financial sector, which means that financial corporations add a risk premium because of the uncertainties. That is important for renewable energy projects because of the high upfront capital costs imposing a high risk premium on them. The benefits from the investment come from very long investment periods, so the returns are highly discounted. Under traditional financing mechanisms, that tends to mean that they do not get over the hurdle rates of return. Importantly, there are also externalities and benefits from investing in renewable energy projects and clean energy projects that the proponents of the projects themselves cannot capture, so from a community point of view there is actually an underinvestment in these projects. Just going back to the banking system itself—the nature of the projects tends to be very complicated and have high transactional costs in taking due diligence, and, given the complexities of the systems, banks tend to underinvest in their capabilities. All of those factors together, and the way they interrelate, tend to create barriers and inhibit investment in the clean energy sector.

Mr CIOBO: My questions in the first instance are probably to Treasury although obviously Climate Change is welcome to contribute as well. The mandatory renewable energy target is 20 per cent. Is that correct?

Mr Waslin : The RET—yes.

Mr CIOBO: As a result of the CEFC, what will be the energy target into the future as a result of its operation?

Mr Waslin : The renewable energy target is 20 per cent. That is government policy.

Mr CIOBO: So, 20 per cent with or without the CEFC?

Mr Waslin : Yes.

Mr CIOBO: So, the purpose of the Clean Energy Finance Corporation is to drive investment into renewable energy, but it is going to make zero difference to the renewable energy target. Is that correct?

Mr Waslin : The purpose is to overcome the financial barriers. The renewable energy target affects the pricing of renewable energy and what can be achieved, but the individual projects themselves may still have barriers which inhibit investment. The purpose of the CEFC is to address those barriers and not the target itself.

Mr CIOBO: I understand what you are saying but at the end of the day the entire purpose of the CEFC would be tied directly back to whether or not we are able to achieve the target.

Mr Waslin : No, that is not totally true.

Mr CIOBO: It is not?

Mr Waslin : The CEFC extends beyond just renewable energy and has two main streams of investment in the clean energy sector. There is the renewable energy, but in addition there is the low emissions and energy efficiency. It is not solely the operation of the corporation. And the corporation is not intended to address solely the renewable energy target, it is about overcoming the financial barriers—

Mr CIOBO: I understand that.

Mr Waslin : And then there is one further point that there are investments that are off-grid and renewable energy fuels which are not subject to the renewable energy target.

Mr CIOBO: Sure. But can Australia meet its target without the Clean Energy Finance Corporation?

Mr Waslin : There are questions. You could have a technicality where corporations choose to pay the fine rather than complying.

Mr CIOBO: I will repeat the question. Can Australia meet its target without the Clean Energy Finance Corporation? Can Climate Change answer that? This 20 per cent target has bipartisan support; will we meet it without the Clean Energy Finance Corporation?

Ms Wilkinson : The renewable energy target is a 20 per cent target on the amount of renewable energy that would be delivered by 2020. The renewable energy target legislation is drafted to deliver that, but Mr Waslin is correct in that the reason why it would not be met would be if entities chose to pay the shortfall charge rather than delivering the quantum renewable energy that would be consistent with that target.

Mr CIOBO: Is the modelling that Climate Change has done built around Australia meeting its target? Have you done modelling, and is it built around that basis?

Ms Wilkinson : There have certainly been a number of modelling exercises which have been undertaken over the course of developing the renewable energy target legislation. That modelling certainly modelled the legislation that would involve the renewable energy target being met.

Mr CIOBO: There is a realistic expectation that we would meet the target; that is why the target is in place, I assume.

Ms Wilkinson : The legislation has been drafted in order to achieve the target.

Mr CIOBO: Is that Treasury's basis upon which you have done similar calculations and modelling?

Mr Waslin : The basis is that the target will be met. The other issue is the operation of the CEFC to reduce barriers and bring in renewable energy earlier and at a lower cost. There are projects in which, because of downstream benefits to other projects, the cost is cheaper.

Mr CIOBO: When you say 'cheaper' and you refer to provisioning for lower cost operations, I take it you mean with respect to the owner or operator of that rather than to taxpayers. Is that correct?

Mr Waslin : It is cheaper in terms of the cost of production of renewable energy.

Mr CIOBO: For the owner?

Mr Waslin : Yes.

Mr CIOBO: But for taxpayers it is not cheaper is it? If you look at it in terms of aggregate costs, taxpayers are funding that borrowed money, the servicing of interest on that borrowed money, and its incorporation and subsequent repayment down the track.

Mr Waslin : The expectation is that, with a targeted rate of return around the bond rate, eventually over the longer term there will be a return to taxpayers.

Mr CIOBO: When you say a 'return to taxpayers', I do not understand how that answer corresponds to my question. What are you saying?

Mr Waslin : The corporation will invest and the investment mandate will set a target rate of return, which will then cover their costs, and they will be investing in financial assets.

Mr CIOBO: You are talking about a rate of return just with respect to the CEFC. I am asking you in aggregate terms. Taxpayers will be worse off, will they not? Although the energy product will be produced more cheaply, to use your words, the reality is that when you build in the fact that it is borrowed money invested by the Australian government into CEFC and that ultimately that has to be repaid, the costs will be higher. The product itself is cheaper but if you look at the aggregate costs, because it is borrowed money, it is actually higher.

Mr Waslin : No, because the corporation will actually make a return and if we are using the government bond rate it will cover the government's costs.

Mr CIOBO: Including the borrowing costs?

Mr Waslin : If the bond rate is what the government borrows at.

Mr CIOBO: Maybe I am not explaining my question clearly enough. The creation of the product, in this case, energy, is being achieved through finance that is delivered by CEFC. Taxpayers ultimately are the ones that are underwriting that investment initially in the CEFC. Taxpayers ultimately are the ones that are also purchasing the energy.

Mr Waslin : The taxpayer is not purchasing the energy. Individuals and companies are buying the energy.

Mr CIOBO: Correct. So you are saying that under this model the aggregate cost of that process is cheaper than if it was not delivered by CEFC. Is that correct? If it was privately funded—

Mr Waslin : If it was privately funded then we would see barriers to investment in certain renewable energy projects, and they would not go ahead. That is what we are seeing. The CEFC in making its investments will look to the externalities from each project. Those externalities relate primarily to moving along the innovation chain and down the cost curve. Those benefits are not captured directly by the proponents of a project but by subsequent proponents of other projects and ultimately in cheap and marginal costs of production of renewable energy.

Mr CIOBO: I do not think I am going to get an answer. Can I ask about the barriers to entry of finance. Could you outline some of those?

Mr Waslin : Okay. The expert review panel received a large number of submissions. A common theme was that the availability of finance was a major, cross-cutting issue. I have already outlined a number of factors associated with that, including what is happening in Europe—the pull-back of the European banks and the fact that banks and other financial institutions are underinvesting in the capability to consider renewable energy and clean energy projects. So the CEFC, in investing, as a general rule will seek to co-invest with the private sector. It is not trying to crowd out the private sector; it is trying to change the risk profile and overcome some of the barriers that I have spoken about.

Mr CIOBO: Isn't that, basically, the major point? You just touched on the fact that they are not trying to crowd out the private sector but trying to alter the risk profile. I put it to you that, when faced with a choice between the view that the reason the private sector will not fund or will only partially fund some of these products is that they have an attitude problem about clean energy or renewables, and the view that the reason is that the return is too low relative to the risk, isn't the latter always going to be the case? Or do you think it is just an attitude problem?

Mr Waslin : It is not just the financial sector. If I can take the example of tenure, there is always tension between the financiers wanting to provide a short tenure and the equity providers wanting a longer tenure for borrowing. What we see is that the finance companies, because of global changes, are actually moving to shorter tenure, but that creates a refinancing risk for equity holders which inhibits their willingness to invest. Now, one of the ways that they can seek to change the risk profiles is through entering into long-term pricing agreements—to provide more certainty and reduce some of the risk. The alternative is if the—

Mr CIOBO: So you want taxpayers to underwrite the price, to provide more certainty?

Mr Waslin : No, I am not saying that. I am just saying that that is what the private sector is trying to achieve at the moment. Another way of doing it would be via the CEFC; because it does not have short-term liabilities, it can provide longer-term finance. That can change the risk relationship between debt and equity holders and who is prepared to take what risk, and therefore allow investments to proceed.

Mr CIOBO: Is there any reason why a private sector operator would not invest in something that is providing a good yield, long term?

Mr Waslin : The issue is uncertainty. There is a fair bit of uncertainty associated with renewable energy projects essentially because of the issues with intermittent supply combined with the operation of the electricity market, where prices change throughout the day. The combination of intermittency, of when they are going to produce, and what price they are going to get creates a certain amount of risk.

The other differentiating factor, as I mentioned earlier, is that there is a high upfront cost to renewable energy projects because it is essentially a capital cost—there are low operating costs into the future. Traditional financing models would give a discounted present value to those future income streams; but, because they go into a very long future, they tend to get highly discounted and compared to the upfront capital costs, which tends to make them unattractive. The reason they are unattractive is that you then have the high-risk premiums associated with these technologies for which there is not a long-term track record. If you go back into Australia's history and think about the gas sector, a lot of those projects did not get off the ground because there were problems getting finance. It took a long time for those corporations to work out how to get over the problem of a high upfront capital cost but a very long payback period. Those issues have developed over time to the extent that the market is now more familiar with dealing with those risks and returns, and as the expert review panel report indicated we are still at a very early stage in the development of the clean energy sector and in understanding the nature of the risks.

Mr CIOBO: Basically what I am hearing from you is that the clean energy sector is more risky than traditional forms of the market, that they have trouble securing private finance because of that risk, and the role of the Clean Energy Finance Corporation is to reduce that risk to the private sector by spreading that risk across the public sector, is that correct?

Mr Waslin : What I was saying was that the nature of the risk is not well understood at the stage and that, as such, there are higher risk premiums.

Mr CIOBO: So CEFC has no impact on the risk profile? I thought that would be contrary to what you have just told me.

Mr Waslin : I did not say that, I said that there is an issue of actual risk and perceived risk, and there is a high impost because of the uncertainty—

Mr CIOBO: Is risk priced?

Mr Waslin : Yes.

Mr CIOBO: We have got to move quickly because, unfortunately, we have got only two hours for this inquiry. While I appreciate your expansive views, I need to try to confine you to answering my questions, because they follow my line of inquiry, rather than speaking as Treasury would want to. Is risk priced?

Mr Waslin : Yes, risk is priced.

Mr CIOBO: You have said to me that the role of the CEFC is to reduce the risk profile, presumably that is to the private sector?

Mr Waslin : No, I did not, or if I did that is not what I meant.

Mr CIOBO: To reduce the risk premium.

Mr Waslin : Not necessarily to reduce the risk premium, but the CEFC could take into account the positive externalities in the pricing of its facilities. There are quotes in the report about the risk return profile. If projects have higher risk then the expectation, if the corporation was going to fund it, would be to see higher externalities associated with that to justify any concessionality. Now that concessionality is not necessarily just over the pricing, it can be over the term and it can also be on the availability.

Mr CIOBO: That is just a pricing component, though; positive and negative externalities are just pricing components. The reality is that the whole argument that I have heard from the government is that the purpose of the CEFC is to reduce the risk profile and to encourage co-investment. Is that not correct?

Mr Waslin : The purpose of the CEFC is to overcome financial barriers that are affecting the financing of—

Mr CIOBO: And those financial barriers are the risk. I asked you before what financial barriers were, and you said, 'the risk'. Is risk a financial barrier?

Mr Waslin : It is the understanding of the risk and the pricing of that risk because it is not well understood.

Mr CIOBO: You have answered my question. Can I move on to some other aspects of the operation of CEFC. Based on what I have seen in the papers, the investment will be a $2 billion equity investment by the Australian government into the CEFC. Is that correct? $2 billion per year for five years?

Mr Waslin : That is correct.

Mr CIOBO: The fiscal balance, I note, bounces around substantially. In the year 2012-13 it is $19.6 million, moving up to $466.8 million, $454.7 million, $405.2 million for a total of $1,346.4 billion. Underlying cash balance moves around. In the first year, 2012-13, it is $19.6 million, then $168.8 million, then $120.9 million, then $11.9 million, for a total of $321.2 million. Could you talk to me about how you actually break that up and what the difference between the two actually represents?

Mr Nicol : There are several components that are different from and common to both. The first common element is the operational costs of the CEFC, and they affect both fiscal balance and underlying cash. That is around $20 million per year. As to the second component, in terms of underlying cash we have assumed, as we are operating in an industry that has some high levels of inherent risk, that the body is not going to recover all of its investments, so we have a fairly conservative estimate that around 7½ per cent of its total capital each year will not be recovered. We are taking a very conservative approach, and that affects both—

Mr CIOBO: 'Conservative' meaning high or low?

Mr Nicol : We think it is a realistic figure on the information we have at the moment.

Mr CIOBO: You said 'very conservative'. Do you mean very conservative high or very conservative low?

Mr Nicol : I think it is on the high side.

Mr CIOBO: So you think the return will actually be better than that?

Mr Nicol : When you say 'return'—

Mr CIOBO: The success rate. You are predicting a 92.5 per cent success rate.

Mr Nicol : We are assuming that 7½ per cent of the investments each year are not recovered.

Mr CIOBO: So are you saying that you think in reality the default rate will be higher than that or lower than that?

Mr Nicol : At the moment that is our best guess.

Mr CIOBO: You said 'very conservative'.

Mr Nicol : I think it is a conservative approach in presenting information for the budget.

Mr CIOBO: Conservative high or conservative low?

Mr Nicol : I think 7½ per cent will be high. That 7½ per cent affects both underlying cash and fiscal balance. The other thing that is affecting both underlying cash and fiscal balance is the assumed returns from investments. At the moment we are making very broad assumptions that approximately one third of the investments each year will be in equity investments, one third will be in concessional loans and one third will be in commercial loans. That is about $666 million per year in each of those categories. The equity returns and interest on loans improve the underlying cash balance, so you will see that in the later years, when the underlying cash balance comes down, it is because the write-offs are being offset by revenue returns from other investments.

Mr CIOBO: Based on that 7½ per cent figure Treasury forecasts, therefore, that the Clean Energy Finance Corporation will lose $150 million in the year 2012-13, $150 million in 2013-14, $150 million in 2014-15 and $150 million in 2015-16. Is that correct?

Mr Nicol : I do not think you can characterise it that way because the fund will be making investments that will—

Mr CIOBO: You are expecting defaults of $150 million for each of those years.

Mr Nicol : The budget has included a provision for $150 million of investments that will not be recovered.

Mr CIOBO: So Treasury forecasts that taxpayers will lose $150 million a year, purely based on investments, not returns, each year for four years—a total loss of $600 million. This is just on investments, I am not talking about returns.

Mr Nicol : I would not separate the investments from the returns, because it is a business—

Mr CIOBO: You may not, but I am asking you whether or not Treasury forecasts that taxpayers will lose $600 million over four years based on the default rate that you have forecast.

Mr Nicol : No, I would not agree because the investment mandate will set an investment return target for the body—

Mr CIOBO: It was my final question and I will rephrase it. Excluding the return from the CEFC, Treasury forecasts that taxpayers will lose $600 million over four years as a result of the operation of your forecast default rate. Is that correct?

Mr Nicol : I do not think you can say that, because the—

Mr CIOBO: I can say that. I just said it.

Mr Nicol : The investments are there to generate a return. Some investments will make a return and some will not. It is a portfolio approach to the business. You have to look at this in terms of the overall return.

Mr CIOBO: I say to Treasury officials, despite the objections from Labor members on the committee that it is a ridiculous proposition, that it is a very simple and straightforward proposition. I do not understand why it is so difficult to answer. I see in front of me, based on a 7½ per cent default rate, taxpayers losing $600 million over four years, excluding the return from the operation of the CEFC, based upon the default rate expected. I cannot understand why we cannot get a simple yes or no.

CHAIR: I can. I will try to ask it another way. Is that 7½ per cent—

Mr CIOBO: I would like an answer to my question. Then you can ask whatever you want.

CHAIR: I am trying to ask the same question.

Mr CIOBO: You ask your question in a moment. You said you wanted to ask a different question. Yes or no?

Mr Nicol : I think I have answered your question as best I can.

Mr CIOBO: Okay.

CHAIR: I am actually going to try and help. Is the seven per cent a conservative provision or is it an estimate of what you think will actually happen?

Mr Nicol : At this stage, it is an estimate. We will review that as we go forward—as the legislation goes through the House, the investment mandate is settled and as the business is set up, begins operation and establishes the approach and policies for how it goes about its investments. To add to my earlier answer, it is quite feasible, for example, that the body will operate with a lower write-off rate and a lower return from its successful investments to reach its target. I think that is the more important thing to look at—that the investment mandate target is what drives the budget numbers. The components of that, in terms of the write-off versus the return from successful investments—those estimates will mature over time as we see the performance of the investment portfolio.

Mr TEHAN: You talked about this 7½ per cent. What evidence is that based on—this default rate? What programs have you looked at? What other investments have you looked at to come up with this rate? What evidence has led you to the 7½ per cent?

Mr Nicol : The 7½ per cent was based on discussions between departments when the body was initially conceived. It was some time ago, so it is stretching my recollection, but it was based on a broad view, I think, of the inherent risk of the industry. Every investment vehicle in any industry is going to have a write-off rate of some description.

Mr TEHAN: So what did you look at? Did you look at the Solar Flagships Program, for instance?

Mr Nicol : I will have to take that on notice to get exact details.

Mr TEHAN: You can take that on notice—a detailed list of what the background was to coming to that default rate. That would be very useful.

Dr LEIGH: Thank you very much for coming in at short notice. The key question in many of our minds is: what is the market failure the CEFC aims to solve?

Mr Waslin : In essence, barriers to the financing of renewable energy projects. The expert review panel, in its report, made the comment:

… when there is full knowledge, understanding and experience with risk, an efficient market will optimally allocate capital. However, Australia’s clean energy market is an early stage market, characterised by incomplete knowledge and limited experience of risk. The combination of this with other market barriers is inhibiting the efficient allocation of capital.

In essence, that is the problem that the CEFC is being established to solve.

Dr LEIGH: What are the benefits to Australians from the CEFC?

Mr Waslin : The benefits to Australians are that it is part of the clean energy package, but also the CEFC, in its investment, will look to the positive externalities in funding projects. Each project itself will have some benefits. To quote the review:

These positive externalities are necessary if the CEFC’s objective is to be achieved. They flow initially as spillover benefits to subsequent projects. Over time, they will have a broader cumulative impact across the sector, on carbon emissions and contribute to the task of preparing and positioning the Australian economy for a cleaner energy future. The CEFC will have regard to these positive externalities in making investment decisions and determining the extent of concessionality for an investment.

Dr LEIGH: Can you talk about how this compares to what other countries are doing? How does our model compare to, say, the UK Green Investment Bank or the US Department of Energy's Loan Programs Office?

Mr Waslin : As part of the review, the expert review panel looked closely at what organisations around the world are doing. The UK Green Investment Bank is probably in closer proximity to what the corporation is doing in that, eventually, the Green Investment Bank will be an independent organisation, although it is currently within a department of the UK government. There is one broad difference in that the UK Green Investment Bank will be targeting specific sectors, whereas one of the lessons that we have learned, particularly from the US, is not to have political interference in terms of investment decisions. That is why we have an independent board capable of making decisions, and it will review proposals on a case-by-case basis.

The other interesting one is the German KfW, if I remember rightly. That development bank provides funds to the private sector. One of the lessons we have learned about, both from what the Germans are doing and how the UK Green Investment Bank is to operate, is this co-investment model with the private sector. That has a number of benefits. I spoke about the underinvestment in the capabilities within the banking system, by co-investing it is, (1), leveraging them out finance that is available and, (2), acting to build capabilities not only within the CEFC, which it can share, but also within the banking system.

Dr LEIGH: So sensible conservative governments in Germany and in the UK are setting up similar things and we are learning from them?

Mr Waslin : Yes.

Dr LEIGH: I want to go to the renewable energy target question that was raised before. As my colleague Mr Ciobo pointed out, setting up the CEFC does not change the RET, but it does make power generation cheaper, doesn't it? If the CEFC does its job, Australian electricity prices will be lower than they would otherwise be.

Mr Waslin : That is right. In essence it is allowing movement down the cost curve so that renewable energy projects are more efficient and, therefore, their costs are cheaper to implement.

Dr LEIGH: Is carbon capture and storage within the mandate of the CEFC, potentially?

Mr Waslin : No, that was explicitly excluded.

Dr LEIGH: On what basis?

Mr Waslin : Basically, there are other programs and the idea was to have this corporation focused on the renewable energy and clean energy sectors.

Dr LEIGH: I am interested in the failure rate. I take a different view from that of my colleagues, which seems to be that the ideal failure rate is zero. Given that we know that the venture capital industry in Australia traditionally has had problems, do you think that, potentially, a 7½ per cent failure rate is too low and that we should be somewhat more ambitious, that the market failures may actually be at the riskiest end of the clean tech space?

Mr Waslin : It really comes back to a portfolio approach. I will start with the comment you made about venture capital. Typically, if a venture capital were to invest, you might have one success and another one or two that just get their money back, so you really have a 70 per cent failure rate. So that is at that very high risk, but the rate of return of the success is so great as to compensate for those losses, and that is the model they operate upon. The CEFC can operate—again it is open to how the corporation wishes to operate—on a fund-to-fund basis which is similar to a venture capital, or it can co-invest. It will need to target or structure its investments appropriately to the circumstances. Going back to the failure rate: within a portfolio we are not saying that everything is going to be at the risky end. Some will have higher risks, and that is probably the trade-off between what the corporation judges to be the positive externalities from those investments. Some will have higher risks associated with them but also expect higher externalities, so the cost benefit stays in place.

Dr LEIGH: Why should Australia do any of this? Why shouldn't we just, as a relatively small country, two per cent of the world economy, let others do the innovation and piggyback off that? Why is it in our interests as a small country to do clean tech innovation?

Mr Waslin : We are moving to a carbon constrained world and, in positioning Australia for the future of that, we need to be able to operate and innovate. The other thing that the panel spoke about is having options for the future. In a carbon constrained world we need to have a broad range of renewable energy technologies that lower the risks for Australia into the future.

Ms O'DWYER: Like Dr Leigh, I would also like to apologise for the short amount of time and notice you have had to be here, because we only invited you on Friday, and it is rather a shame that there has not been more time for you to prepare. A number of the questions I am going to ask I suspect you will need to take on notice. I am interested in following up on my colleagues Dan Tehan and Steve Ciobo's line of questioning in relation to the failure rate. You may need to take this on notice. Would you be able to provide us with a list of overseas examples of funds overseas, a list of their failure rates and also their rates of return? Could you also provide some examples to us, for instance, of some of the government programs that have already been in this space, such as the Solar Flagships Program and the failure rate associated with that program?

Mr Waslin : The Solar Flagships Program was not in this space. It was a grant program.

Ms O'DWYER: It was a grant for renewable energy.

Mr Waslin : But this is a financial program.

Ms O'DWYER: But, in terms of looking at failure rates, it may be instructive for us to understand what the failure rate has been with that grant. These are effectively going to be grants made to renewable industries.

Mr Waslin : The legislation provides for the corporation to make investments.

Ms O'DWYER: Speaking of investments, then, it is probably worth looking at the investment mandate. What is the target rate of return for the investments that the government will make?

Mr Waslin : Under the legislation the investment mandate is made by the government with the board, so the investment mandate cannot be physically done prior to the passage of the legislation and the board being appointed. The government has publicly stated that the expectation will be around the government bond rate, which is what was included in the expert review panel's report.

Ms O'DWYER: Have you done some modelling in relation to that? Has Treasury modelled this?

Mr Waslin : No, because in essence that is the target rate of return. There is nothing to model.

Ms O'DWYER: So your expectation would be that that would be accepted as the target rate of return?

Mr Waslin : It is up to the government to determine the target rate of return.

Ms O'DWYER: Have you provided the government with different potential target rates of return and what that would mean for the investments and then ultimately failure rates and the like? You must have modelled this, surely?

Mr Waslin : The expert review panel has come back and set what they expect to be the target rate of return. In essence this goes back to the case-by-case approach that, within a given target rate of return, the mandate could also state the expectations as to the risk that the government would like the corporation to take. Therefore it is the interaction between the risk and the target rate of return that the corporation will need to manage its investments to achieve.

Ms O'DWYER: Based on that, have you done some modelling on which the government can make some decisions about the rate of return?

Mr Waslin : Basically the rate of return is the target the corporation needs to achieve. Otherwise you need to say, 'These are the investments we want you to make to achieve the target', which is inconsistent with the model where the corporation has an independent board and undertakes the investments. Really it is about saying, 'Here are the broad parameters under which you are to operate. You are to consider projects and proposals and to achieve the broad investment rate here are the sectors you may invest in', which are included in the draft legislation.

Ms O'DWYER: Obviously some investments are precluded and some are narrowed in scope. Do you have any more information around Australian-based investments, which is one aspect of the bill, in section 61?

Mr Waslin : The bill sets the requirement for the board to set out guidelines that will determine what is Australian-based. The reason for that is, in essence, that you can have a renewable energy project based in Australia, so the generating capacity is in Australia, but some components maybe imported. The point is that the generating capacity is in Australia, but the alternative is that you can say there might be a manufacturer which supplies inputs to an Australian-based project but may have some exports. It will depend on a project by project basis whether the predominant or main activity is occurring within Australia. That is essentially what that is designed to achieve—it is not a percentage of the project, getting down into where every single item has come from.

Ms O'DWYER: So this is effectively going to be guided by guidelines that will be drafted?

Mr Waslin : The guidelines will be outlined by the board on how it is going to interpret what is solely or mainly Australian-based. How is the board going to implement that decision? It would be required to produce its guidelines and publish those guidelines.

Ms O'DWYER: So at this point we do not actually know—you cannot give a clear answer on what would be an Australian-based investment for the purpose of this legislation?

Mr Waslin : Predominantly, it is if it is a generating project that is located in Australia.

Ms O'DWYER: What about overseas investment? What about companies that are predominantly owned by foreign or overseas investors?

Mr Waslin : We are talking about where the assets would be located and not the ownership.

Ms O'DWYER: So, so long as the assets are here, for the purpose of this section of the bill, you would say that that makes it an Australian-based investment?

Mr Waslin : Yes

Ms O'DWYER: Irrespective of the fact that the guidelines have not yet been drafted?

Mr Waslin : That is what is behind the solely or mainly based. It is a similar approach to what the UK Green Investment Bank is also taking.

Ms O'DWYER: But it would be up to the board to take a different view?

Mr Waslin : Basically the board is to come up with what is solely or mainly Australian based. But that is—

Ms O'DWYER: So they may have a different view.

Mr Waslin : In essence, Australian based is the objective. It has come out from the Expert Review Panel. It is how they interpret it. It is really only going to be at the margin, rather than anything else.

Ms O'DWYER: But it ultimately is up to the board?

Mr Waslin : Ultimately the board will make all investment decisions.

Ms O'DWYER: I am interested in understanding a little bit more about the board and the operating costs associated with the Clean Energy Finance Corporation. The Inspector-General of Taxation in appropriations costs about $1.5 million. According to the appropriations that we are looking at here over the forward estimates, we are looking at around about $60 million—to be exact, $57.3 million over the forward estimates. Can you perhaps provide us with a little more information as to exactly what that $60 million is going to be funding?

Mr Waslin : There will be around 40 staff, when it is fully operational. There will be accommodation and a lot of start-up expenses. The corporation will need to take legal advice in terms of entering into contracts—due diligence for entering into contracts. Basically, it is setting up all the computer systems and consultancies on understanding the proposals.

Ms O'DWYER: As I look at these appropriation figures, there is not, for instance, a lot of money in year 1 or even in years 1 and 2; it is effectively the same throughout.

Mr Waslin : Government is giving the corporation money to help with its establishment. During the initial years they are not expecting that there will be a return, but the expectation from the expert review panel is that the corporation will become self-sufficient and able to fund its own operating expenses from its earnings.

Ms O'DWYER: What is that expectation based on?

Mr Waslin : For the expert review panel, that was one of the—

Ms O'DWYER: This is a bit circular.

Mr Waslin : The government decided to provide the corporation with supplementary operating expenses when they were starting up the corporation, which I have spoken about. It is circular in the sense of: what precisely are the operating expenses? You could put on a control so that they do not spend any money on doing due diligence, but that would be counterproductive, or you can put a small amount on it. It is about how you manage the risk so that some of these operating expenses will enable the corporation to minimise potential defaults.

Ms O'DWYER: Will each of the board members receive fees?

Mr Waslin : Yes, and they will be paid as determined by the Remuneration Tribunal.

Ms O'DWYER: Do you have any expectation around what those figures will be?

Mr Waslin : No, not at this stage. The Remuneration Tribunal will make the decision.

Ms O'DWYER: They will make the decision; but in coming up with this figure have you made a provision? Do you have an expectation around where it might be or in what range?

Mr Waslin : No. The Remuneration Tribunal will make a decision. Other like institutions could be the Future Fund.

Ms O'DWYER: And the fees there would be what?

Mr Waslin : I do not know. We would have to take that on notice.

Mr BUCHHOLZ: I just want to get my head around the seven per cent risk factor and your risk profile. The expert panel you have put together has said that it is going to be around seven or 7.5 per cent underlying write-offs. Is that correct?

Mr Waslin : No.

Mr BUCHHOLZ: Keep going. Give me some more about the seven per cent. How did the figure come about?

Mr Waslin : Basically the seven per cent was the original costing when the corporation was first announced, with the intention to establish the corporation.

Mr BUCHHOLZ: So what was the risk profile? How much were we expecting that the investments by these businesses would not come to fruition? And what does that look like in real dollars—out of the fund, those that would not get a return on investment?

Mr Waslin : There is a difference between the estimates that were done at the time it was decided to establish the corporation—there are broad parameters and conservative assessments of likely rates of return or whatever—and the actual rate of return, which will depend on what the corporation actually invests in. Basically, I think the assumptions were just a conservative approach to what the costs could look like, but those will be different because they depend on exactly what the corporation invests in.

Mr Nicol : Perhaps I can add some detail. I very much agree with Mr Waslin that the impact on the budget will be driven by the target rate of return, and that will be made up of, essentially, two factors: one is the assumption of a default rate and the other is an assumption of a return rate. With regard to how you get your target rate of return, there are an infinite range of possibilities—from a higher default rate and a higher return rate to a lower default rate and a lower return rate, from how the corporation goes about its business to what risk profile it takes on its portfolio—

Mr BUCHHOLZ: You have a provision for write-offs, don't you?

Mr Nicol : Yes, that is correct.

Mr BUCHHOLZ: What mechanisms do you have in place should the write-offs you have budgeted for be exceeded by the market? Would you stop lending money? Is there any mandate, or are there any provisions you guys have spoken about, like how bad is bad before you say, 'We can't continue to forge ahead with this'? Is there a line in the sand where, bang, you say, 'This is enough; we are not throwing good money after bad,' or is it just, 'Ten billion is the number; when it's gone, it's gone'?

Mr Waslin : One of the board's functions, as listed in provision 14(1)(b) of the bill, is:

… to ensure the proper, efficient and effective performance of the Corporation's functions …

So it is incumbent upon the board to invest within that requirement. They are not going to go out there and say, 'We're going to blow everything.' That is not consistent with the requirement. That is why we have an independent board and why people of a high standard are appointed to the corporation—to ensure the efficient operation of the corporation.

Mr BUCHHOLZ: Good. I was worried there might have been some waste there, but you have assured me there will be absolutely none. That is great. Do you have any provision to assist those businesses that are investing in the market at the moment—those businesses that have gone out and raised capital on more commercial terms? Will their projects be undermined by potential competitors having access to cheaper mechanisms for raising capital through this fund? Do you have any provision to offset those businesses already in the marketplace?

Mr Waslin : Those businesses already in the marketplace would have done that, with all of the participants having been satisfied with the rate of return that they would expect to achieve. The CEFC expert review notes that finance provided will be on the least generous terms to allow the project to proceed. In essence, that means we are not providing supernormal profits to those corporations simply because they get cheap finance.

Mr BUCHHOLZ: I want to pick up on Dr Leigh's position earlier. What will the taxpayer receive as a result of this capital investment? I know you read from the book, but there was a question about whether taxpayers would have lower energy costs and your response was yes, they would. Am I to assume that their energy costs will be lower, on today's prices—all things being equal—with a carbon price in place? Will the outcome of this investment be that households get cheaper energy?

Mr Waslin : I do not know what goes through to households. But my point was that it would result in more efficient or cheaper production of energy. How that cheaper production goes through to the household is another matter, allowing for the competitiveness of the retail sector and whether or not they pass it on. By having more efficient renewable energy generation with lower marginal costs into the future, that should reduce costs.

Mr BUCHHOLZ: That is great. That is good news all round.

Mr STEPHEN JONES: I want to explore a little about the differences between the investment scheme that this represents and a grants based funding arrangement because it is not the only policy proposal in the field. I would be interested in the view of Treasury or others on what the relative merits or disadvantages are of going down the path of an investment based approach and a grants based approach. If government is going to spend a billion dollars, for argument's sake, will there be relative advantages of going down the path of an investment approach versus a grants based approach?

Mr Waslin : A grants based approach tends to be, as I mentioned earlier, focussed on the earlier stages of development. There is research and development and bringing on the technologies. The market based loans approach in this case is about assisting with the maturing of the clean energy finance market and bringing in further understanding of the risks, leveraging private investment and being able to tailor the investments to particular projects. It is really just a policy decision in the end but, in this case, we are trying to overcome financial barriers and those financial barriers are in the financing sector.

Mr STEPHEN JONES: I understand it is a policy decision but there must be some reasons or a basis on which you would decide in some instances to go down a grants based approach versus an investment based approach.

Mr Waslin : In one sense, you would not provide financing on investment in R&D is there is no prospect for them to be able to pay the money back, because in a sense you are making a loan with no prospects so it effectively becomes a grant. That is why you would put a grant in that space. In the commercialisation, market accumulation stages, it is about making a proposal: commercial, providing funding to get for the externalities, if there is any concessionality, and that it proceeds. We are not trying to put any distortions in the market by giving one company a particular advantage. It is about providing the finance and overcoming the barriers that exist in that market that stops them getting finance at the moment.

Mr STEPHEN JONES: It is a more commercial approach and more attuned to post-R&D. Is that your evidence?

Mr Waslin : Yes.

Mr STEPHEN JONES: Thank you.

Mr TEHAN: Are there other examples in Australia of similar style arms like this? For instance, would you say that the VEDC in Victoria was set up along similar lines?

Mr Waslin : The Victorian Economic Development Corporation? I have not looked at the precise details of the VEDC. Basically, we are setting up a financial corporation which is at arm's length from government in its investment decision-making processes. I do not know enough of the history to know whether the VEDC was at total arm's length or not from the government.

Mr TEHAN: Is it based on any examples either at the state or Commonwealth level, where these types of corporations have been set up which work?

Mr Waslin : In part, AFIC—there has been some talk about whether AFIC provides loans—but really it is more based on what has been happening in Europe with the Green Investment Bank.

Mr TEHAN: If you were to point at a similar corporation, is the United Kingdom model the only one you could point to where you have modelled on it and said it works?

Mr Waslin : The United Kingdom model is similar. They are in the establishment phase as well; they have just made their first loans. In terms of providing finance within the clean energy space, yes.

Mr TEHAN: And there is nothing similar in Australia to—

Mr Waslin : You have got something similar on a very small scale with Low Carbon Australia. It has provided loans in relation to energy efficiency arrangements, and that has been quite successful.

Mr TEHAN: I know it is more a grants based scheme, but there is the Solar Flagships Program. One of the difficulties with the companies that have won the government money is their ability to get power-purchasing agreements. Is this something which the expert review panel has looked into? Are there likely to be similar issues with the financing of some of these programs going ahead?

Mr Waslin : The issue of power-purchasing arrangements was raised in submissions and in consultation with the expert review panel. The review panel noted that it might be able to take on some power-pricing risk but not all and that any pricing risk that it was taking on would be subject to any limits established by the board. It goes back to my earlier point about the relationship between who bears which risk. For example, in terms of tenor you had the question that equity holders are not prepared to take on risks where there is a rollover risk because of short tenor available on financing. If you change the nature of the risks within different projects, proponents may or may not be prepared to take on more pricing risk. You do not necessarily have to take on a pricing risk or entry into a PPA if other proponents within the project are prepared to take on more of those risks. I am not saying the CEFC; I am saying that the balance of risk within the whole package can change.

Mr TEHAN: I want to follow up on a question from the member for Higgins. This goes to the point that a lot of the technology and a lot of the companies in this space are from overseas. If they are financed to invest here, in Australia, with regard to the technology which is developed, where in the end will the intellectual capital lie? For instance, if the Australian taxpayer is financing a Spanish solar company to come into Australia and develop a site, where does the intellectual capital of that investment lie in terms of taking the R&D and commercially developing it?

Mr Waslin : I am sure your point is that they will own their own commercial technology. The question is: why would the CEFC invest in it, which is a different question, and would they provide it on concessional terms? There they would need to look at what the spillover effects would be for Australia from that investment in providing any concessionality. If they were to solely keep all of the intellectual property and there were no spillover effects then it is unlikely that the corporation would be providing concessional treatment for that corporation, but there maybe other spillover effects such as the demonstration that those large-scale projects will work; there maybe spillover effects in terms of grid connection; there maybe spillover effects simply because it does work. It really comes down to a case by case approach in determining what concessionality the corporation considers appropriate.

Mr TEHAN: Do you think there could be overseas companies who think, well, if we use this vehicle this is a great way for us taking where our R&D is at, and we know that, especially when it is the first time, we need to get someone to carry some of the risk for us so we will invest in Australia and see how we go. They obviously would have budgeted for the potential for loss, and then they will use that to see how it goes and they might look to see how they would do it differently in rolling out these programs globally?

Mr Waslin : The corporation in making any investment would need to do its own due diligence and decide whether it was prepared to accept the risks.

Mr TEHAN: In your answers you seem to be referring to the expert review panel report a lot. Treasury obviously has full confidence in the expert review panel report.

Mr Waslin : The review panel was chaired by Jillian Broadbent, who is an eminent Australian with very strong professional qualifications and experience. The panel did a lot of work in consulting and came up with recommendations, and those recommendations have been accepted by the government and form the basis for the legislation.

Mr TEHAN: I am fairly new to this game, but that sounded like a fairly political answer in that you did not really answer the question. Does Treasury have full confidence in the expert review panel report?

Mr Waslin : Yes.

Mr FLETCHER: Under section 37, the remuneration of the CEO is set by the board, is it not?

Mr Waslin : Yes.

Mr FLETCHER: So if the board were to choose to set a remuneration of $2 million, would it be free to do that?

Mr Waslin : To the extent that it is consistent with the function of the board to ensure the proper, efficient and effective performance of the corporation's functions. In essence it would need to be satisfied that it was getting value for money. I do not expect it to be $2 million.

Mr FLETCHER: So the answer is yes, the board would be free to do that?

Mr Waslin : Within the confines that it is operating an effective corporation—

Mr FLETCHER: Do you think it would look at the precedent of the remuneration that has been set for the CEO of NBN Co., for example? Can you remind the committee of what the remuneration is?

Mr Waslin : I do not know.

Mr FLETCHER: It is $2 million, actually. Under section 41, does staff remuneration have to go to the Remuneration Tribunal?

Mr Waslin : No—

Mr FLETCHER: It is set by the board?

Mr Waslin : It is set by the board and the CEO.

Mr FLETCHER: What about consultants, under section 42? Does that go to the Remuneration Tribunal?

Mr Waslin : No.

Mr FLETCHER: So all of these matters are set by the board, in their discretion?

Mr Waslin : Yes, but the board has—

Mr FLETCHER: Yes?

Mr Waslin : Yes.

Mr FLETCHER: I understand from the expert report that the rate of return being targeted is the government bond rate, is that right?

Mr Waslin : The rate of return has to be set by the government, but the expectation is it will be around the government bond rate.

Mr FLETCHER: Is the government bond rate the government's the cost of capital?

Mr Waslin : The cost of capital is the average cost of funds, not necessarily the bond rate. It is the marginal cost of capital.

Mr FLETCHER: I just want to understand the position of Treasury. Is the government bond rate the government's cost of capital?

Mr Waslin : I am not from that area. The cost of capital is the interest cost over its entire portfolio of borrowings, which is unlikely to be the current bond rate because it would be the average.

Mr FLETCHER: My question then is: what is the weighted average cost of capital of the Clean Energy Finance Corporation?

Mr Waslin : The PVR cost is incorporated within the government accounts and is not separately identified.

Mr FLETCHER: Are you putting to the committee, and this is what I want to get clear in my mind, that the cost of capital of the Clean Energy Finance Corporation is the bond rate?

Mr Waslin : The cost of borrowing is the government's public debt interest cost, which the CEFC will be part of. It certainly follows.

Mr FLETCHER: So could you take on notice for me what is the cost of capital for the Clean Energy Finance Corporation and what is the guidance provided by relevant departments including the department of finance, if there is such guidance, as to what the cost of capital should be for government business enterprises. Is the CEFC subject to the department of finance business enterprise governance and oversight guidelines of October 2011?

Mr Nicol : Which ones are those, sorry?

Mr FLETCHER: It is a set of guidelines issued by the department of finance about business enterprises. Perhaps you could take that on notice for me.

Mr Nicol : We can. I am not from that area. It would depend, I think, on whether the CEFC is classified as a GBE or not. I will take that on notice.

Mr FLETCHER: And I am also interested to know whether the CEFC is required to comply with section 4.7 of those guidelines which says that all GBEs are required to add shareholder value. Mr Waslin, are you confident that the $10 billion that the Australian taxpayer is going to put into this venture is going to be a good investment for the Australian taxpayer?

Mr Waslin : It is designed to overcome the financial barriers for the clean energy sector.

Mr FLETCHER: That is not actually the question I am asking. The question I am asking is this. It is from the point of view of the Australian taxpayers as $10 billion of taxpayers' money is being put into this venture. I am interested to know—

Mr Waslin : It is a governmental policy issue. The government can decide how it wishes to make its investments and how to spend its funds.

Mr FLETCHER: So the government has made that decision. What I am interested to know is whether Treasury is confident that that would be a good investment.

Mr Waslin : That is a comment on policy.

Mr FLETCHER: So Treasury does not have a view as to whether it is a good investment?

CHAIR: Treasury does not comment on policy. It is unreasonable to ask them to do so. They do not do it.

Mr FLETCHER: Well, I think we have got an expert body of the Commonwealth public service—

CHAIR: But they are here as public servants and—

Mr FLETCHER: Yes, a body which is responsible for the carriage of policy in relation to how the government spends its money. So I am just interested to know if this is going to be a good investment.

Mr Waslin : I have answered the question.

Mr FLETCHER: Just to be clear, you are declining to answer the question?

Mr Waslin : No. I am saying that it is a matter of policy for the government to decide how it invests.

Mr FLETCHER: So Treasury has not turned its mind to whether it is going to be a good investment?

CHAIR: I think Mr Waslin has answered the question in the way that every public servant in his position would and I think we should just let that sit, thank you.

Mr FLETCHER: The explanatory memorandum says on page 7 that this is a policy mechanism designed to 'to address the barriers currently inhibiting investment'. Can you explain what those are?

Mr Waslin : As I mentioned earlier, a number of issues relating to the availability of investment in the clean energy sector. Global financial conditions have seen European banks pull back from syndicated finance in Australia. There is a general question as to the availability of finance to this sector. There is a limited track record of investing within this sector given the rates of return and the risk so that there is a higher risk premium attached to it.

Mr FLETCHER: Could I interrupt you for a second, if I could, to ask you this question. Is one of the barriers inhibiting investment that private sector investors have not identified that there is an adequate return to be achieved?

Mr Waslin : There is a risk reward trade-off and so they have decided either that they do not want that return or that they are not in a position to adequately assess those risks because they do not have the capabilities.

Mr FLETCHER: The return that is available is not justified by the risk that they are exposed to. Is that right?

Mr Waslin : Or they have not done the due diligence or are not prepared to put the expenditure into due diligence to understand the nature of the risk.

Mr FLETCHER: Is that not another way—I am just trying to get this straight—

Mr Waslin : There are two aspects to it. One is to say that the risks are too high so we are not going to invest. The other is to say that they do not have the capabilities or it costs too much to do a risk assessment so therefore they do not know what the risks are and therefore they are not investing. The risk return might be okay; it is just that they do not know.

Mr FLETCHER: Is the policy scheme here that a government owned corporation is going to be able to achieve returns that private sector investors have not been able to achieve?

Mr Waslin : Basically the target rate of return will be less than what the private sector is wanting to achieve but in accepting a lower rate of return the corporation will look to the positive externalities from that investment.

Mr FLETCHER: Is the policy intention here that a government owned corporation is going to be able to achieve a return when the private sector is not able to?

Mr Waslin : The expectation is that the investment mandate will provide a rate of return—or an expected one—from the corporation. That may be different to what the private sector will want to achieve because it recognises the positive externalities of the government's investment involvement.

Mr FLETCHER: Just to replay that to you to make sure I am understanding this, you are saying that because a government owned corporation is able to accept a lower return than would be acceptable to the private sector that is why this is going work. Is that right?

Mr Waslin : No. The government is taking the financial return but also recognising the positive externalities as a return to the community as well.

Mr FLETCHER: But it is right that, based upon financial analysis, the corporation needs to secure a positive return, albeit lower than the private sector would normally expect. Is that right?

Mr Waslin : In one respect, yes, but not necessarily less than the private sector's. It may be that just the availability of funds or the provision of funds over a longer term may be sufficient to get the project over the line. The over-arching guideline that the expert review panel came up with was that they would provide concessionality, which they defined as being the availability, tenor and cost, which is covering all aspects on the least generous terms to allow the project to go ahead, and that in setting those terms they would look to the positive externalities.

Mr FLETCHER: Sure, I get all that. I am sorry to be simple but I am just trying to understand this: why is it that that government will be able to make money doing this when the private sector has not been able to?

Mr Waslin : As I said, the government is prepared to provide funds at a target rate of return which is less than the private sector's but it does also recognise the positive externalities.

Mr FLETCHER: A key factor is that the government will accept a lower rate of return than the private sector's. Is that right?

Mr Waslin : It is the financials plus the recognition of the positive externalities.

Mr FLETCHER: My last question for you is about section 46, which deals with the appropriation. Could you just explain the effect of that arrangement—so that is appropriating $2 billion a year over five years—and why that is necessary? And, specifically, is that intended to lock in a future government such that it is not able to reverse this?

Mr Waslin : The way in which it works is that the moneys are appropriated to a special account. Through section 48, the corporation may request funds from the special account when it needs those funds either to pay its operating expenses or for loans, but for the initial period of three years it will have funds for operating expenses. Getting to your point, from the public consultations, the importance of the way the corporation is being set up is that if it needs to enter into long-term contracts, because of the nature of this, the corporation's credibility depends upon the private sector's acceptance that the corporation will have the funds when it needs those funds. So, if it enters into a contract to lend over five years—

Mr FLETCHER: I have heard the explanation. Let me ask this question: is this a common arrangement?

Mr Waslin : The difference is that the corporation has had a special account set up. The alternative would have been to provide the $10 billion directly to the corporation, and it could invest the $10 billion and, therefore, it would have the funds over the whole period. This appropriation arrangement and the operation of the special account is that it draws down the funds only when it needs them for investment in the clean energy sector. The idea was not to establish a corporation with a large pool of funds which would go off and then become a money market corporation. It is designed to keep it focused on investing in the clean energy sector.

Mr FLETCHER: Is it a common arrangement to legislate so that there is a series of appropriations in a piece of legislation dealing with one government owned corporation?

Mr Youngberry : There are other examples where we provide appropriations over a period of time—most notably, the replenishments for the International Development Association, which is under the World Bank, where we do provide a special appropriation that exists through time to provide certainty for that funding.

Mr Nicol : My recollection is that in medical research, I think, or in general research we also have a similar mechanism.

Mr FLETCHER: Will you take that on notice and come back with some more information.

Dr LEIGH: I want to direct a question to representatives from the department of climate change. So that we can understand the broader context in which we are operating, can you tell us about how the CEFC, the RET, the Renewable Energy Agency and the carbon price work together.

Ms Wilkinson : The best way think about it is that all the components are part of the suite of policies the government is using to support investment in renewables. As Mr Waslin has said, some of the support, such as the support through the Australian Renewable Energy Agency, is designed to provide direct support towards the research and development end of the renewable energy investment chain, whereas the renewable energy target, the carbon price and the Clean Energy Finance Corporation are addressing issues which you would expect to support investment at the deployment end of the investment chain.

As I said earlier, the renewable energy target itself is designed to deliver 20 per cent investment in renewables by 2020. Certainly the modelling that we have had done suggests that, if there were not a carbon price, the renewable energy target may not be met, so entities may pay the shortfall charge. In that context, you would expect the Clean Energy Finance Corporation to deliver additional investment in renewables. In an environment where you have a carbon price in place with the renewable energy target, the modelling suggests that the renewable energy target is likely to be met but the investment you would get under the Clean Energy Finance Corporation could affect the composition of renewable and low-emissions technology investments, both over this period and looking at post 2020, when you would be in a world in which there is likely to be increased renewable energy investment required from a broad range of different sources.

Dr LEIGH: Ms Wilkinson, your modelling shows that you need a carbon price to meet the renewable energy target. I guess that means that, if you did not have a carbon price, you would need to be doing a whole lot more on things like the CEFC?

Ms Wilkinson : There is a range of different sources of modelling, but certainly some of the modelling suggests that without a carbon price the renewable energy target may not be met.

Dr LEIGH: The carbon price is a partial incentive to investment in renewable energy, but then you can think of the Clean Energy Finance Corporation as being another source of government incentive for investment in renewables?

Ms Wilkinson : The way I think about it is that they are addressing two different sorts of externalities. The carbon price is explicitly pricing the cost of emitting carbon emissions. It is addressing that specific market failure, whereas the Clean Energy Finance Corporation is addressing a different market failure. It is essentially a market failure that sits within financial markets, to do with the way they actually address investments in this sector.

Dr LEIGH: And the renewable energy target?

Ms Wilkinson : The renewable energy target is a policy which is designed to bring forwards investment in renewable energy technologies. It provides direct support to investments in that sector. Given that the transformation of the energy sector is going to be a significant part of any transformation towards a low emissions economy, the support for investment directly in renewables—or if you like you can think about it as being additional support for investment in renewables—is what the renewable energy target has always been designed to do.

Mr CIOBO: A couple of questions, Mr Waslin. I know that the official target rate has not been set, but you have indicated that it is likely to be the bond rate. Is that correct?

Mr Waslin : Around the bond rate or the cost of funds—

Mr CIOBO: The bond rate, which is how much? What percentage?

Mr Waslin : It is around just under four per cent. It depends on which one you are going to target. It is up to the government to discern that.

Mr CIOBO: I realise that it is up to the government, but a ballpark figure?

Mr Waslin : Around four per cent.

Mr CIOBO: You are expecting a four per cent return on $2 billion per annum. Is that correct?

Mr Waslin : Yes.

Mr CIOBO: And you are a expecting a 7.5 per cent default rate on $2 billion per annum, is that correct?

Mr Waslin : Yes. An allowance is being made, yes.

Mr CIOBO: An allowance is being made to lose 7.5 per cent of $2 billion per annum.

Mr Waslin : No, no. We will go back to the previous—

Mr CIOBO: That is not a question; it was a statement. Let me get to the question. An allowance has been made to lose 7.5 per cent of $2 billion per annum and it is forecast that an approximate rate of return would be around three or four per cent. So the Clean Energy Finance Corporation is being created with the expectation that in net terms, it will lose roughly three or four per cent per annum. Is that right?

Mr Waslin : No.

Mr Nicol : The four per cent target rate of return is after taking into account the losses—any write offs, rather.

Mr CIOBO: Take into account, to use your words, 'the losses' of 7.5 per cent—

Mr Nicol : Write offs.

Mr CIOBO: I take it it would be 7.5 per cent higher if that was not in existence?

Mr Nicol : As I said, there are numerous ways that you can reach your target rate of return.

Mr CIOBO: Would it be 7.5 per cent higher if you did not have to allow for a 7.5 per cent write-off rate?

Mr Nicol : If the write-off rate was not 7.5 per cent, the target rate of return would be 7.5 per cent higher.

Mr CIOBO: I go to that conservative estimate allowance of 7.5 per cent. What has Treasury looked at with regard to, for example, the $700 million Solar Flagships Program the Australian government was involved in? What mistakes were made there that will not be made with respect to investment by CEFC in this case?

Mr Waslin : Solar Flagships was a grant program. The CEFC will be making investments. The board will have the responsibility for determining the investments. They will be co-financing with the private sector, so they are brought on board. They are not directly comparable because the Solar Flagships is a grant program.

Mr CIOBO: How much money was lost/granted on the Solar Flagships Program by taxpayers?

Mr Waslin : It is not on the Treasury program.

CHAIR: It is not a relevant question when you are talking about a grant.

Mr Waslin : A grant, by definition, is a payment with no—

Mr CIOBO: No, that is why I am asking how much money is allocated?

CHAIR: It is not what you asked.

Mr Waslin : I do not know that number; it is not in the Treasury portfolio.

Mr CIOBO: Would you let us know. What about the ZeroGen project?

Mr Waslin : As I said, they are not projects within the Treasury portfolio.

Mr CIOBO: I am just mindful that $700 million was spent on Solar Flagships, $100 million on the ZeroGen project—that is $800 million. I am just interested to know what lessons have been learned from mistakes that will help to guide investment decisions of Australian taxpayer funds in future?

Mr Waslin : Let me put it another way. They are grant programs. Where the corporation has learnt from overseas experience, so to use your phrase you are not going to make the mistakes of others or losses—

Mr CIOBO: Like the Solar Trust of America for example. Is that the kind of example you are talking about?

Mr Waslin : Basically it is the operation at arm's length from the government, the use of that commercial filter that the expert review panel put in place, the co-investment with the private sector, the building of capabilities, and the governance structures for the corporation where the board has the control over the corporation. The hire and fire of the CEO and the appointment of staff with the appropriate expertise will allow the corporation to make informed decisions and judgments on the investments that it intends to make.

Mr CIOBO: Earlier you made comments, Ms Wilkinson, about CEFC altering the composition of renewable energy sources. Why will the operation of CEFC alter the composition of renewable energy sources?

Ms Wilkinson : I am thinking in the long term. I am thinking about the fact that the CEFC might support and provide funding for the deployment of renewable energy sources which would not otherwise get up.

Mr CIOBO: Why would they not otherwise get up?

Ms Wilkinson : The mandate of the Clean Energy Finance Corporation is to identify projects which they consider consistent with their mandate.

Mr CIOBO: Yes, but I am asking why, in the department of climate change's view, these projects would not get up?

Ms Wilkinson : They would not get up if they could not receive funding on commercial terms which are available at the moment.

Mr CIOBO: From the private sector?

Ms Wilkinson : That is correct.

Mr CIOBO: And would that be a reflection of risk? This is what we were talking with Treasury before. Do you think the private sector would consider them too risky to fund?

Ms Wilkinson : It would be because the private sector made an assessment that the return was not sufficient to cover the issues that they were concerned about, and certainly the private sector would not take into account the externalities that Mr Waslin was talking about.

CHAIR: My understanding of Australia, and the Governor of the Reserve Bank has said this a number of times as well, is that while we are quite good at R&D we are actually not very good at venture capital. There actually is not enough funding in the Australian system to fund the kind of ideas that we have. Is that part of the reason for this approach?

Mr Waslin : Part of it is that the sector is small. The OECD has spoken about the relative size of the venture capital sector for a country this size. I think we are very good at the small $10 million to $15 million dollar venture capitals. To actually then go to the next stage is where there is a problem in funding.

CHAIR: And in the scheme of all the possibilities in clean energy from the R&D phase, which is very early, to the bits that we already know about like wind farms for example, where would you expect the CEFC to sit?

Mr Waslin : If you think of wind as being totally commercial, we probably add commercialisation of projects slightly behind wind.

CHAIR: Waves?

Mr Waslin : Basically, it is going to change over the life of the CEFC as technologies move through that innovation chain. That is the whole point of the CEFC not picking particular sectors to invest in. It will be open to opportunities. Proponents will be able to come to the CEFC and put their case for funding. As I said, there is a general expectation that it will be co-financed with the private sector but the expectation is then that that you will be picking up other technologies across time that will be funded and will move into this space.

CHAIR: Going back to Mr Tehan's question about R&D and patents, you would not really expect the CEFC to be in the space of pure R&D and patent development. You would expect it to be much further down the line, closer to the commercial line?

Mr Waslin : Yes.

Mr CIOBO: Given we are essentially talking about a financing vehicle with all of this, out of those representatives of Treasury and Climate Change here, who has experience working in the finance sector, specifically with respect to venture capital, private equity, portfolio investment, debt finance or equity capital markets?

Mr Waslin : That was the point of establishing the expert review panel, of appointing Jillian Broadbent to chair that, and her expert review panel members to draw on the expertise that I personally do not have. That is the point with the expert review panel.

Mr CIOBO: So there is no-one before us today.

Dr LEIGH: Chair, may I ask if this is relevant?

CHAIR: It is not really but—

Mr CIOBO: It is my question.

CHAIR: You do not have the numbers here so

Mr CIOBO: I could ask the same thing about lots of your questions.

Dr LEIGH: There is a relevance for all our questions if they are relevant. It is about relevance

Mr CIOBO: We have clarified it anyway. With respect to the Department of Climate Change and Energy Efficiency, is there a material concern within the department that without the CEFC Australia would not be able to meet its mandatory renewable energy target?

Ms Wilkinson : It is now the renewable energy target, not mandatory renewable energy target. It is certainly the case that the modelling that has been conducted, as I said before, suggests that if there is not a carbon price in place then it is quite likely that the renewable energy target may not be met. With a carbon price in place, our estimate is that the combination of the carbon price and the renewable energy target should mean that the renewable energy target, which is for 20 per cent renewables by 2020, would be met. What the Clean Energy Finance Corporation will do in that case will be supporting renewable investment for after that period, for longer term investments.

Mr CIOBO: I am not asking about longer-term projects. Short term.

Ms Wilkinson : If you look post 2020 then that is when you would expect to see an impact on renewable energy.

Mr CIOBO: So, to ask--

CHAIR: Excuse me. Your question there, I think, was asking whether the CEFC was going to be funding, what was it: 'non commercially viable projects'?

Mr CIOBO: No, my question was—

CHAIR: So by having that answered, you expect the CEFC to be funding—

Mr CIOBO: It was not my question. You are verballing me now. I will repeat my question because it was my question. My question is: does the department of climate change have a material concern that without the CEFC Australia will not meet its renewable energy targets?

CHAIR: And then the comments.

Ms Wilkinson : I think I answered that question.

Mr CIOBO: No, you started speaking about carbon price. You did not answer my question at all.

Ms Wilkinson : It depends on whether or not there is a carbon price in place. That is what I said. In the modelling that takes place—

Mr CIOBO: In the absence of the CEFC, does Climate Change believe that Australia will not meet its renewable energy targets?

Ms Wilkinson : What I said to you was that when you have a carbon price and a renewable energy target in place then our modelling suggests that the renewables by 2020 will meet the 20 per cent target. There will be 20 per cent electricity generation from renewables. However, in the modelling exercise we have done where there is no carbon price in place, the renewable energy target may not be met.

Mr CIOBO: So have you modelled it with or without the CEFC?

Ms Wilkinson : I am not aware of specific modelling to take into account the CEFC.

Mr CIOBO: So the department of climate change has not done any modelling about whether we can meet our renewable energy target with or without a $10 billion taxpayer-funded investment vehicle. Is that what you are saying?

Ms Wilkinson : No, as I say, the modelling that has been conducted involves modelling the impact of the renewable energy target and the carbon pricing arrangements. Those two taken together suggest that the renewable energy target will be met.

Mr CIOBO: No, I understand that. I am not dense. I am not missing that. I totally understand what you are saying. But I am asking you about apples and you are answering me about bananas. My question is: has the department of climate change undertaken modelling to show whether or not we will meet our renewable energy target without the operation of the CEFC?

Ms Wilkinson : The answer is yes, because the modelling exercises which were conducted before the Clean Energy Finance Corporation—

CHAIR: Can I ask a follow-up question to that. If we meet our targets with the CEFC, do you see that we would have more Australian owned assets in that space? And would the price come down if the CEFC does what it is supposed to do, or not?

Ms Wilkinson : The renewable energy target is all about supporting investment in Australia in renewables. It is hard for me to see a difference in the nature of the assets, the location of those assets. So I would have thought that both the renewable energy target and the Clean Energy Finance Corporation would result in Australian renewable energy generation assets. In relation to the question about price, if the Clean Energy Finance Corporation reduces the cost of investing in renewable technologies, then you would expect that to result in lower wholesale electricity prices and, potentially, lower large-scale renewable energy certificates. So you would expect both of those to come down if the cost of actually financing these investments was lower.

CHAIR: Thank you.

Mr CIOBO: So the department of climate change has done modelling that looks at whether we can meet our renewable energy target without the operation of the CEFC?

Ms Wilkinson : Yes. The renewable energy target has been in place for some time. We have done a number of modelling exercises which predated the announcement of the Clean Energy Finance Corporation.

Mr CIOBO: Great. Can we meet our renewable energy target without the CEFC?

Ms Wilkinson : As I said earlier, the modelling certainly suggests that, with the combination of the carbon price and the renewable energy target in that model, you would expect the renewable energy target to be met.

Mr CIOBO: Okay, so—

CHAIR: Just price.

Mr CIOBO: Picking up on the chair's point about it being just price, you just made the comment that we will see, as a result of the operation of the CEFC, lower wholesale electricity prices; is that correct?

Ms Wilkinson : You could see lower wholesale electricity prices if the CEFC reduced the cost of investing in these technologies.

Mr CIOBO: Which you expect that it will.

Ms Wilkinson : If the Clean Energy Finance Corporation is reducing some of the costs of investing in these technologies, then that is what I expect the result to be.

Mr CIOBO: Should Australian taxpayers therefore expect to see the retail price of electricity decrease as a result of their $10 billion investment in renewables through the CEFC?

Ms Wilkinson : Again, it depends. In most jurisdictions in Australia, the retail electricity price is determined by independent pricing tribunals, and they key off the wholesale electricity price. So a lower wholesale electricity price, by and large, translates into a lower retail electricity price.

Mr CIOBO: On your modelling, does the price decrease as a result of the operation of the CEFC? Is it larger than, equal to or less than the forecast increase in electricity prices as a result of the introduction of the carbon tax?

Ms Wilkinson : As I said, I am not aware of modelling undertaken within the department of climate change. I can take that on notice—modelling what the impact of the CEFC is. It is difficult to actually undertake that modelling until the CEFC has been finalised in all its elements, including things like the investment mandate.

Mr CIOBO: But you are confident that it will reduce wholesale electricity prices, even though you have not done any modelling?

Ms Wilkinson : No, I guess I am just making a statement of fact as to what determines wholesale electricity prices, and one of the important things is the actual cost of investing in new generation technologies.

Mr CIOBO: Have you done modelling on how much the price of electricity will increase as a result of the operation of the carbon tax?

Ms Wilkinson : That has been, I think, fairly widely—

CHAIR: Given that we are running out of time, it is not relevant to this bill.

Ms Wilkinson : The expectation is that electricity prices will increase by 10 per cent. That was the Treasury modelling estimate. The estimates which have now been published by most of the state tribunals have predicted that the increases in retail prices will be either around that level or, in fact, lower in some jurisdictions.

Mr CIOBO: Can I ask the Department of Treasury—

CHAIR: You are going to have to call it a day, Mr Ciobo.

Mr CIOBO: Opposition members have had serious concerns about $10 million worth of investment—

CHAIR: And the opposition have had the bulk of the questions today.

Mr CIOBO: Well, that is great that, for $5 billion an hour, they are getting the chance to ask some questions! We have many more questions on our side we would like to continue asking.

CHAIR: I am sorry; I am going to call the meeting—

Mr CIOBO: So you are going to shut us down?

CHAIR: I am. We are 15 minutes over time and I am sure these people have elsewhere to be as well. I thank the witnesses for your attendance here today. If you have been asked to provide additional material, would you please forward it to the secretary by the close of business today—again, sorry for the short notice. You will be sent a copy of the transcript of your evidence to which you can make corrections of grammar and fact. As Hansard may wish to check some details concerning your evidence, will you please check if the reporters have any questions before you leave. Thank you very much.

Committee adjourned at 13:45