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Environment and Communications Legislation Committee
27/02/2017
Estimates
ENVIRONMENT AND ENERGY PORTFOLIO
Clean Energy Finance Corporation

Clean Energy Finance Corporation

CHAIR: Mr Yates, before we get started, I understand this is going to be your final appearance before estimates. Is that right?

Mr Yates : I anticipate that is the case, but if I need to be here again I am more than happy to front again.

CHAIR: If it is the last time, I would just like to put on record on behalf of myself and the committee our thanks for your engagement and support for the assessment process. We are very grateful, thank you.

Mr Yates : Thank you.

CHAIR: Would you like to make an opening statement?

Mr Yates : You have led straight into that issue, so if you would indulge me for a moment I would not mind making an opening statement, as this is expected to be my last appearance. I would like to thank the committee and all senators for the role you play as both committee members here and committee members generally. I have personally found the work you do providing oversight and questioning is critical to ensuring that my organisation retains the highest government standards. I think the role the committee operates is very important for all government organisations so that they know they will be publicly scrutinised and held to the highest standards—not only are our own organisation but any others that have to appear before you. I would like to thank many of the senators, some of whom are here and some who are not, who have provided our organisation with great support over the four and half years that I have been CEO.

Secondly, I would like to draw your attention to the legislative structure of the CEFC, which has actually been critical to its success. It is an exemplar enabling legislation, I think, for a statutory authority, where independence is desired. The structure of the CEFC Act is quite unique because it provides a good balance of both the independence and reasonable ministerial direction. From my experience, most importantly, it seems to work. My experience with the act suggests that there are a few key features of the act that are critical to our success, and they relate to an independent board drawn from the private sector, clear limits on the power of ministers in relation to the types of investments that we undertake, and clear guidance that we should operate sustainability and commercially.

What we have built over the last four years with our team of professional, passionate men and women, who are leading in infrastructure and clean energy finances—we have made commitments of more than $3 billion and we currently have outstanding commitments of $2.4 billion. So our investments are delivering returns and outcomes for the Australian economy.

Most importantly, what we have established in this four years is actually a coordinated group of financial partners. We can deliver financing solutions nationally across Australia now at a local level. We have already concluded almost 1,000 smaller loans to smaller companies so that they are receiving financial support when they make the decision to choose highly efficient equipment rather than cheaper, low-efficient alternatives. This model is similar to the model that has been undertaken by KFW in Germany, but it does actually now provide a platform by which governments could offer support through a loan structure rather than just grants activities, and that is a platform that is available to future governments. Loans are often much more efficient for the taxpayer than grants.

As an institution the CEFC presents an opportunity for future governments to use the organisation and its platform as a national development institution. In my view, Australia should consider having a national development institution so that all sectors of the economy, not just the clean energy sector, can obtain benefits of targeted financial solutions, such as long-term debt. It is plain for me operating in the market that foreign development banks and export credit agencies are being used as foreign trade tools. It would be in my view sensible if Australian manufacturers were able to obtain matching support, as is available from foreign development agencies, so that they can compete domestically here in Australia. Finally, as to my role, I would like to point out that a CEO is purely an individual who represents an organisation. Yes, the CEO's role is important, but the CEO does not make the organisation. Therefore, to the extent that you see success in what I have done, please be aware that really I am just a representative of the success of the organisation. I am a representative of the staff that I have been lucky to lead, the board, which has provided invaluable guidance, and also to my family, who have allowed me to spend three or four nights a week away from home over the last four years. Thank you.

CHAIR: Again, on behalf of the committee we thank you and wish you well in your future endeavours.

Senator DASTYARI: Thank you, Mr Yates. You survived—you were constantly going to be abolished! You made it through! You outlasted it!

Mr Yates : It is good training!

Senator WHISH-WILSON: For what?

Senator DASTYARI: That is the question! I want to talk a bit about coal. I am going to apologise because I did not realise we could bring stuff into this committee. I could have brought some coal with me but I did not realise that that is not the done thing! Can you explain to me what the appetite for building new coal plants is in the private sector at the moment?

Mr Yates : I can only really comment on Australia, and we are not seeing a significant appetite in relation to the construction of new coal fired power plants at the moment.

Senator DASTYARI: Are you aware of any?

Mr Yates : Actually, this morning we did receive a request from a party seeking assistance with the construction of a coal fired power plant—only about a couple of hours ago.

Senator DASTYARI: When did you receive that?

Mr Yates : To my knowledge, basically about an hour or two hours ago.

Senator DASTYARI: Okay—via mail, email or—

Mr Yates : Email.

Senator DASTYARI: How does it work? Explain to me the process. You must have a triage system. Do you get unsolicited proposals?

Mr Yates : All of the time. We are open for business all the time like any other bank, so people approach us with proposals.

Senator WHISH-WILSON: It wasn't from Senator Roberts, was it?

Mr Yates : No, it was not from Senator Roberts.

CHAIR: Senator Whish-Wilson!

Senator WHISH-WILSON: It is legitimate. You cannot—

Senator DASTYARI: Be careful if you start ruling out who it is from, because we've got a long list!

For a new coal plant in Australia to be built—you know where we are going. There has been a fair bit of talk about this. Where do we sit in terms of needing government or public subsidies for it to be financially viable for one to exist?

Mr Yates : I do not think one would be financeable without the government providing an indemnity as to future carbon risk, quite simply, and I do not think one would be financeable without the government providing an indemnity against delays in construction which may be caused by protestors or a variety of different things. This would be a very contentious project. It would be subject to significant uncertainty in relation to its cost structure because we do not know what the future price of carbon would be. Therefore, in my view, it would be very challenged as a financeable proposition.

Senator DASTYARI: You are using a very technical term. By 'financeable' you are putting aside its financial viability, which is obviously related, and talking about being able to secure the finance itself from a bank or someone. Is that what you are referring to?

Mr Yates : Correct. No bank that I am aware of would be very interested in lending to an organisation which was going to be unviable in the future, so therefore they assess the viability of that project.

Senator DASTYARI: Okay. This is my understanding, and correct me if I am wrong, but to date the CEFC has never provided any funding for a coal fired power station, correct?

Mr Yates : That is correct.

Senator DASTYARI: Why is that the case?

Mr Yates : For example, at the moment, under our act and the definition in which it would have to apply, it would have to be a very low emitting coal fired power station

Senator DASTYARI: And USC coal plants do not meet that definition, do they?

Mr Yates : At the moment, they do not appear to meet that definition, yes.

Senator WHISH-WILSON: Can I ask a follow-up?

Senator DASTYARI: Jump in.

Senator WHISH-WILSON: Is that emission half a tonne of CO2 per megawatt hour? Is that the standard?

Mr Yates : I think the number that we have is meant to be 50 per cent of the NEM average, and the NEM average from 2016 was about 820 grams per kilowatt-hour. If I were to go from the World Coal Association fact sheet for an ultracritical or supercritical, you are lucky to get to 670 or 700.

Senator WHISH-WILSON: Is it 60 to 70 per cent of that?

Mr Yates : It is probably less than that. It is probably only 70 to 75 per cent of that.

Senator DASTYARI: I know I am trying to simplify something that is far more complex, but, at the moment, insofar as a USC coal plant exists, it would not currently meet the definition of low-emission that is applied to the CEFC. Is that correct?

Mr Yates : It would not meet the definition as set out by the board of the CEFC when it determined the definition of what low-emitting technology would be.

Senator DASTYARI: Okay. To be able to fund a USC coal project, that definition would have to be loosened. That could happen either by the board or by legislation. Is that correct?

Mr Yates : It could be done by legislation, it could be done through a mandate or it could probably be done by the board.

Senator DASTYARI: And the government gives you the mandate. The mandate then is an instruction to the board—or does it ignore the board completely? I know there has been talk before about a mandate.

Mr Yates : The way it works is the minister has the rights and powers to indicate to the CEFC in a whole variety of factors as to areas of focus and also can influence the type of areas that we may finance.

Senator DASTYARI: And at this point in time you have not been given an instruction or direction to loosen the definition to be able to include USC coal plants, correct?

Mr Yates : We have received nothing.

Senator DASTYARI: Okay. If that definition were changed—I think 'loosened' is the word that you used—to allow USC coal plants to be supported by the CEFC, what is the view of the CEFC? Has the CEFC done any work on the viability of USC coal plants as an investment for the CEFC?

Mr Yates : No, we have not done any work on it, because it has been excluded generally from our act because of the definitions, but coal is no different to any other technology, whether it be solar thermal, whether it be undersea turbines or anything: we have to look at the technology based upon its merits to see whether it is likely to be economically viable as a financing proposition. Regardless of whatever our definition happens to be, it will still have to be what we consider to be an economically viable project for us to be engaged with.

Senator DASTYARI: Can we go through the hurdles you mentioned earlier. The hurdles to economic viability as far as you see them would include guarantees and what? Do you want to run through them?

Mr Yates : First of all, it would have to be able to produce power at an appropriate price that the market would want. Second, given we have uncertainty as to the likely future carbon price—and there are forecasts that suggest it could be very high—you would need an indemnity as to the future carbon price. It would have to come from somebody, and that would likely come from the government. In other words, if you look at a coal fired power plant at the moment, it may be able to produce power at let's say $80 a megawatt-hour. If it had a cost of carbon embedded in that—obviously a coal fired power station produces significant carbon emissions—and that were charged on a per-tonne basis, it is quite easy to see the cost of power rising well over $80 as the carbon price rises. So you have no forecast as to the costs involved in the production of your energy given that carbon is actually likely to be, one way or another, a cost.

Senator DI NATALE: But how do you achieve that indemnity?

Mr Yates : We would have to ask for it. We would not be able to lend, because we would not know the viability of the project unless someone else provided us with an indemnity.

Senator DASTYARI: So you would, effectively, have to legislatively guarantee exemptions.

Mr Yates : We could get an exemption from an insurance company if they had the right credit, but I do not see many of the private sector wanting to take a view that there would not be a potential cost of carbon in the future.

Senator DI NATALE: This is critical. You are saying that, in order to lend, there has to be some guarantee or at least indemnity that a carbon price will not be introduced at some future point in time, because otherwise, of course, the cost of generating that power increases according to the power of the carbon price. You are also saying you cannot see how that could be achieved.

Mr Yates : The answer is we are lending the taxpayers' money. I want to recover that money. Therefore, to be able to recover that money, I need to think that the project is going to be viable. To be viable, I would need someone to take away that future risk from that project, because that project is unable to be quantified. It is an unquantifiable risk that could affect the economics of the project.

Senator DI NATALE: How could that potentially be made viable? How could that risk be removed?

Mr Yates : An insurance company could provide it.

Senator DI NATALE: Are you aware of any insurance companies who could do that?

Mr Yates : No, but the private sector could do incredibly strange things for a price. But that price would be very expensive. There is nothing impossible in this world; it just depends upon what is economically rational and what is economically likely.

Senator DASTYARI: To follow up on that: aside from the issue of future risk, earlier you were talking about the risks associated with the project in terms of getting guarantees that it actually could get built. You were talking about protesters and such. Do you want to touch on that as well?

Mr Yates : I think we would be not at risk to assume the construction of such a project would be highly contentious within the community and, as such, it may be subject to disruption by disgruntled participants. So that is a risk. The other risk is obviously renewable energy costs continuing to fall and renewable energy becoming more and more competitive. You are competing. This is an asset which produces power. It has to compete to sell that power into the market. If there are other systems that can produce it more cheaply then they will ultimately displace it.

Senator DASTYARI: You effectively seem to be saying that CCS coal plants are not currently viable as a commercial investment unless other guarantees can be given around them.

Mr Yates : That would be my opinion, however, I am not the only person. Someone may be wanting to build one for their own purposes and may be willing to put a lot of money in and put a lot of risk on the table. I do not see that as a sensible risk position for the taxpayer to take, but if a private sector participant wants to go and build anything—they want to build a theme park, they want to build the Eiffel Tower—it may not be economically sensible, but they are entitled to go and do it if they want to.

Senator DASTYARI: Has the government sought your advice about the financial viability of building new coal plants?

Mr Yates : No.

Senator DASTYARI: There has obviously been some talk in the media in recent weeks about changing the mandate regarding getting—I am using the word 'mandate', which I think is your word—a government mandate. Have there been discussions with the CEFC about that? I understand you have not been given a changed mandate. Have there been discussions about getting that?

Mr Yates : Not with us. It is obviously just a discussion in the press about that. To be honest, I think it will stand on its own merits, like every other technology that we deal with.

Senator DASTYARI: Finally—

CHAIR: That is your third 'finally'. Could you finish this one up?

Senator DASTYARI: This will be my final 'finally'. Can you explain to me your understanding of what actually is clean coal?

Mr Yates : It would have to be subject to some form of CCS arrangement. The carbon would have to be collected and it would have to be stored in a way that it would never be released back into the atmosphere.

Senator DASTYARI: Does that exist commercially at the moment—that you are aware of?

Mr Yates : It does exist. I do not think many of them are commercially viable, unless they are used for the purposes of producing extra oil. In other words, you inject the carbon into an old oil well for the purposes of producing more oil.

Senator DASTYARI: I have a lot more questions that I would love to ask on that but I will—

CHAIR: You will have to put them on notice at this point because there are a lot of other senators.

Senator HUME: I want to follow on from that question. The government has recently requested that CEFC and ARENA work together to prioritise a new funding round for large-scale storage solutions and flexible capacity projects, and that includes pumped hydro. I was hoping you could explain to senators here why it is so important to focus on this energy storage solution, why that is so critical, and where you see energy storage technology developing.

Mr Yates : Storage is very important. I think it was a question I received only last week. Most commodities can be produced and stored and then used when there is demand. Electricity is a different commodity. It is very difficult to store electricity and have it available when it is needed. Unlike nearly all other commodities on the planet, you have to think carefully about how you are going to manage the storage of this different commodity. One of the ways to store that energy is to pump water up a hill. When you have an excess of electricity, you use the electricity to pump the water up the hill, you have the water in a dam and, when you need it, you release the water down the hill, running through a turbine to create the electricity that you can then use at the time you want. Renewables are intermittent—many of them are, not all of them are; for example, bagasse and a whole variety of them are not—and the majority of the cheap ones at the moment are variable. In other words, they will produce when the wind is blowing or when the sun is shining, and you need to marry that with some form of storage so that the supply can match the demand.

Senator HUME: At the moment, CEFC is prohibited from funding carbon capture and storage. If you were able to invest in CCS technologies, do you think that you would limit that to the energy sector or do you think it would also allow you to support a whole raft of sectors, such as hydrogen projects, to get off the ground?

Mr Yates : There are technical issues about our act generally referring to energy, but I hear what you are saying. There are projects: for example, the Victorian project, the Kawasaki project—which you are probably referring to—with CarbonNet. CCS is potentially a future important technology because if you are going to follow a road map that is set out by the IPCC, which requires you to develop carbon-negative technologies, you will have to withdraw carbon from the atmosphere in some way if you are to hold the planet at less than two degrees and, in the future, store that carbon that we have already dumped up there.

The IPCC, I think, forecasts that those types of technologies will be required in the future to keep the earth's climate below two degrees. So CCS potentially has a role to play in that. There is a lot of confusion here because people think CCS is coal capture and storage; it is carbon capture and storage. Carbon can be emitted through many processes rather than those in relation to, say, a coal-fired power station. I think people need to divide their understanding that they are not linked; they are separate technologies.

Senator HUME: One last question—and forgive me for the pun; this one is slightly off the grid. You mentioned in your opening statement that you thought that the CEFC structure and the legislative framework to provide targeted financial solutions such as long-term debt is something that could be applied to various sectors of the economy. I am interested in what sectors specifically you had in mind and perhaps you could give us some international examples about where similar structures have effectively been applied.

Mr Yates : The majority of international economies have a development bank within them. Australia lacks that. New businesses that are starting here, particularly large projects, have enormous long-term risks that they need to manage—for example, foreign currency risk. They need long-term debt to manage interest rate risk. It is common in foreign countries for those parties wanting to build large assets to be able to have a national lending institution which can provide them with long-term funding support to try and reduce the risks that they have in undertaking large projects. You see it all around the world. Most other countries have multiple development banks; Australia does not have a development bank.

Senator HUME: So you were only talking about that large-scale, long-term funding; you were not talking about smaller scale, social policy funding?

Mr Yates : You can do all of that. It is mainly thought of in the larger scale, but you can do it at a smaller scale. We have just done a pile of social housing. I know there is discussion on social housing. The government has many, many discussions about different areas that it would like to fund—Northern Australia, CEFC, social housing, a whole variety of different areas. Often they all fit under a national umbrella so that the governance can all be managed and the portfolio can all be managed in a coordinated fashion through one institution.

Senator HUME: But the CEFC has a particular legislative framework that you think is applied particularly effectively to this?

Mr Yates : I think we now go all the way from small through to large. So from very small loans all the way through to infrastructure. All I am saying is it is a platform that has been built by the team over the last four years. The platform should be considered as an asset in its own right regardless of the current mandate that the CEFC has. It is quite a unique institution that has actually been built up, that is an asset of the taxpayer and an asset of the state.

Senator HUME: Thank you, Mr Yates, and I wish you well with your next endeavour.

Senator XENOPHON: We did have a Commonwealth Development Bank until about 1993, particularly for the rural sector. Can I go to questions asked by Senator Dastyari and Senator Di Natale in relation to the proposed changes to the ministerial directive. Is that a disallowable instrument? Are you aware of that? The minister may be able to answer.

Mr Yates : The minister may be able to answer, but I do not believe it is a disallowable instrument.

Senator XENOPHON: It is not?

Mr Yates : It is not.

Senator XENOPHON: But it could be changed whether it is—

Mr Yates : The mandate has to be in a form which is not inconsistent with the act.

Senator XENOPHON: With the objects and compliance requirements of the act?

Mr Yates : Yes, that right.

Senator XENOPHON: Okay. So if it is changed by ministerial directive, it will not be done by an act of parliament?

Mr Yates : No. The ministers can issue a new investment mandate whenever they feel it is—

Senator Birmingham: And saving for the provisions in relation to carbon capture and storage, which would require some amendment to the act.

Senator XENOPHON: But would this be consistent with the act, in your view, in terms of what has been proposed to date?

Mr Yates : The act currently excludes carbon capture and storage. I think that was something that was discussed by parliament. So parliament's will at that time was to exclude it. It is up to the parliament to make another decision.

Senator XENOPHON: If it is changed to include coal-fired power stations, does that mean that other projects—for instance, the solar thermal project at Port August; and this is a question that can be put to ARENA—may well be sidelined or other projects will, of necessity, be put to one side if greater priority is given to coal-fired power stations?

Mr Yates : I do not foresee that happening.

Senator XENOPHON: Why not, if there is only a limited pool of money?

Mr Yates : The pool is actually still a very large pool of money. The pool of money is still over $7½ billion, and it keeps growing all the time. In other words, we have almost $100 million worth of retained income which is in addition to the $10 billion. So technically we have $10.1 billion available as an organisation, for which we currently have commitments out at 2.4. As we are not a grants organisation, we have money that we can use and then re-use and re-use and redeploy and re-use again, so we are not short of available finance.

Senator XENOPHON: Let us say there is a ministerial directive in terms of coal. Is there going to be a baseline as to how much more efficient that coal-fired power station would have to be compared to, say, the existing best-practice coal-fired power stations or black coal generators?

Mr Yates : I think that will be something for the ministers to consider in their mandate.

Senator XENOPHON: So the ministerial directive will describe what the baseline is of energy intensity?

Mr Yates : I think, to be honest, there will be some form of grey line in this, because the institution is set up as the Clean Energy Finance Corporation and it would be very difficult if the coal-fired power station is only one per cent less emissions than an old one, because it would not necessarily be likely to be perceived to be meeting the objectives of the act. This is an area of art, rather than science, and it may become quite complicated to work out where that line is.

Senator XENOPHON: This is a question to the minister, and you may have to take it on notice. When Direct Action was established, there was a safeguard mechanism—which I am familiar with, given that I moved the amendments. That safeguard mechanism foreshadows a ratcheting-up of energy efficiency in terms of the baseline being set in terms of issues of energy efficiency, in terms of emissions intensity. Would the ministerial directive have any degree of funding for a coal-fired power station if it were above the anticipated baseline in the safeguards mechanism? It is a technical question. You may wish to take it on notice.

Senator Birmingham: If we have got something to add on notice, we will certainly do so.

Senator XENOPHON: I am not expecting you to answer it now.

Senator Birmingham: It is a technical question. I think the issue you highlight there—they could be related but would not necessarily have to be related to in terms of where a mandate was set for the CEFC versus how baselines might work under the operation of the Emissions Reduction Fund and associated legislation. But certainly we can have a look at that.

Senator XENOPHON: Are you saying that the safeguard mechanism proposes an increasing tightening of emissions intensity and that the ministerial directive could go outside that tightening baseline to fund something through the CEFC that actually pollutes more than what the safeguard mechanism is anticipating?

Senator Birmingham: No. I am simply making the observation—and I suspect it would hold for current arrangements—that the CEFC mandate, as currently written, does not depend upon other factors within the operation of the Emissions Reduction Fund, and that they operate, in a sense, as stand-alone arrangements. That is not to say that the government would not—because I am confident we would—be looking to give an element of consistency in our approach across all of those different areas which would clearly be part, I would have thought, of any thinking that comes out of the 2017 review of how to meet the 2030 emissions reduction targets.

Senator DI NATALE: Chair, how much time have I got? I know we are running a bit behind.

CHAIR: About five minutes.

Senator DI NATALE: Can I just clarify this question of the ministerial directive? If the act prohibits carbon capture and storage, how is it that the minister can make a direction in that area without that requiring a change to the act?

Mr Yates : The minister cannot provide a directive in relation to carbon capture and storage. That is set out in the act—that it is prohibited. Unless parliament changes it, then he cannot give a direction which is inconsistent with the act.

Senator DI NATALE: What about with regards to supercritical coal?

Mr Yates : The question is: are the limitations on investing in coal limited by the fact that the board has set the standard that they would not look at a technology that did not have lower emissions than 50 per cent below the NEM.

Senator DI NATALE: I will come to that in a moment. Would the act, as it currently stands, theoretically allow an investment in supercritical coal?

Mr Yates : Theoretically, it could, yes.

Senator DI NATALE: With regard to the guidelines—and I take it this is where you are going—a new coal fired power station will need to meet about half a tonne of CO2 per megawatt hour, which is down from about a tonne now, a reduction of 50 per cent. Are you aware any technologies that do that at the moment?

Mr Yates : Not unless they are using carbon capture and storage.

Senator DI NATALE: Which is prohibited under the act.

Mr Yates : That is correct.

Senator DI NATALE: So as far as you are aware, there are no technologies that allow us to do this, apart from carbon capture and storage. Therefore, in a sense, what the government is proposing is a moot point because it does not exist and could not exist unless the act is changed to prevent the restriction on carbon capture and storage.

Mr Yates : I think whether it is a moot point is up to the government—

Senator DI NATALE: Yes.

Mr Yates : but from our perspective, the technology still needs to be economically and commercially viable regardless of—

Senator DI NATALE: Yes, I get that from your perspective but I will get to that in a moment. I want to be clear—

Senator Birmingham: I think the government has been quite open in recognising the CCS provisions within the act, and that if a decision were taken, obviously, then legislation would require amending in that regard.

Senator DI NATALE: It would require an act of parliament to change it, so that is more a question for us around here than perhaps it is for you. Let us go to the issue of where you sit within this: price per megawatt hour. I raised earlier that there is analysis from Bloomberg. I am not sure if you have seen it: new coal fired power stations about $134 to $200 a megawatt hour with wind about 60 bucks a megawatt hour and solar about $80 at the moment. It goes to the issue you mentioned earlier about competing with renewable energy resources. Given you have to do is provide a return on your investment, how is it that you could see a case for investing in new coal fired power stations when we know it is going to cost double—probably more than double—the comparative renewable energy sources.

Mr Yates : I am not sure that the very high number you are using for coal would be reflective of our understanding.

Senator DI NATALE: Let's use the low number if $134.

Mr Yates : If that is the case and it is costing $134 to make energy from coal versus $80 from solar or wind then, arguably, you would generally choose the cheaper option. But let us not ignore the fact that the cheaper option has an additional cost because its energy will need to be potentially stored and delivered at a certain time. So there is a slight storage cost required with renewables which you may not necessarily have so much with a coal fired power station, although coal fired power stations do not actually move very easily or deliver a new one either. They are operating all the time.

Senator DI NATALE: Correct.

Mr Yates : I am just making sure that we are not overestimating.

Senator DI NATALE: Getting back to the issue of indemnity: you are saying that one of the things you would have to consider if you were to be investing this money prudently is that there would have to be some sort of insurance against an introduction of the carbon price—I think that is self-evident. Areyou aware of anybody who is prepared to provide that at the moment?

Mr Yates : No.

Senator DI NATALE: Without that, would you—again if you were going to be investing that money prudently—be prepared to advocate for an investment in coal?

Mr Yates : We always look at all of our investments and try to make sure that the risks are fully hedged and covered. Leaving an unhedged risk like that, which is subject to a political decision, would leave you quite exposed.

Senator DI NATALE: Let me ask you about the issue of rate of return. You obviously have a rate of return that is required as part of your investment mandate.

Mr Yates : Yes.

Senator DI NATALE: Can you outline what that is?

Mr Yates : Currently the benchmark return we are asked to target is between 5.85 per cent and 6.85 per cent.

Senator DI NATALE: I know this is a very technical discussion but, for those people who might be listening, you mentioned earlier that you are not actually out there writing cheques and giving grants. In simple language, you are lending money and expecting a rate of return for the taxpayer.

Mr Yates : Yes, correct.

Senator DI NATALE: With regard to the rate of return, we know based on what you have said that the investment in new coal plant would likely run at a loss. How do you deal with that in light of your investment mandate?

Mr Yates : We would not normally invest in a transaction which runs at a loss, because the ministerial direction has asked us to operate commercially. That is the reason why we are not a large expense to the budget.

Senator DI NATALE: How much capital would need to be poured into a coal-fired power station for you to be able to realise a return? In other words, how much money would need to come from the taxpayer to subsidise it in order for you to be able to realise the return on your investment?

Senator Birmingham: I think that is a 'How long is a piece of string?' question.

Mr Yates : The amount of the loss would be what it is, which could be 100 per cent or it could be 50 per cent.

Senator DI NATALE: Do you have any sense of what the scale of that is?

Mr Yates : I am not into considering loss-making ventures.

Senator DI NATALE: Good—neither are we. My final question is perhaps one for the minister. I think you mentioned the issue of storage. Solar thermal is one of those areas where we can actually deal with the issue of storage. I understand that the Liberal Party promised to help fund the construction of Port Augusta's solar thermal power station. It was a promise that was made in the lead-up to the last state election—

Senator Birmingham: Federal election.

Senator DI NATALE: Federal election, I am sorry. Can I ask what progress the government has made with regard to the construction of solar thermal in Port Augusta and perhaps whether Mr Yates sees any barriers to this sort of investment?

Senator Birmingham: I will see whether the officials can give you an update there. I certainly know we have seen some progress, at least in terms of further exploration and support for work around hydro storage at Cultana, not too far from Port Augusta as well.

Senator DI NATALE: Are you talking about solar thermal specifically?

Senator Birmingham: No, it is pumped hydro storage.

Senator DI NATALE: No, your commitment was—

Senator Birmingham: In terms of the Port Augusta solar thermal project, do we have an update?

Dr de Brouwer : Maybe we can come back at a later session on energy to give you an update on the renewable side—

Senator DI NATALE: Is there anything you would like to say about it now? How much money has been invested in it so far?

Senator Birmingham: I am not sure we have the right officials at the table.

CHAIR: I think they have taken that on notice for item 5.1.

Dr de Brouwer : Or item 2.1, renewable energy.

Senator WHISH-WILSON: A point of order on that, Chair. I think Senator Di Natale is asking about financing as well.

Senator DI NATALE: Yes.

Senator WHISH-WILSON: The statement clearly referred to using the CEFC to finance this project. So have any contracts been signed or have there been any advances on that, with the CEFC's involvement?

Mr Yates : From our perspective, there has been not a lot of progress. It remains an expensive technology in comparison to alternatives. The government is always at liberty to provide a grant or provide some concessionalities if it wants to promise those types of things, but again we are not into giving away money. We are investing taxpayers' money and we have not found a viable proposition for that at the moment.

Senator Birmingham: I think we have some further information.

Mr Frischknecht : ARENA has looked at a number of projects in Port Augusta, including doing a feasibility study together with Alinta in the solar thermal space. We do not have an existing application to develop a solar thermal project there. The feasibility study that was done with Alinta showed it to be fairly uneconomic, and Alinta chose not to proceed.

Senator WHISH-WILSON: Thank you. I have a couple of quick questions on Tasmania. Are there any projects being considered in Tasmania at the moment, Mr Yates?

Mr Yates : I might have to come back on notice, but my recollection is that we do not see a large pipeline of projects in Tasmania, other than one project we have been looking at which relates to a pellet mill, in relation to wood pellets for export. The other one would be Basslink, obviously—

Senator WHISH-WILSON: That is the one I was particularly interested in, because during the election Minister Hunt flew in and visited the northwest and said that this was something that was being looked at. Is it being considered for financing? Have you received a proposal from the state government?

Mr Yates : No, we have not received a proposal from the state government. We have been actively involved with Dr Tamblyn in relation to a review of that project. He is due to bring out his report—I do not know whether it is imminent, but maybe within the next month—about a review of the viability of a second interconnect to Tasmania.

Dr de Brouwer : I think his report is being finalised at the moment.

Senator WHISH-WILSON: Any idea when that might land, just as a matter of interest?

Dr de Brouwer : No, sorry, but it is soon.

Senator WHISH-WILSON: If you are able to clarify, Mr Yates, you mentioned you had a proposal an hour or so before you arrived for a coal project. Could you clarify whether that is a retrofitting of some kind of carbon capture and storage or clean coal technology, or is it for an entirely new project?

Mr Yates : It came in on Friday the 24th, as I have found out. It is for a new build and it is purporting to do carbon capture and storage at the same time. From memory, having read it over lunch, I think its capital cost was about $1.2 billion for 900 megawatts. I am not at liberty to provide information because I have not even had a chance to work out whether the project is currently commercial-in-confidence as yet. But I am happy to answer the question: yes, we have received a proposal.

Senator WHISH-WILSON: Certainly it would be good politically for the coalition if we were to look at this issue. I want to ask one last question about private storage, battery technology and rooftop solar. A year or so ago you mentioned to this committee that the CEFC was looking at potentially providing financing operations for, I suppose, packages for households.

Mr Yates : Yes, that is right.

Senator WHISH-WILSON: Has that progressed?

Mr Yates : Yes, it has continued to progress. Our facility that we have with Origin is used also for rooftop solar and batteries at the moment. Currently we are seeing strong interest in battery technology coming right through the system. In fact, tomorrow we have our technology matchmaking between investors and participants. We are expecting 10 companies to be presenting new technology to 45 investors, and some of those are battery technologies. So it is an area of significant interest, both from the producer and from the consumer.

Senator WHISH-WILSON: Do you think it will be an area of significant disruption to the grid?

Mr Yates : I think it will be an area of increasing disruption. The whole system is going through a fundamental structural change, so this is just one of the many areas of disruption.

CHAIR: Thank you very much. Again, we wish you well, Mr Yates. Thank you very much for appearing here today. I now call officers from the Australian Renewable Energy Agency.