Business Model and Approach to Business

The CEFC is an investment institution and operates with commercial rigour. However, the CEFC differs from other financial institutions in that it also has a public policy purpose.

The CEFC was formed with a statutory object to “facilitate increased flows of finance into the clean energy sector” and it does this by performing its investment function in the renewable, energy efficiency and low emissions technology sectors.

The Investment Mandate direction specifies that the CEFC applies commercial rigour when making its investment decisions, using financial products and structures to address the barriers inhibiting investment in the sector. Further, the CEFC should have regard to positive externalities and public policy outcomes when making investment decisions. Put simply, this means that the CEFC can give weight to non-financial aspects to the transaction that are of broader economic or public benefit.


The CEFC Board has built upon the statutory framework and Australian Government policies by providing charters which specify Board and Board committee responsibilities. The Board has further adopted Codes of Conduct and Ethics, a system of written delegations of authority and corporate policies and procedures to establish appropriate controls and to provide an ethical decision-making framework for the CEFC.

From this basis, the Board and Executive have together further extended and built out a robust set of Investment Policies, a Risk Management Framework and accompanying procedures, and an internal support structure which assists in meeting the high standards required of the CEFC as a public authority. Collectively, this interlocking system of:

  • documented policies and procedures
  • effective Board and Executive committee oversight
  • clear reporting lines and responsibilities
  • a well-developed corporate ethos, and
  • properly inducted and trained people

creates a streamlined system of both internal and external oversight, checks and balances that gives the CEFC Board the confidence that the CEFC’s governance is Australian best practice and appropriate for an organisation of its type and maturity.


The CEFC’s investment universe is defined by factors imposed by the CEFC Act and the Investment Mandate. The CEFC Act limits the scope of the CEFC’s investments to the clean energy sector and fixes the exposure to solely or mainly Australian-based activity.

The Investment Mandate requires the CEFC to target a portfolio benchmark rate of return (PBR) that:

  • has an acceptable but not excessive level of risk
  • considers the potential effect of investment activity on other market participants
  • includes a focus on emerging and innovative renewable energy and energy efficiency technologies
  • from 1 July 2016, makes available $1 billion over 10 years for investment in emerging clean energy technology projects and businesses, through the Clean Energy Innovation Fund.

Please note the Australian Government has indicated an intention to issue further revisions to the CEFC’s Investment Mandate.

Figure 33: CEFC governance approach


Within the investment universe defined by the CEFC Act and the Investment Mandate, the CEFC Board sets strategic priorities for investment, namely those that achieve cleaner power solutions, contribute to a better built environment and/or develop new sources of capital for clean energy investments.

The CEFC is not a grants organisation. CEFC Investments are made with the expectation of a positive risk-based financial return on a portfolio basis, in line with the target PBR detailed in the Investment Mandate.  The CEFC invests responsibly and manages risk with a view to both financial self-sufficiency and public policy outcomes.

In achieving financial self-sufficiency, operating expenses must be maintained at sustainable levels. The CEFC’s most significant expense item is staffing, accounting for 59 per cent of total expenses. With just 69 staff (including 66 FTEs) (excluding the Board) at year end, the CEFC seeks to leverage the scale and service networks of co-finance partners to assist in delivering CEFC finance to small and medium businesses, while larger transactions are typically financed directly.

In undertaking our investment activity, we have regard to the potential effects on other market participants, with a strong preference to invest alongside the private sector and investors where our participation also facilitates private sector participation. We do not compete with private sector investors.

In performing our investment function, we seek to lend at risk-adjusted rates as close as possible to commercial market rates. We create and participate in financing structures that attract private sector co-financiers and other capital providers to enable a project to progress. The combination of a commercial approach while seeking to “crowd in” rather than “crowd out” private sector investment helps create conditions for the more efficient deployment of capital. In many cases our engagement in transactions is intended to see private sector co-investors step into a transaction once the investment terms are fully developed.

We can provide concessional loans where warranted. A concessional loan is one offered on more favourable terms than could be expected between a private sector lender and private sector borrower. The concession(s) provided may take many forms, but typically will be one or more of:

  • lower than market interest rates
  • longer loan maturity
  • longer/more flexible grace periods before the payment of principal and/or interest is due.

Concessionality is applied sparingly, balancing the CEFC’s commitment to commercial rigour with public policy outcomes. We may choose to deploy concessional finance to assist in overcoming financial impediments to an otherwise bankable project or to encourage public policy outcomes. This is determined on a case-by-case basis, with reference to the specifics of the project. Since our inception in 2013 through to 30 June 2016, the CEFC has provided a cumulative $19.7 million of concessionality on investments. In 2015-16, we provided $6.8 million of concessionality on our investments, compared with $1.4 million in 2014-15.


Our investment strategy is built on identifying areas of the economy where there are the highest opportunities for emissions reductions, coupled with a requirement for capital to bring those opportunities to fruition as soon as practically possible. To that end, we have identified three strategic priority areas for investment:

  1. Cleaner power solutions
  2. A better built environment
  3. New sources of capital.

When evaluating investment opportunities within our three strategic priority areas, two broad threshold factors are considered:

  1. Eligibility constraints: the CEFC’s ability to invest is limited by the CEFC Act, the Investment Mandate and the PGPA Act
  2. Investment selection criteria: The CEFC evaluates the commercial merits and relative investment attractiveness of each prospective investment, influenced by the risk management approach of the CEFC and the implications of each potential investment decision for the portfolio.

The CEFC Act requires that at least half of the investment portfolio is invested in renewable energy technologies by 1 July 2018. This includes investments in wind, solar PV, thermal and concentrated solar power (CSP), biomass, geothermal, tidal and other renewable energy. This may include both on-grid and off-grid projects, energy storage and transmission, using creative and innovative financing structures to reduce the cost of capital.

The remainder of the portfolio will be balanced between low emissions and energy efficiency transactions, that will be delivered either directly or indirectly through supporting new sources of capital and investment products.


The CEFC is able to invest directly or indirectly across the capital structure, in publicly traded or privately held instruments, including:

  • senior debt
  • subordinated debt
  • preferred equity/convertible debt
  • common equity interests in pooled investment schemes, trusts and partnerships
  • net profits interests, royalty interests and entitlements to volumetric production payments.


The CEFC Board is ultimately responsible for the overall performance of the CEFC. Effective risk management is a critical component of good performance management. To assist in its risk oversight, the Board has established an Audit and Risk Committee, which is in turn assisted and advised by an Executive Risk Committee, an Executive Investment Committee and an Asset Management Committee.

Risk Management Framework

The Board has established an enterprise-wide Risk Management Framework to monitor and manage all categories of risk in the CEFC’s investments and for the CEFC itself. The Risk Management Framework and the CEFC Investment Policies embed active management and mitigation of risks into all areas of the CEFC’s investment functions and broader business operations.

The Risk Management Framework identifies five broad categories of risk:

  1. Strategic risk
  2. Investment risk
  3. Financial risk
  4. Operational risk
  5. Compliance risk

Risk management pillars

To manage these identified categories of risk, the Risk Management Framework has established six functional pillars through which the CEFC manages risk, namely: Governance, Strategy, Risk Identification, Profiling and Reviews, Compliance, Controls, and Assurance.Governance is the key overarching function to effective risk management. The CEFC’s objective in implementing good governance is to create an operating environment where sound, transparent and well-informed decision making is facilitated.

Strategy and Risk Identification, Profiling and Reviews each determine key risk areas that, in addition to specific risk management plans, are fundamentally addressed through the supporting risk pillars of Compliance, Controls and Assurance. See Figure 34.

Environmental, social and governance risk

The Board believes that effective management of financial and reputational risks, including matters related to environmental, social and governance (ESG) issues will, over the long term, support its business objectives and Mission.


Under our Risk Management Framework, the CEFC recognises that strategy, risk and performance are closely linked, with the interaction of these key elements strongly influencing the delivery of our objectives.

Risk is “the effect of uncertainty on achieving objectives”. This short definition has three key elements; “effect”, “uncertainty” and “objectives”. Each of the three elements are critical but often, when considering “risk”, a majority of the focus goes straight to the level of “uncertainty” (or in other words “what could go wrong”) without an adequate focus on the effect those uncertainties have on the objectives of the organisation.

Figure 34: CEFC enterprise risk management framework 

Therefore, a genuinely insightful approach to risk management, for both investments and for the Corporation overall, involves:

  1. An organisational understanding of the organisation’s objectives (primarily reflected in ‘Pillar 2 – Strategy’ of the CEFC Risk Management Framework)
  2. An understanding of how the sources of uncertainty in our operating environment (including internal and external factors) effect achievement of those objectives (Pillar 3 – Risk Identification, Profiling and Reviews)
  3. Identifying and implementing actions in the form of controls (Pillar 5 – Controls), to reduce the impact of uncertainty on objectives, if the level of uncertainty is outside the organisation’s risk appetite.

Given risk (by its very definition) has implicit and unavoidable linkages between uncertainty and objectives, risk and performance measures must be considered concurrently. By way of example, if we only consider risk in isolation, then in any given reporting period a downward shift in our organisational risk profile will always be seen as positive. However, if that shift in risk profile is wholly attributable to a reduction in gross credit risk exposure, because, say, no new business has been written and many existing facilities have been repaid, then in reality we are further away from achieving our objectives. Therefore, consistent with the approach of leading commercial financial institutions, evaluating risk alongside strategy and performance is a more comprehensive approach to management of the business as we pursue our overarching objective to facilitate increased flows of finance into the clean energy sector.

Given our evolution and increasing maturity as an organisation, the CEFC carefully manages risk, strategy and performance on the delivery of the Corporation’s objectives.

Figure 35: Operating environment, activities and objectives


As a body whose primary activity is its investment function, the CEFC has a central focus on managing all types of investment risk. As a responsible investor of public funds, the CEFC is ever conscious that return does not come without risk and the levels of investment return should be commensurate with the risk assumed. An investment strategy that is too risk-averse would not allow the CEFC to fulfil its public policy purpose. On the other hand, an approach that is too tolerant of investment risk could lead to capital losses.

The portfolio benchmark return requirements under the Investment Mandate provide an indication that the level of risk is to be “acceptable but not excessive”. Balancing risk, return and public policy outcomes are factors that are considered with each investment decision, as well as on a portfolio basis.

Figure 36: Types of risk in CEFC investments


Credit risk is the potential that a borrower or counterparty will fail to meet its obligations in accordance with agreed terms and default on their payment obligations. We have developed an investment portfolio that is significantly skewed towards debt investments, so credit risk is a very important risk factor. We have adopted methodologies to assess the credit quality of proposed investments and the level of credit risk embodied in each lending transaction. At the portfolio level, diversification and concentration guidelines are in place. Guidelines are also applied to single asset, entity and industry level exposures.


Market risk is the risk that market rates and prices will change and that this may have an adverse effect on the profitability and/or value of investments. We have a moderate exposure to direct market risk with around 23 per cent of assets exposed to market risk at 30 June 2016. In addition, our investments  are indirectly exposed to market risks, most notably through our debt portfolio. As a sector specific investor, renewable energy borrowers can be exposed to a general fall in prices of energy and, in particular, a fall in realised (as compared to expected) prices for both ‘green’ and ‘black’ electricity. Such price changes may adversely impact a borrower’s ability to make repayments which may manifest itself in credit risk to the CEFC.


Technology risk is defined as the risk of an investment loss arising because a technology does not operate as efficiently or effectively as predicted which may be the result of design, engineering and/or implementation issues. Renewable energy, energy efficiency and low emissions technologies all present varying degrees of technological risk depending on the nature of the technology under consideration, the nature of the technology’s application in the subject investments, the technology’s stage of development along the innovation chain, and the nature and pace of innovation in competing technologies.

Technology risk includes regulatory risk associated with the use of the particular technology. Assessment, analysis and mitigation for technology risk is a key component of the CEFC’s investment risk analysis process.


The CEFC has concentration risk. The sector-specific purpose of the CEFC limits the scope for diversification as a risk mitigant. At the portfolio level, diversification and concentration guidelines are applied to technology types along with geographic, regulatory, single asset and industry level exposures.


Investments of the CEFC are also exposed to policy or regulatory risk as many of the CEFC’s investments are impacted by the “green” price for energy attracted under the RET.


A high level summary of how the CEFC deals with investment risk is as follows:

  • The CEFC has a well-developed process for screening and reviewing investments to ensure that there are appropriate “checkpoints” for risk before a given investment proposal is approved and documented. This is underpinned by a thorough process of due diligence
  • Investment proposals must be credible, with an acceptable risk/return profile
  • Industry standard techniques are employed in risk identification, risk analysis, risk evaluation and risk treatment as part of any investment analysis
  • Where risks are identified, or the nature of the risks involved are unfamiliar, the progression of the investment may be paused while additional due diligence or market specific research is undertaken
  • Where appropriate, the CEFC seeks the lowest possible risk position in the capital structure as a protection of the CEFC investment against underperformance
  • If the CEFC lends to projects that sell power at “merchant rates”, the loans are sized and structured in a manner that maximises the probability of repayment, even where actual prices fall below the forecast price levels. Overall merchant risk exposure is also capped at portfolio level
  • The CEFC applies conditions to the investment that are appropriate to managing the identified risk, for example, by applying special conditions that take effect for underperformance that result in extraordinary repayments of capital
  • The Corporation has a strong preference for investing alongside private sector capital providers which enables the sharing of the investment risks
  • For debt investments, the CEFC is typically secured against the borrowing entity, the project or the equipment it is lending towards
  • The CEFC spends considerable effort understanding the creditworthiness of borrowers, the technology, the business case of the proposal, the security on offer, and what will happen to the CEFC’s funds in the capital structure if the proposal ultimately fails
  • The CEFC diversifies its portfolio, seeking to avoid excessive concentration of risk in specific technologies, in exposure to single entities, in exposure to higher-risk finance in the capital structure, in exposure to merchant risk, in exposure to individual commodity markets and geographical areas
  • The CEFC has instituted an extensive portfolio management function, systems and process.

Inevitably, and despite the CEFC’s best efforts, a proportion of investments will underperform, and for some of these, the CEFC will experience a loss. In a default situation, the level of loss incurred by the CEFC will be determined by a number of factors, including the level of seniority that the CEFC holds in the capital structure and the value of any security available.


In carrying out its Mission and statutory objective, the CEFC makes finance available to Australian business. To that end, the CEFC-administered legislation (the CEFC Act) is a net benefit to business.

The CEFC conducts its business like a commercial enterprise, such as a bank. The CEFC can talk to clients about their proposals at any stage of the investment process. Applications for finance can be accepted at any time, and the CEFC keeps application forms as simple as possible. Where the CEFC runs funding rounds and tender requests and the process doesn’t suit, proponents are able to lodge an application outside the process via the CEFC website.

To avoid wasting precious CEFC and client funds, much of the documentation and diligence necessary to support a transaction (sometimes totalling in the hundreds of thousands of dollars) is only performed after the proposal is deemed eligible, viable and has been approved, but before it is contracted and any funds drawn.

In performing this diligence, the information the CEFC collects is typically the same that any diligent financier would seek before funding a project. Often the information requested is important for the underlying business case.

The CEFC has adopted an approach of continuous improvement. Where the CEFC can automate and improve processes to reduce the burden on clients without compromising investment integrity, the CEFC will continue to do so.


The CEFC is an Australian Government entity that is ultimately owned by the Australian people. The CEFC has adopted a Code of Conduct and Ethics to govern behaviour across the organisation. The Board and Executive set a high standard for ethical behaviour and the tone of corporate culture, and expect ethical conduct at all times.

The CEFC approach to dealings with related entities during the 2015-16 year was governed by the procedures of the CEFC Act and PGPA Act, as well as by the CEFC Board Audit and Risk Committee, which reviews all related-party transactions.

Board members disclose their standing interests to the other Board members and conflicts of interest are managed in accordance with the law and principles of good governance. Declarations of new conflicts of interest are a standing item at every Board meeting. Where the relation to the other entity is via a Board member and the interest is material, the Board member takes no part in the decision on the transaction.

In addition to the statutory requirements around declarations of interest and procedures for dealing with conflicts of interest, the Board and CEO have established a system of declaration of interests for the Executive and staff, and an embargo register for the purposes of preventing conflicts of interest in the trade of stocks in companies with which the CEFC may be doing business and holds price sensitive information.

Individual related party transactions are disclosed in accordance with the relevant standards at Note 5.4 within the Financial Statements.

Mr Martijn Wilder AM was appointed chair of the ARENA Board while serving on the CEFC Board. The CEFC has also done business with Baker & McKenzie, a law firm in which Mr Wilder is a partner.


The CEFC has made certain indemnities and insurances to “officers” of the Corporation including Board members and senior managers (for the CEFC, this is the Executive). The CEFC also indemnifies staff for items such as travel expenses on a reimbursement basis. See Figure 37.

Figure 37: Indemnities and insurance premiums for officers 2015-16





Comcover General liability Insurance coverage for Directors  and Officers

All Board members and the CEFC Executive; General Counsel; all staff and office bearers

1 July 2015 –
30 June 2016


Deed of Insurance, Access and Indemnity with each Director and Officer

All Board members and the CEFC Executive; General Counsel

10 May 2013 – 7 years after ceasing to be a Director or Officer of the Corporation

Nil: indemnity only

Supplementary Directors’ and Officers’ Insurance to fill in gaps in the Comcover coverage

All Directors and Officers

14 June 2013 –
14 June 2021


Comcare Workers’ Compensation Insurance

All Directors, Officers and staff

1 July 2015 –
30 June 2016


Indemnification for Reasonable Travel and Expenses

All Directors and Officers


Nil: indemnity only

Comcover and Comcare insurance

These insurances have general application that include Board members and the Executive among others as per the ordinary insurances required of Commonwealth entities.

Travel and expense reimbursement

The CEFC does not issue corporate credit cards for staff travel and expenses and instead, through its employment contract, indemnifies staff members (including the Executive) for reasonable travel and ancillary expenses incurred by staff in the performance of their duties, based on verified claims on a reimbursement basis.

Board members do not generally require travel reimbursement as their expenses are met through allowances as determined by the Remuneration Tribunal (refer Board Member Remuneration and Allowances).


The CEFC is not an entity to which the Commonwealth Procurement Rules are applicable. Procurement occurs via the most efficient, effective, economical and ethical means possible, which can involve direct engagement of service providers based on quotes, select tenders, engagement of external advisors, and in some instances joining Australian Government procurement arrangements. Under section 74 of the CEFC Act, the Corporation must specify in the Annual Report the details for each procurement contract on foot within the financial year valued at above $80,000. These contracts are specified in Figure 38.

Figure 38: Procurement contracts 2015-16

Date entered into

Value of
contract $

Value expensed during the FY $

Contracting party


February 2013



Dexus Property Group

Lease of premises at Level 17, 1 Bligh Street, Sydney from 1 March 2013 to 29 February 2016

June 2013



Marsh Pty Ltd

D&O Insurance for period
14 June 2013 to 14 June 2021

July 2013



The Uniting Church in Australia Property Trust (Q.)

Lease of premises at Level 8,
140 Ann Street, Brisbane to
14 July 2015

January 2015



Reval.com Inc

Two-year license fees, maintenance, support and implementation costs for Loan Management System

May 2015




Internal Audit engagement for
1 July 2015 to 30 June 2016

June 2015



The Uniting Church in Australia Property Trust (Q.)

Extension of lease of premises
at Level 8, 140 Ann Street, Brisbane from 15 July 2015 to
14 July 2018

June 2015



Technology One Ltd

Five-year license fees, three-year minimum maintenance, support and initial implementation costs for Finance One software

July 2015



QBT Pty Ltd

Work travel and incidental costs for period 1 July 2015 to
30 June 2016 under the Whole Of Government travel procurement program

July 2015



Bloomberg Financial

Bloomberg terminal and New Energy Finance All Insight Package Level III

July 2015



Datacom Systems Pty Ltd

IT support and applications

July 2015



Evolution Marketing services Pty Ltd

Provision and support for the Customer Relationship Management System

July 2015



IPVS QoS Solutions Pty Ltd

Upgrade of Voice Over Internet Protocol telephone system

December 2015



Heidrick and Struggles Australia Pty Ltd

Recruitment services

February 2016



Dexus Property Group

Lease of premises at Level 17, 1 Bligh Street, Sydney from 1 March 2016 to 28 February 2021

February 2016



Intermain Pty Ltd

Refurbishment and fitout of Sydney office (the majority of these costs were reimbursed by the landlord)

March 2016



WC Audio Visual

Video conferencing and related equipment

May 2016




Internal Audit engagement for
1 July 2016 to 30 June 2017

June 2016



Australian National Audit Office

Audit of financial statements for year ended 30 June 2016