The CEFC has told a senate committee it would be almost impossible to finance a new coal generation project due to
The CEFC has told a senate committee it would be almost impossible to finance a new coal generation project due to "unquantifiable" risk from future carbon costs. Image Credit: Kesavan Muruganandan

The Chief Executive Officer of the Clean Energy Finance Corporation Oliver Yates has told a senate committee that new coal fired generators could not be financed using public funds due to an “unquantifiable” risk from the potential future costs of carbon emissions.

Economics of coal don’t stack up due to carbon risk

Appearing before a Senate Estimates hearing of the Senate Environment and Communications Legislation Committee, Mr Yates stated that it would not be possible for the CEFC to use tax payer funds to invest in any new coal generation project.

“We are not seeing a significant appetite in relation to the construction of new coal fired generation plants at the moment”.

The CEFC is currently prevented from investing in coal-fired generation projects due to legislative restrictions, however, the CEFC believes the economic risks to coal power stations means that any investor would have difficulties providing finance for such a project.

Mr Yates cited the need for the Government to provide an indemnification for projects from any potential future price on carbon emissions, before it could consider investing in a new coal-fired generation.  While the Government has no specific policy to introduce a price on carbon emissions, the CEFC recognised that the likelihood that one would be introduced in the future was very high.

As the potential future costs of carbon emissions were “unquantifiable”, it was essentially impossible for any public investment fund to invest in a new coal generator.

“To be viable, I would need someone to take away that future risk from [a potential new coal power station] because it is an unquantifiable risk that could affect the economics of the project”

“Leaving an unhedged position like that, which is subject to a political decision, would leave you quite exposed” Mr Yates told the committee.

Mr Yates told the committee that it was his opinion that it would essentially be impossible for finance to be provided towards the construction of a new coal fired power station without the Government guaranteeing the power station would not be exposed to a carbon price at any point in the future, and would not be impacted by protest.

“I don’t think [a new coal fired generator] would be financeable without the Government providing an indemnity as to future carbon risk, quite simply, and I don’t think one would be financeable without providing an indemnity against delays in construction which may be caused by protesters or a variety of other things.” Mr Yates said.

“I think we would be not at ask 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, that’s a risk.”

The CEFC is prevented from investing in new coal fired generation due to limitations on the characteristics it can invest in, as laid out in the legislation that establishes the CEFC. Limits on the emissions intensity of generators the CEFC can finance rules out any existing coal fired generation, and the fund is specifically prevented from investing in carbon capture and storage projects.

The Turnbull Government has flagged that it would be open to considering pursuing a change to the CEFC’s legislation, enabling it to provide investment to coal projects.

CEFC a model for national development

Mr Yates was fronting the senate estimates committee for the last time in his capacity as CEO of the CEFC, having announced his intention to step down from the role that he has held since the formation of the CEFC in 2012.

Mr Yates made an opening statement to the senate committee whereby he described the CEFC’s legislative framework as one that is “exemplar enabling legislation… for a statutory authority where independence is desired”.

Mr Yates also recommended the Government consider the establishment of a more generalised investment institution, such that the CEFC model of concessional finance could be offered to a wider range of sectors. Since the inception of the CEFC, the fund has experienced creeping expansion of its investment mandate, extending beyond the clean energy sector.

“In my view, the Government should consider having a national development institution, so that all sectors of the economy, not just the clean energy sector, can receive targeted financial solutions such as long term debt” Mr Yates said.

Mr Yates currently serves as the interim CEO of the CEFC, while the organisation’s board completes a search for a new CEO.

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