Environmental Finance Essay

  • Length: 10 pages
  • Sources: 10
  • Subject: Energy
  • Type: Essay
  • Paper: #23136493

Excerpt from Essay :

CEFC and the Future of Environmental Finance

The Clean Energy Finance Corporation (CEFC) represents the most aggressive environmental finance initiative sponsored by the Australian Government to date. The CEFC is an independent entity established as part of the Clean Energy Future Policy by the Australian government. As of March 2012, funding for the program totaled AUS $10 billion in government backed investments for the commercialization and deployment of clean energy technologies. This research will explore the CEFC and its role in the development and deployment of environmentally friendly energy sources and alternatives.

Governments around the world recognize the need for developing clean and renewable energy sources that reduce their environmental impact. The topic of global warning and climate change has increased the need for the development of less energy intensive and environmentally damaging energy sources. Although the role of human beings in these changes is a topic of debate, it is accepted that humans are doing more harm at least contributing to these climate changes (Department of Climate Change and Energy Efficiency, 2012). The need to invest in our future and ensure that ourselves and our children can live in a world that can support them is the key reason for interest in developing clean and renewable energy sources.

The need for the development of clean, alternative energy sources has been evident for many years. Research has focused on the development of renewable and clean energy sources. There are many technologies that are ready to deploy, but that face barriers to their deployment such as intensive capital investment, risk, and other practical concerns that have limited the adoption of renewable energy technology. The purpose of the CEFC is to reduce capital market barriers to the introduction of clean energy technology.

The CEFC targets three main areas. It targets the development and deployment of renewable energy and technologies that enable renewable energy sources to be utilized. It targets the development and deployment of low emission technologies and energy efficient products and services. The third area that the CEFC targets is the transformation of existing businesses to renewable and environmentally conscious energy alternatives (Institute for Industrial Productivity, 2012). The CEFC has chosen these three areas as their main target focus, as these are considered to be the main barriers to a renewable energy future. They have also been identified as the major hurdles to be overcome in the introduction of green technology for energy production. These three areas are considered the most critical barriers to the introduction of renewable energy sources.

The CEFC is more than just a funding stream that is dedicated only to the funding of Renewable Energy Products. The CEFC is not providing grants for Renewable Energy Products or research. This initiative by the Australian government is an investment upon which it intends to make a return in the future. The underlying theory is that the government will provide funding to private companies for the development and deployment of renewable energy sources. The Australian government intends to make a return on their investment through the collection of taxes and repayment of loans and the interest earned on them. The funding sources include private funding, which means that this program will also provide a boost to the Australian economy. As one can see, this program is expected to have many positive impacts on the Australian economy. The economy will boost the financial sector, create renewable energy jobs, and aid business growth in the renewable energy field.

The program will be operated by a partnership between experts in the banking, investment, and clean energy technology fields. The Australian government will oversee the program and will assure that the needs of all stakeholders are being addressed. Involving the government will assure that this new partnership achieves goals that will benefit Australian society as a whole. The role of the Australian government will be to implement rules and regulations to make certain that the program achieves its stated goals (Institute for Industrial Productivity, 2012.).

A New Financing Model

The CEFC represents a new financing model that is unlike traditional funding programs operated by the government. The traditional funding program has typically involved grants to support research and development of renewable energy sources. This was an appropriate source of financing for the early stages of renewable energy development. Companies that were into the business of developing renewable and clean energy technologies did not yet have marketable product and could not be expected to support themselves in the research and development stage.

this is not an unusual circumstance and affects the research and development of almost any product that one can name. Failures are as much a part of the research and development process as successes. It can be expected that when a new idea is proposed or the need for new products or service is identified many people will have ideas on how to solve the problem. Some of these ideas will not work, but in order to find those that do work the process of research and development must be funded. Grants are the most common form of research and development funding, particularly for projects that are expected to benefit the whole of society.

After the research and development stage, it becomes apparent which ideas were successes and which ones were failures. Those that have potential now need to move onto the next age in the process. They need to move from the research and development stage to a marketable product or service. Starting any new enterprise is risky. Even if the idea is excellent and needed, there is no guarantee that people will buy it. In the case of a normal product or service that does not benefit society as a whole, but rather that will benefit a single business entity, the burden of financing lies on those that wish to begin the new enterprise. If the business fails it has an impact on those individuals, but it does not have a noticeable impact on society as a whole.

The funding of renewable energy and clean energy technologies is different. Society needs for these entrepreneual endeavors to be a success. The government understands that beginning production of these new technologies and putting them into place is a capital intensive process. They also understand the riskiness involved. The purpose of the CEFC is to give these companies a greater chance for success than they would have on their own. The CEFC will evaluate the potential projects for funding to determine their likelihood of success. It will then help the companies to obtain financing from private and government sources. This helps to assure that money set aside for investment in renewable energy will be distributed to projects that have the greatest chance for success, thus resulting in an improved chance for recovery of the initial investment as well as interest earned for the banking industry. It will also help to assure that worthwhile projects have a greater chance of being funded then they may have on their own. The purpose of the CEFC is to marry the best projects with appropriate funding sources.

Government backing of investment in renewable energy will make banks more willing to take risks than they would if they did not have a chance to recover some of their investment in the future should the project fail. This new renewable energy funding source is not expected to "crowd out" private financing options. It is to work in conjunction with them, providing parties negotiating tools on both sides of the table. It is intended to act as a catalyst to private investment in a field where bankers may be wary of the risk involved.

In addition to the financing of major corporations and projects, the program is also providing assistance to households that wish to install and utilize renewable clean energy sources. The Household Assistance Package will begin in May of 2012, with an initial payment. This will be followed by tax cuts in July 2012 and then ongoing assistance through March of 2013. This program particularly targets low income Australian citizens and retirees on a fixed income (Department of Human Services 2012).

Design Features of the CEFC

The CFC will finance many types of projects. It will support large scale infrastructure projects for renewable energy including solar thermal, solar PV, geothermal, bioenergy, and wind. For these projects it will resolve many of the obstacles that have plagued prior infrastructure projects. These included difficulties to secure long-term debt, a lack of available local power, purchase agreements, challenges in the scale of the projects, large scale up front capital and bank debt that was too short. The CEFC will help to resolve these issues through its various financing mechanisms (Clean Energy Council 2012). .

The CEFC will also support small scale renewable energy projects such as community wind farms, landfill gas, and commercial solar PV projects. The CEFC well resolve many of the issues in securing commercial bank finance due to small project size, and relatively expensive energy forms. It will use…

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