Senate Environment and Communications Legislation Committee, , 6:31:53 to 6:41:51
The CEFC CEO explains how global inflation has increased wind farm project costs by 20-30%, leading to a need for concessional finance to bridge liquidity gaps.
Topics: Renewable energy, Energy prices
Speakers: Hon Sarah Henderson, Speaker 27, Speaker 30, Hon Tim Ayres, Unknown Speaker, Varun Ghosh
to Senator Henderson.
>> Thank you very much, Chair Mr. McCartney. Good afternoon and welcome to your first estimates. I want to ask you about the quote you gave the industry publication Renew Economy on the 16th of October. You said hyperinflation had added costs to wind farm projects. Can you quantify what hyperinflation has added? either in dollar or percentage terms to the cost of wind
>> Thank you, Senator. I can so the the approximate numbers that we're seeing are an increase in the um if you like the PPA value required to get wind farms up and and that varies between about a 20 and 30% number over the last two or three years.
>> 20 and 30% between 20 and 30% higher overall
>> over the last two to three years. and
and what's driven that very substantial increase in costs?
>> I think that's the general inflation around the world today. So, you know, these projects um all major projects we're seeing across the country are now suffering increasing costs over time. So, you know, going back to there was a postco reaction where inflation spiked and then the wars have also exacerbated that. So it's a global phenomenon where we're seeing increased cost pressures on large scale projects but projects of
>> Uh if you're able to provide us with the details of this hyperinflation number on notice we would be grateful so we can understand how you reached that particular conclusion.
>> Some of the data that I'm sharing is commercial in confidence. So these are observations directly from wind farms as we try to negotiate with them on financing arrangements to get them to close. So we will do our best.
>> Well, if you if you could uh um uh please if you could provide as much information in relation to the wind farm projects that you are dealing with. I I guess my concern is that perhaps the CEFC is laying the groundwork to justify investing more money more and more taxpayers money essentially in uh in wind farm projects. Is that the case?
>> Our role under our act is to invest into renewable energy and help create crowd in the private um sector finance to I think it's fair to say we have seen a hiatus in uh wind farm delivery over the last few years and the ISP and AMO's advice is that we do require uh wind as part of our energy mix. Um so under our our act and guidance you know we'll be trying to help those wind farm projects close in a timely manner.
>> And so how are you going to be trying to help them? What's your plan
>> with their financing? So some of the pressures they are facing is an absolute um return pressure on the wind farms. We have the ability to provide concessional finance. Some of the other pressures we're seeing at the moment is a bit of a withdrawal of the Australian banks from the renewable sector or or less appetite. Um so there is a liquidity issue facing the sector itself where where there's enough financing available to get these projects to closure. So
could you please describe the negotiations that you're currently undertaking with various projects in relation to finance and what you might be considering
>> I can't share commercially in confidence information. What I can share is we have a number of large scale renewable projects that we're currently negotiating with. We've been negotiating with them for some time and we're looking to support them this year.
>> Uh which wind farm projects are they? I
cannot name that.
>> Uh, can anyone else name them or can you bring that information to the table?
>> We usually don't talk about projects that are under negotiation with our counterparts. It would be a breach of our confidentiality obligation with those counters.
>> Well, that's not a reason not to answer the question, Mr. McCartney, just because it's confidential. This is Senate estimates. So, I am seeking that information.
>> I think the official will take that on notice. >> That's fine. we'll consider uh our our approach to that. I understand the objection that you raise. Um however, it is in the it is a material question uh about the Commonwealth's financial position in these and undermining the Commonwealth's financial position in negotiations. But I understand the territory we traverse there which is why I say we'll just take that question on
>> Mr. McCartney, uh, Senator, >> sorry, Mr. Ever.
>> It's also a competitive market. So, um, you know, we we wouldn't want to be divulging some without having, you know,
>> Mr. Every, we've just heard that the competitive markets have collapsed. The banks are withdrawing, wind farm projects are not being financed. So I don't know that competitive even for our
finance. uh so as in there there are a number of transactions around Australia that are all looking for support and um you know the nature of banking is that you can't really um sort of divulge commercial negotiations with about one counterpart where you're up to uh without uh sort of disturbing uh the the
>> market question has been taken on notice Mr. That's correct. >> But I do remind you that you are at Senate estimates. There are very important accountability >> purposes for the role that estimates plays. Uh this is a very important role of the parliament. Can I please ask
>> you've asked quite a narrow question which is for a list. We'll we'll consider that and come back to your notice.
>> Can I Thank you, Minister. Can I ask what's the overall quantum of underwriting support that is being sought from the CEFC?
uh by the wind farms. >> There wouldn't be a precise number on that at the moment. So, we we do have a uh Ford pipeline that's significant.
>> And what is the overall quantum in terms of dollars for that pipeline?
>> Well, that pipeline could be up to in the order of over a billion dollars, but that's in negotiation.
>> Okay. So over a billion dollars of potential funding is under negotiation. Can you be more precise than over a billion? It's not several billion or 10 billion. It's a
>> It's uh Thanks. It's not several billion, Senator.
>> It's over 1 billion though. And how many projects are we talking about?
>> I'd have to take that on notice and come back to you.
>> We're talking three or four, 10, 20, like just a ballpark.
>> Uh ballpark would be less than 10.
>> Less than 10. Okay. so will this additional funding require additional appropriations from the government? I mean, do you have this money lying around or would you be seeking for further government contribution?
>> Yeah, I wouldn't describe it that we have this money lying around.
>> No, I'm being a little bit flippant with the way I say that, but would you be seeking a further government appropriation?
>> Not for our immediate pipeline that we have currently. No.
Uh so is this is this funding the over the $1 billion being contemplated being expended in this financial year or committed in this financial year?
>> These are very large complex projects. So while our target may be to try and achieve commitment on these projects this year they can take longer. I would say if we were to commit this financial year by 30 June 2027 the drawing down of those projects would take a number of
years. I mean the fact that there has been this shortfall in private investment doesn't it concern you that there is very significant evidence that these are projects are no longer commercially
I guess that's an easy um inference to draw, but what I might explain is when we look at these projects, we ensure that they have appropriate contracting that they're able to service the debt that we're looking to provide as along with the other commercial debt that's available. What I'd say is in our pipeline, we will by no means be the sole funer. There will be an appropriate level of equity provided typically by uh large institutional investors and energy providers here domestically as well as internationally that'll be first in line for any risk um and will be parry pursue in terms of the commercial banking sector is what which is what we typically are on these projects. So um what I would describe is there may be an absolute return issue with the projects themselves with CFC concessional finance may help bridge some of that or there may just be a shortfall in liquidity. You know the these are significant projects for the Australian market requiring uh deep pools of capital.
Can I just ask you about the quote from you saying uh what we saw with Tomiggo is potentially an opportunity there to get PPAs written to help drag the wind through and unblock things. Uh can I confirm that from this comment the CEFC is looking to undertake more Tomigo style underwriting?
No, I think uh the point of that quote was CFC is looking to still fund renewables in a market that has become