Clean energy fund is a folly
April 19, 2012
The Clean Energy Finance Corporation (CEFC) has many of the hallmarks of the Victorian Economic Development Corporation (VEDC), which left Victoria in such a disastrous state only two decades ago.
In that context there are four things that we need to know about the structure of this fund and the history of similar activities both at home and abroad.
First, the $10 billion fund will create no new renewable energy.
That may seem incredible. Indeed it may seem impossible.
However, one simple fact confirms the fundamental flaw at the heart of the fund. Before the creation of the CEFC, the renewable energy target was 20 per cent by 2020.
After the $10 billion has been spent, it is still intended that the target will be 20 per cent. The nature, purpose and intent of the investments is to displace existing renewable technologies with what are now more expensive technologies. The renewable pie will not be one watt bigger.
It is not surprising then that there is disquiet even within the green energy sector about how this fund will operate and what distortions it will create in the market. Those who have done the hard work to invest their own money in renewable energy are concerned that newcomers directly subsidised by the taxpayer will take up a share of that 20 per cent market.
Second, the CEFC is not charged with investing in the lowest-cost technologies to produce the cheapest emissions reduction. Its remit is to find the technologies that the market considers to be uneconomic, unproven or too speculative to finance. This means that the CEFC will borrow $10 billion in the public’s name to invest in speculative ventures that the market will not finance.
There are many assertions about the skill of the CEFC board. But no board charged with ignoring the cheapest proven technologies could protect the public treasury. And remember, every dollar spent will be borrowed, almost all of it off budget.
Third, the fund is due to start paying out public money only weeks before the next election. It would be almost unthinkable for a body that is opposed by the opposition to be spending up to $2 billion in the weeks before the election or during the caretaker period. Yet that is precisely what the government is proposing.
The decent thing would be for the government to defer any multimillion-dollar expenditure by the CEFC until after the election. If the government does not defer, then a prudent board should.
Finally, we’ve seen massive failures on this front before. In Australia, this government has presided over the investment failures of $700 million in solar flagship programs in Moree and the Queensland Solar Dawn projects.
Along with the Bligh government in Queensland, it also presided over more than $100 million of losses in the ZeroGen project despite clear warnings from both the opposition and experts.
In the United States, we have seen the $700 million failure of the Solyndra project under a similar program. But then there were the Beacon Power and Ener1 failures, which were joined only this month by the collapse of Solar Trust of America, which had a $2.1 billion loan guarantee from the US Energy Department.
All of which brings us back to the VEDC. We have recently heard the former Victorian ALP treasurer, Rob Jolly, say there were no major failures of the Cain government despite presiding over the smouldering wreck of the VEDC.
This sort of denial of the past and denial of failure is exactly the mentality that has led to the pink batts, green loans, solar flagships and cash for clunkers debacles.
Now it is time to stop potentially the most destructive program of all, rather than having to clean up the mess after the fact.
Source: Australian Financial Review