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On 3 September 2020, the Senate referred the provisions of the Clean Energy Finance Corporation Amendment (Grid Reliability Fund) Bill 2020 (the bill) to the Environment and Communications Legislation Committee (the committee) for inquiry and report by 4 November 2020.
Conduct of the inquiry
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The committee advertised the inquiry on its website inviting submissions by 23 September 2020. The committee invited several stakeholders to make submissions.
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The committee received 45 submissions. These submissions are listed in Appendix 1 of this report, and are available in full on the committee's website.
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The committee also received approximately 700 form letters and more than 4500 short statements relating to the inquiry. A representative sample of the form letters and short statements has been published on the committee's website.
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The committee held a public hearing in Canberra (in-person and via videoconference) on 13 October 2020. A complete list of witnesses who gave evidence at the hearing is in Appendix 2.
Structure of this report
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This report consists of two chapters:
Chapter one provides an overview of the bill, brief background to the context of the bill and administrative details of the inquiry.
Chapter two discusses issues raised by submitters and witnesses about the proposed amendments. Finally, it sets out the committee's view and recommendation on the bill.
Purpose and overview of the bill
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The purpose of the bill is to establish the Grid Reliability Fund Special Account and appropriate funds to it of $1 billion (the Grid Reliability Fund). The Grid Reliability Fund would allow the Clean Energy Finance Corporation (the CEFC) to invest in new energy generation, storage, transmission and distribution infrastructure and grid stabilising technologies, including eligible projects shortlisted under the Underwriting New Generation Investments Program (UNGI program).
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The bill will not change the CEFC's ability to make individual investment decisions independent of government for both the established $10 billion CEFC Special Account and the proposed separate $1 billion Grid Reliability Fund Special Account. The independence of the CEFC is discussed further in Chapter 2.
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The Explanatory Memorandum states that the bill will amend the Clean Energy Finance Corporation Act 2012 (the CEFC Act) to establish the Grid Reliability Fund. Key amendments include:
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Establishing a $1 billion Grid Reliability Fund Special Account to be administered by the CEFC, and allow regulations to expand on the $1 billion appropriations in the future.
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Inserting a new category of Grid Reliability Fund investments, to be funded from the Special Account.
Grid Reliability Fund investments will need to: support technologies including energy storage, electricity generation, transmission or distribution, or grid stabilisation, and meet the criteria (if any) of the Investment Mandate.
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Expanding the definition of an 'investment' to allow for additional types of investments as prescribed by regulations for the Grid Reliability Fund.
Through regulations, another class of activities could be included, which would be considered as investments under the CEFC Act. For example, the CEFC would be able to utilise financial instruments not currently at its disposal to 'fill a financial or risk gap' to enable an important grid reliability project, such as investment in transmission infrastructure, to proceed. Although this change would allow the CEFC to support some projects that may not make an individual investment return, the Grid Reliability Fund portfolio as a whole would be required to provide a positive return to the Government.
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Redefining the meaning of 'low-emission technology' to enable the CEFC to invest in technologies to achieve low-emission energy systems.
Low-emission technologies under the CEFC Act would be those that relate to: energy storage, electricity generation, transmission or distribution, electricity grid stabilisation, and support low-emission energy systems. The Explanatory Memorandum outlines some of the technologies that could be invested in under the new definition:
For example, certain types of gas-fired electricity generation will now fall under this new definition, if their position in the market supports the achievement of a low-emissions system. Similarly, battery technologies are intended to be eligible, regardless of how they source electricity. Nonetheless, low-emission technologies under the CEFC Act would not extend to coal-fired electricity generation technologies.
The CEFC board could also decide other low-emission technologies according to guidelines that are consistent with the Investment Mandate.
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Extending the CEFC functions to include assisting Commonwealth agencies in developing and implementing policies or programs that support grid reliability.
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Excluding the Grid Reliability Fund from the requirement to invest at least 50 per cent of its funds in renewable energy projects.
The Grid Reliability Fund will be technology-neutral, allowing investment in technologies that support or improve grid reliability whether renewable or not.
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Making minor consequential amendments.
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According to the Explanatory Memorandum, the bill's policy rationale is that investment in new energy generation, storage, transmission and infrastructure through the Grid Reliability Fund will provide for greater affordability, reliability, stability and security of Australia's electricity system. The CEFC would act as the administrator of the Grid Reliability Fund, providing market participants with a trusted counterparty for investments. It would also encourage private sector investment in energy technologies eligible under the bill.
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In his second reading speech, the Hon Angus Taylor MP, Minister for Energy and Emissions Reduction, clarified the bill's scope and intention:
While there is no shortage of investment in clean energy, the government has identified a lack of investment in the dispatchable generation needed to balance increasing intermittent generation.
The additional funding will enable investment in:
Energy storage projects, such as pumped hydro and batteries;
Electricity generation, transmission and distribution; and
Grid stabilising technologies.
Gas projects, which the CEFC can already invest in, including new gas‑fired generation, will be included in the fund when a project supports the achievement of low-emissions energy systems. Battery technologies are intended to be eligible, regardless of how they source electricity. Low‑emission technologies under the CEFC Act would not extend to coal‑fired generation. The fund will also support eligible projects shortlisted under the Underwriting New Generation Investments program, in line with the CEFC's investment mandate.
Background to the bill
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The bill seeks to align the CEFC Act with the government's initiative to invest in affordable, reliable and dispatchable energy to reduce carbon emissions while helping to boost the post-COVID-19 pandemic economic recovery. This section provides background information related to the proposed amendments, including an overview of the CEFC, the government's announcement of the Grid Reliability Fund, the establishment of the UNGI program and the development of the Technology Investment Roadmap (the roadmap).
Clean Energy Finance Corporation
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The CEFC was established in July 2012 under the CEFC Act and is a corporate Commonwealth entity. Its objective under the CEFC Act is to 'facilitate increased flows of finance into the clean energy sector. The CEFC does this by investing, directly and indirectly, in clean energy technologies, business and projects, and through leveraging its own investment to attract private sector investment.
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Since the CEFC's establishment, it has invested $8 billion in clean energy, driving more than $27 billion in additional investment commitments. The CEFC welcomed the announcement of the $1 billion Grid Reliability Fund, in addition to its existing $10 billion capital allocation.
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The CEFC focus areas for investment align with the objective outlined in the CEFC Act and the Investment Mandate. Under the CEFC Act, the Minister responsible for the purposes of the Act may issue one or more directions to the CEFC Board, these directions are known as the CEFC's ‘Investment Mandate’.
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The Investment Mandate allows the government to articulate its broad expectations for the CEFC's investment function, including the expected portfolio benchmark return and portfolio risk, and what investments should be prioritised.
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The government cannot however, direct the CEFC board to make a specific investment or an investment that is inconsistent with the CEFC Act. The CEFC makes individual investment decisions independently of the government. However, the CEFC board must take all reasonable steps to ensure that the CEFC and its subsidiaries comply with the Investment Mandate.
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The CEFC's Investment Mandate Direction 2020 states that for all CEFC investments, aside from those made under the Clean Energy Innovation Fund and the Advancing Hydrogen Fund, the CEFC board is to target an average return of the five-year bond rate, plus 3–4 per cent per annum over the medium to long term as the benchmark return of the Corporation's core portfolio.
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In 2019-20, $942 million of capital returned to the CEFC alone. Total repayments since the CEFC's inception reached $1.66 billion by 30 June 2020.
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During his second reading, Minister Taylor indicated once the Parliament passes the bill, the government will issue a new Investment Mandate which will include the operational parameters of the Grid Reliability Fund. The CEFC has been issued eight investment mandates since its inception.
Underwriting New Generation Investments Program
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On 23 October 2018, the government introduced the UNGI program in response to Recommendation 4 of the Australian Competition and Consumer Commission's (ACCC) Retail Electricity Pricing Inquiry. The ACCC recommended the government establish a program that supports new generation projects, based on detailed criteria, to encourage new entrants into the market to promote competition and access to low-cost new generation.
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The UNGI program is designed to attract investment in firm or firmed generation capacity (backup power to overcome interruption to supply) to increase competition and reduce electricity prices. The program is 'technology neutral', with all technologies allowed under Australian law eligible under the program.
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At the beginning of 2019, the government received 66 proposals which were assessed against the program's objectives and eligibility criteria. Twelve projects were shortlisted, including:
six renewable pumped hydro projects; and
one coal power upgrade project.
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In December 2019, the government announced that it would enter into underwriting and contractual negotiations for two of the shortlisted projects, including the APA Group's proposed 220MW gas generator in Dandenong, Victoria, and Quinbrook's proposed 132MW gas generator in Gatton, Queensland. The government plans to refer the remaining shortlisted UNGI projects to the Grid Reliability Fund for support, with the exemption of coal-fired electricity generation technology projects.
Grid Reliability Fund
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On 30 October 2019, the government announced the $1 billion Grid Reliability Fund, along with plans to amend the CEFC Act to allow the CEFC to administer the Grid Reliability Fund and support suitable projects under the legislative mandate.
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The Prime Minister's announcement stated that the Grid Reliability Fund will support investments in new energy generation, storage and transmission infrastructure, as well as eligible projects shortlisted under the UNGI program. The Explanatory Memorandum states the projects supported by the CEFC and UNGI program will improve access for new and smaller participants in the market to address their difficulty in securing finance as identified by the ACCC.
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The Grid Reliability Fund is an initiative under the government's Energy Policy Blueprint —A Fair Deal on Energy, and also supports the objectives of the government's roadmap.
Technology Investment Roadmap and the King Review
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On 19 May 2020, the government announced the release of the Report of the expert panel examining additional sources of low cost abatement (the King Review). The review considered opportunities for unlocking low-cost carbon abatement across the economy and made 26 recommendations based on three themes:
improving the Emissions Reduction Fund;
incentivising voluntary action on a broader scale; and
unlocking the technologies needed to decarbonise the economy.
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A recommendation made in the King Review included expanding the CEFC's area of responsibility to be technology-neutral to support key technologies and to be involved in the delivery of goal-orientated co-investment program to hasten the uptake of transformative, high abatement potential technologies that are not cost-competitive. The key technologies suggested included hydrogen fuels for heavy vehicles and carbon capture utilisation and storage. Carbon capture and storage involves the capture of carbon dioxide from the air, industrial facilities or manufacturing processes, followed by long-term storage whereas carbon capture and utilisation involves the capture of carbon dioxide to reuse in other manufacturing processes such as making fuels and plastics. The government agreed-in-principle to the recommendation, stating the CEFC should provide support to a wide range of low emission technologies and that the roadmap will guide its investments.
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On 21 May 2020, the government released the roadmap discussion paper seeking stakeholder input. The roadmap aims to bring a ‘strategic and system-wide view to future investments in low emission technologies’. It will guide the government’s priorities and investments over the short, medium and long term, as well as inform Australia’s Long Term Emissions Reduction Strategy and annual Low Emissions Technology Statements.
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On 22 September 2020, the government released the first Low Emissions Technology Statement (the statement). It outlines five priority low emissions technologies pared to economic stretch goals to reduce their costs. The five priority technologies include clean hydrogen, energy storage, low carbon materials (i.e. steel and aluminium), carbon capture and storage, and soil carbon.
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The statement also includes a Technology Investment Framework designed to 'improve coordination of delivery agencies…towards national technology priorities and expected Government investment of $18 billion in low emissions technologies over the decade to 2030.' According to the statement, the CEFC is expected to have a crucial role in implementing the Technology Investment Framework, alongside the Australian Renewable Energy Agency and the Clean Energy Regulator. The statement indicates that the CEFC will be required to align its investment activities with the priority technologies and stretch goals outlined in annual Low Emissions Technology Statements, and report on how they are supporting them.
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The CEFC will also have a role in supporting emerging and enabling technologies identified in the statement as, for example, charging and refuelling infrastructure, generation enablers, next-generation solar PV and livestock feed technologies.
Reports of other committees
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When examining a bill or draft bill, the committee takes into account any relevant comments published by the Senate Standing Committee for the Scrutiny of Bills (Scrutiny Committee). The Scrutiny Committee assesses legislative proposals against a set of accountability standards that focus on the effect of proposed legislation on individual rights, liberties and obligations, and on parliamentary propriety.
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The Scrutiny Committee considered the bill and raised concerns regarding proposed section 58A of the CEFC Act, which introduces a new category of investments that can be funded under the Grid Reliability Fund Special Account. Under the proposed section, any investment must meet the criteria set out in the Investment Mandate relating to its role in supporting the security or reliability of the energy system. The Explanatory Memorandum states that the Investment Mandate will:
…provide detailed criteria for what will constitute supporting the reliability or security of the electricity grid and what investments should be prioritised.
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The Scrutiny Committee pointed out that while the Investment Mandate is a legislative instrument, it is not subject to disallowance. The Investment Mandate has been a non-disallowable instrument since the CEFC Act was introduced in 2012 and the bill would maintain this legislative arrangement. The Scrutiny Committee formed the view that:
…significant matters, such as the criteria for which investments can be funded from the Grid Reliability Fund, should be included in primary legislation unless a sound justification for the use of delegated legislation is provided. The committee is particularly concerned that details of the investment criteria for the Fund are being left to non-disallowable delegated legislation and will therefore not be subject to effective parliamentary oversight. The committee notes that no justification for the use of a non-disallowable legislative instrument is provided in the explanatory memorandum.
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As a result, the Scrutiny Committee requested that Minister Taylor provide more detailed advice regarding:
why it is considered appropriate to leave criteria for which investments can be funded from the Grid Reliability Fund to non-disallowable delegated legislation; and
whether the bill could be amended to:
set out the criteria that an investment must meet relating to 'its role in supporting the security or reliability of the energy system' on the face of the primary legislation, rather than leaving these criteria to be set out in non-disallowable delegated legislation; or
at least provide that directions by the minister setting out these criteria (i.e. the Investment Mandate) are subject to the usual disallowance process.
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In response to the Scrutiny Committee's request, Minister Taylor advised the committee:
The non-disallowable Investment Mandate has been a feature of the Clean Energy Finance Corporation Act 2012 (the Act) since it was introduced by the former Labor government. As set out in section 63 of the Act, a direction may set out the policies to be pursued by the Corporation in relation to technologies, projects and businesses that are eligible for investment and the allocation of investments between the various classes of clean energy technologies. The use of the Investment Mandate for the proposed [Grid Reliability Fund] replicates the existing role of the Investment Mandate in relation to the CEFC's original $10 billion allocation. The legislative concept of a 'grid reliability fund investment' is also bounded by the definition of 'clean energy technologies' and the Investment Mandate cannot be used to expand that statutory limitation.
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Minister Taylor further stated 'it is long standing practice that Ministerial directions to Government bodies are not disallowable' and provided several examples of similar non-disallowable legislation, such as the Future Drought Fund Act 2019 and the Northern Australia Infrastructure Facility Act 2016.
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Finally, Minister Taylor explained why the government considers it necessary and appropriate for investment criteria for the proposed Grid Reliability Fund be included in to the Investment Mandate:
It is important that the [Grid Reliability Fund] is targeted to current and emerging challenges to grid reliability and security. These challenges necessarily evolve over time with the emergence of new technologies, changes in energy demand, network investments and locational considerations (for example, the challenges and needs differ across Australia, such that the characteristics of Western Australia's South West Interconnected System differ from those in the South Australian region of the National Electricity Market). The use of the Investment Mandate ensures that these issues can be considered and updated as required, without returning to Parliament to amend the Act. It allows for a targeted approach to be taken to maximise the public benefits of deploying the [Grid Reliability Fund]. Importantly, the Investment Mandate cannot override the operational independence of the CEFC as set out in the Act. An Investment Mandate direction cannot direct the CEFC to make, or not make, a particular investment. The ability for the executive government to direct statutory agencies is an important element of the principle of responsible government in Australia. The Investment Mandate is an essential tool for the Government to give important direction to the CEFC in the performance of its legislative functions.
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The Scrutiny Committee welcomed and noted Minister Taylor's advice regarding the use of the Investment Mandate for the proposed Grid Reliability Fund. However, the committee pointed out that 'not all ministerial directions to government bodies are exempt from the usual parliamentary disallowance process', and reiterated its concerns about the investment criteria for the proposed Grid Reliability Fund being determined in non-disallowable delegated legislation:
While the committee welcomes this advice, from a scrutiny perspective, it remains concerned that criteria for which investments can be funded from the Grid Reliability Fund (that is, criteria relating to an investment's role in supporting the security or reliability of the energy system in Australia) is being left to be determined in non-disallowable delegated legislation. The committee considers that this prevents crucial details regarding how public money will be spent or invested from being subject to effective parliamentary oversight. In addition, while noting the minister's advice that flexibility is required to meet current and emerging challenges, the committee has generally not considered that a desire for administrative flexibility is, of itself, is a sufficient justification for leaving significant matters to delegated legislation, particularly delegated legislation that is not subject to disallowance.
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In conclusion, the Scrutiny Committee resolved:
The committee draws its scrutiny concerns to the attention of senators, and leaves to the Senate as a whole the appropriateness of leaving criteria for which investments can be funded from the Grid Reliability Fund to be determined in non-disallowable delegated legislation.
Compatibility with human rights
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The Explanatory Memorandum states the bill is compatible with human rights and freedoms recognised or declared in the international instruments listed in section 3 of the Human Rights (Parliamentary Scrutiny) Act 2011.
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It notes the bill engages positively with the right to an adequate standard of living in Article 11 of the International Covenant on Economic, Social and Cultural Rights as:
Grid Reliability Fund investments will improve affordability for energy users, including residential households, businesses and industries, and deliver new reliable generation into the market in ensuring a secure and stable energy supply to Australians.
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The committee notes that the Parliamentary Joint Committee on Human Rights, having considered the bill in the usual manner, decided not to comment on it ‘on the basis that the [bill does] not engage, or only marginally engage[s], human rights; promote human rights; and/or permissibly limit human rights’.
Notes on references
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In this report, references to Committee Hansard are to proof transcripts. Page numbers may vary between proof and official transcripts.
Acknowledgements
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The committee thanks all organisations and individuals that participated in this inquiry by making submissions or giving evidence at the public hearing.