18 NOVEMBER 2023

$20-30bn OF TRANSITION CAPITAL AT RISK AS AUSSUPER LOOKS TO KILL BROOKFIELD’S ORIGIN ENERGY BID 

What kind of game is AustralianSuper, the country’s biggest super fund, playing with Origin Energy?

The pension behemoth, with $300bn in assets under management and over 3.26 million members, is shaping up to scuttle a bid by Canadian fund manager Brookfield, plus Singapore’s Temasek and GIC, to acquire one of Australia’s largest gentailers Origin Energy, owner of near-death coal clunker Eraring, Australia’s biggest coal-power station slated for mothballing in 2025.

AustralianSuper has been buying up shares in Origin and currently holds a ~16.5% stake, ahead of a 23 November vote on the takeover. A 75% shareholder vote in favour is required to seal the deal.

AustralianSuper's spoiler act trashes a key consideration that, along with members’ interests, should be paramount: the broader national interest. Is it in the public interest for the acquisition to be blocked when doing so cruels the $20-30bn investment in 14GW of accelerated firmed renewable energy to which Brookfield has committed?

The acquisition is one of the keys to on-time phased closure of Eraring over 2025, obviating the payment of some $200-400m pa of public subsidies to Origin by the NSW government to keep the carbon belcher chugging on.

What is AustralianSuper offering as its alternative plan? Higher electricity prices, slower decarbonisation and more climate destruction? If it kills the deal, will it step up and guarantee a $30bn commitment to decarbonising Origin? If not, why not? If it has no legitimate answer to these questions, it should get out of the way.

Read our full op ed.

See the AFR story featuring a joint open letter to AustralianSuper’s executive  management to which CEF is signatory.

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WESTPAC FY23 CLIMATE FINANCE ASSESSMENT: TREND IS GOOD BUT LOOPHOLES REMAIN

CEF financed emissions analyst Nishtha Aggarwal finds that whilst Westpac’s on-book energy lending trends in the right direction – i.e. fossil fuel exposures going down while renewables increase – there is a steep climb ahead this decade for Westpac to accelerate to the 4:1 clean energy to fossil fuel supply investment ratio required to limit global warming in line with the science. 

Thermal coal exit commitments are on track, and Westpac establishes new limitations to project finance for greenfield coal-fired power stations and metallurgical coal mines.

Westpac establishes the expectation for its O&G clients to produce a credible plan to reduce emissions by the end of September 2025. This aligns with mandatory climate-related financial disclosures to commence, for Australia's largest companies including Westpac, from 1 July 2024. 

However, Westpac should act swiftly in closing the corporate and facilitative finance loophole to O&G clients who are known to be expanding the supply of fossil fuels inconsistent with the IEA 2021 Roadmap. Both loopholes have been exploited over time. For example, 73% of Westpac’s lending to fossil fuels since the Paris Agreement was corporate finance, and last year Westpac came under fire alongside other big four banks for their role in arranging a $1.5bn loan to Santos related to the Barossa gas project. 

An impact mindset to climate solutions lending means that Westpac’s disclosed climate solutions contribution is less than other banks at $2.6bn in new and incremental lending in FY23. CEF notes inconsistency across the sector on this measure and will aim to publish a comparison report early next year. 

Westpac’s new $55bn total committed exposure commitment into climate solutions by 2030, fourfold from the $13bn invested to-date, plus $40bn in bond facilitation, will be underpinned by a new Sustainable Finance Framework (SFF) from next year, superseding previous years’ definitions of climate solutions and is a step up in ambition, although several more steps up are required to align with the science. The new SFF will contribute to and be informed by the Australian Sustainable Finance Institute’s initial criteria for an Australian sustainable finance taxonomy due by end 2024.

Read NIshtha’s full report here. NAB and ANZ full year assessments are forthcoming, CBA was published in August.

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AUSTRALIA BRINGING UP THE REAR ON METHANE AS CHINA ACTS

Australia has fallen behind China in the global race to tackle super-polluting methane emissions, following the announcement from Beijing last week, ahead of this month’s COP 28 UN climate summit, that China has joined the growing list of at least 15 countries committing to methane action plans.

The announcement came as Chinese climate envoy Xie Zhenhua concluded four days of talks in the United States with his US counterpart, John Kerry, in a timing that may signal an imminent new US-China climate agreement.

Australia’s methane emissions make up almost a third of national climate pollution, but efforts to reduce these emissions have so far been limited. The announcement from China should be a signal for Federal Energy and Climate Minister Chris Bowen to do more on methane. The methane problem is particularly acute: it is more than 28 times more potent than CO2 in trapping heat over 100 years, and over 80 times more potent over a 20 year timeframe, disproportionately driving warming in the near term.

While China has not formally reported methane emissions since 2014, their recent action plan includes not only a significant methane utilisation target, but an openness to developing advanced methane monitoring approaches using satellites and drones to verify ground based measurements, in a manner that would go far beyond what the Australian government has been willing to commit to so far.

Read our op ed in Renew Economy, by CEF’s China energy analyst Xuyang Dong with Chris Wright of Ember. 

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CHINA’S ENERGY SOEs DRIVING MASSIVE INVESTMENT TO MEET MANDATED TARGETS

In our upcoming report, lead-authored by CEF’s China energy analyst Xuayng Dong, we track investment trends in five of China’s largest State Owned Enterprises (SOEs) to evaluate how their reported capital investment programs align with central government directives in the 14th Five Year Plan, requiring a 50% increase in renewable energy generation, and that 50% of incremental electricity consumption (increase in demand) come from renewables over 2021-2025.

We find that all 5 SOEs are aligning their capex with these goals. The complementary objective set by the Commission overseeing SoEs, requiring them to ensure that the proportion of renewable energy power generation installed capacity reaches more than 50% by 2025, has already been met.

Most of the SoEs are increasing their investments in renewables during 1HFY2023, a positive sign that could contribute to exceeding the 2025 target by a significant margin. Moreover, renewable energy focused SOEs are seeking to diversify their portfolio by expanding their businesses to a wider range of renewables sources. 

This interaction between state energy policy and SoE capex trends is a case study in how the centralised command and control structure of the Chinese economy and governance continuity over decades means that when the central government tells the SOEs to pivot capex to ensure key targets are met, they do it.

Relatedly, China’s domestic CO2 emissions are set to fall in 2024 with the record increase in installation of zero-emissions energy, prefiguring a projected structural decline in emissions.

China ends 2023 leading the world by a substantial and growing margin on all clean energy transition fronts. And the fast greening of the entire Chinese economy also has implications for Australia. China’s demand for Australian coal exports including thermal and coking coal is set to decline significantly. 

To minimise economic risk, Australia urgently needs to learn a lesson from China’s investment pivot and commit to a national, strategic-interest public capital investment package at scale to diversify its exports, leveraging its generational opportunity to become a renewable energy and zero-emissions trade and investment leader. 

The report will be released in late November.

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CEF JOINS CHINA DELEGATION, FINDS EPIC CLEANTECH MOMENTUM

CEF’s EV Supply Chain Analyst, Matt Pollard, joined the Smart Energy Council’s 2023 delegation to China at the start of November. Here are some of his observations from the trip:

“Travelling across multiple cities along the Eastern coast, the delegation had the privilege of witnessing China’s world-leading manufacturing of technologies critical to realising the global energy transition.

A highlight was touring the headquarters, first manufacturing plant and R&D centre of the world’s largest battery producer, CATL. Visiting CATL’s manufacturing and research centres drives home how they have dominated the global battery industry for the past 6 consecutive years. The scale of automation across all stages of the assembly processes is astonishing.

This includes not only the engineering marvel across the production lines, but the incredible commitment of CATL to safety, consistency and longevity – from fire to submersion, vibration, drop and cycle testing to ensure products are able to withstand the demands placed on battery systems in transport and stationary storage.

Another amazing sight is the level of EV penetration across China. The nation’s ‘green license plate’ initiative makes it easy to see the staggering number of EVs on the road, from 2-wheelers to commercial vehicles.

Visiting leading solar PV and inverter manufacturers LONGi and GoodWe’s production facilities also highlighted the scale and breadth of China’s astounding manufacturing capabilities across an array of other key technologies. 

Witnessing the scale and precision of Chinese manufacturing, it is easy to understand why China is leading the global cleantech race. But more importantly, the speed and scale of Chinese investment into new-economy manufacturing has unlocked its ability to decarbonise the world. It is China’s leadership that has catalysed the adoption and installation of low-cost, high-quality technology critical to transitioning national grid systems and abating inflationary, high-emission fossil fuels in transport and heavy industry.

Fostering a strong trade and investment partnership with China is critical for Australia to realise its renewable energy targets and emissions reduction pathways. As Australia’s #1 trading partner, and largest customer for our nation’s legacy bulk commodity exports, it is imperative to cultivate a relationship reflective of the zero emissions industries of the future – one which recognises the critical importance of China’s world-leading cleantech exports – and leverage Australia’s abundant solar and wind resources to decarbonise our domestic and export industries. This would realise Australia’s climate ambitions, and help decarbonise our key trading partners’ economies.”

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CLIMATE CAPITAL FORUM URGES NEW INVESTMENT PLAYBOOK TO SUPERCHARGE TRANSITION

This week we published a guest opinion piece from our partner Blair Palese, founder of the Climate Capital Forum (CCF), of which Climate Energy Finance is a member. Blair was named this week as one of The Australian’s Top 100 Green Energy Players. 

A longer version of Blair's op ed is published in The Weekend Australian. 

Blair urges further progress on significant strategic investment in energy transition from the Australian government:

“We have definitely made progress in developing and implementing a suite of policy changes to transition to net zero, following years of stagnation under the LNP denialists and sceptics.

… [B]ut it’s only a small fraction of what is needed, especially in the face of the US Inflation Reduction Act’s (IRA) $1tn investment in decarbonising the US economy, which has potential to pull green investment away from Australia at a critical juncture in the global transition.”

She calls for a new playbook for decarbonisation investment which establishes Australia as a zero-emissions trade and investment leader. With the US and China agreeing to work together to tackle climate change and decarbonisation, the impetus for action has never been greater.

Blair established the Climate Capital Forum, a group of Australian impact investors, businesses, philanthropists, think tanks, renewable energy industry and climate NGOs in late 2022. A key goal is to advocate for an Australian IRA response commensurate with the scale of our opportunity.

Blair identifies the upcoming COP28 meeting in Dubai as an opportunity to focus attention on more ambition and strong and comprehensive investment initiatives that deliver a national strategic vision for accelerating Australia’s path to net zero.

Read the opinion piece on CEF's website here, and in The Australian.

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BZE: BATTERY MANUFACTURING INDUSTRY OURS FOR THE TAKING

CEF was pleased to support the launch in Canberra this week of new research by Beyond Zero Emissions, for which CEF director Tim Buckley provided expert review. The research shows that Australia can have a sovereign battery manufacturing industry focussed around the electricity grid’s needs and heavy vehicle batteries used in buses, mine haulage vehicles and on farms.

The report was launched by co-chairs of Parliamentary Friends of Clean Investment, Senators Karen Grogan, Andrew Bragg and David Pocock and featured leading innovators in the Australian battery supply chain..

BZE found a domestic battery manufacturing industry could create 44,000 jobs and $57 billion in GDP by 2035 with an injection of $2 billion in capital, with manufacturing hubs in industrial regions formerly centred on fossil fuel production such as NSW’ Hunter Valley in NSW, central Queensland, Kwinana in WA and the Latrobe Valley in Victoria.

The research also calls for the federal small-scale renewable energy scheme to be extended to support batteries in addition to rooftop solar and heat-pump solar hot water systems and for Federal Energy Minister Chris Bowen’s Capacity Investment Scheme to be doubled from 6GW to 12GW by 2030 and again to 24GW by 2035.

BZE’S work amplifies and supports CEF’s research in this sector, for example our recent report Fuel Tax Credit Scheme and Heavy Haulage EV Manufacturing in Australia, which found that Australia’s mining sector should become a global leader in electrification of mine equipment, developing onshore battery, recycling and EV manufacturing supply chains.

Capping the federal diesel fuel rebate at $50m per group per annum would raise >$14bn in revenue over FY24-FY30, delivering the federal national-interest investment capital needed to kickstart the industry and attract an influx of private capital and partnerships.

Only 8 mining firms would be impacted in FY23 (Fortescue Metals Group, Rio Tinto, Hancock Prospecting, BHP, Glencore, Peabody, Yancoal and Anglo American). There would be zero impact on the agricultural sector, nor any inflationary impact on freight.

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Our highlights tracking decarbonisation progress in 2022, and our 2023 wishlist, are here.

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