Renewable Energy Venture Capital Fund

Mr Fletcher asked the Treasurer, in writing, on 1 November 2011:

(1) Why is the Renewable Energy Venture Capital Fund included as part of the underlying cash balance.

(2) Why is the Clean Energy Finance Corporation not included as part of the underlying cash balance.

Mr Swan: The answer to the honourable member's question is as follows:

(1) The Charter of Budget Honesty Act 1998 requires that the Australian Government Budget be based on external reporting standards. The budget treatment of the Renewable Energy Venture Capital Fund (REVCF) is consistent with these external accounting and budget rules.

The REVCF provides early-stage equity investments to encourage the development of Australian companies that are commercialising renewable energy technologies.

The underlying cash balance impact of the REVCF reflects the full write-down of these equity investments at the early proof of concept stage. Early-stage investments generally involve a higher degree of risk (and are, therefore, essentially treated as a grant for budget accounting purposes).

(2) The Charter of Budget Honesty Act 1998 requires that the budget be based on external reporting standards. The budget treatment of the Clean Energy Finance Corporation (CEFC) is consistent with these external accounting and budget rules.

The estimated underlying cash balance impact of the CEFC of $312 million across the forward estimates includes an allowance for unrecovered investments, interest and dividend receipts and departmental costs, excluding public debt interest costs.

The CEFC will provide commercial loans, concessional loans, loan guarantees and equity for the commercialisation and deployment of renewable energy and enabling technologies, energy efficiency and low emissions technologies. It will also invest in the transformation of existing manufacturing businesses.

The CEFC costing took into account the Government's policy that that the CEFC invest in a mix of commercial projects earning a positive return and non-commercial, higher risk projects with a probability of not recovering the investment or achieving a positive return.

As the renewable energy stream is expected to invest in some higher risk projects, a 15 per cent allowance for unrecovered investments has been included in the costing for the CEFC. This represents a conservative approach to budgeting, rather than a forecast of expected activity.

To the extent that the transactions are commercial there will be a limited impact on the underlying cash balance because they are largely balance sheet transactions changing the composition of financial assets.

Treasury expects that taxpayers will, over time, get a positive return on the investment through interest and dividends.