Green Infrastructure Investment Opportunities - AUSTRALIA 2019
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Green Infrastructure
Investment Opportunities
AUSTRALIA 2019
Sponsors
The 2020s green infrastructure pipeline
Wind: 6.9MW Solar: 8.3MW
with a total with a total
investment of investment of
over AUD10.6bn over AUD 14.5bn1
2 projects
NORTHERN 81 projects
TERRITORY
QUEENSLAND
WESTERN
AUSTRALIA
SOUTH
AUSTRALIA
NEW
SOUTH
WALES
112 projects
ACT
VICTORIA
42 projects 6 projects
TASMANIA
34 projects
194
Energy 16 projects
projects
89 78
Buildings Transport
projects projects 29 91 projects
Water 2
projects Waste
projects
NATIONAL/
MULTI-STATE
5 projects
Australia GIIO Report Climate Bonds Initiative 2
Green infrastructure: Opportunity & Growth
Introduction Methodology
Contents
Green infrastructure presents a huge The report considers five key sectors:
investment opportunity across the world, renewable energy, low carbon transport,
3 Introduction
with an estimated USD100tn worth of sustainable water management, sustainable
climate/compatible infrastructure required waste management and green buildings. 4 Australia infrastructure overview
globally by 2030 in order to meet Paris We use the Climate Bonds Taxonomy
7 Renewable energy
Agreement emissions reduction targets. (see back cover) to identify which projects
and assets are green. 10 Low carbon transport
The effects of climate change and the
risks associated with a greater than 2°C The objective of this report is to identify 12 Sustainable water management
rise in global temperatures by the end large infrastructure projects, the following
14 Sustainable waste management
of the century are significant: rising sea filters were also applied:
levels, increased frequency and severity of 16 Green buildings
weather events, droughts, wildfires, loss Renewable energy:
of biodiversity and changes in agricultural generation facilities
patterns and yields. above 50 MW The majority of transport and water projects
have been drawn from the Australia New
Investment in low carbon solutions will
Low carbon transport: projects Zealand Infrastructure Pipeline (ANZIP)
be essential for meeting global emissions
valued above AUD100m and Infrastructure Australia’s Priority Project
reduction pathways under the Paris Climate
List. The majority of energy projects were
Change Agreement.
Sustainable water identified from a number of sources
Over the past few years, there has been an management: projects including the Clean Energy Regulator and
increasing demand from institutional investors, valued above AUD50m Australian Renewable Energy Agency (ARENA).
particularly from OECD nations, for investment
The Green Buildings projects were chosen
opportunities that address environmental Sustainable waste
from the Green Buildings Council of Australia
challenges and support sustainable management: projects
Green Star database. While buildings were
development. Institutional investors and banks valued above AUD50m
included in the initial report and we have
have over USD120tn assets under management
included commentary on the sector in this
that can potentially be used in part to support Green buildings: 6-star rated
update, future reports will focus only on more
infrastructure investment and upgrades. Green Star properties under
‘traditional’ infrastructure sectors. Building
the Green Buildings council of
The growing level of interest from investors rating schemes are well-established in
Australia
in both environmental and social projects Australia, making low carbon buildings easy to
has resulted in the development and growth There are various ways for an investor to identify. Australian property owners are already
of innovative financial products. gain exposure to a specific project, asset or financing such buildings, increasingly in the
portfolio. The possible investment pathways green bond market, mostly under the Climate
The global green bond market in particular
will vary depending on the asset ownership Bonds Buildings Criteria.2 Climate Bonds will
has grown rapidly, with issuance in 2018
structure, the stage in the asset’s financing continue to cover buildings, including country
surpassing USD165bn. However, green finance
lifecycle, and the investor’s mandate. This level information in its sector coverages, e.g.
needs to scale up much further to achieve
can vary between projects with public and through dedicated briefings.3
global climate targets and infrastructure needs.
private funding.
This report builds on the inaugural Green
Accordingly, further metrics were used to
Infrastructure Investment Opportunities
classify the green infrastructure investment
Acknowledgements
Australia and Zealand (GIIO) report released
opportunities by status: This report has been made possible by
in August 2018. It provides updated content
the support of:
specifically for Australia to help meet the • Completed projects: high profile, recently
growing demand for green & ESG investment completed projects; • Australia and New Zealand Bank
opportunities, including green bonds, as (ANZ),
• Projects under construction: major
well as to support the country’s transition to • Commonwealth Bank of Australia,
projects that are under construction; and
a low carbon economy. It aims to facilitate • National Australia Bank (NAB),
greater engagement between project • Planned projects: major projects that • Westpac.
owners, governments and institutional have not yet begun construction but have
In developing this report, the Climate
investors. A similar report for New Zealand been announced and/or have undergone
Bonds Initiative also consulted with
has been produced separately. business case planning and/or have been
key Government bodies, industry, the
allocated budget.
The report is intended for a wide range financial sector, peak bodies, NGOs and
of stakeholders in Australia, including The 2019 list of green projects from public think tanks. We would like to thank Cbus,
domestic superannuation funds and asset pipelines is available as a supplement on CEFC, HESTA, IFM Investors, the Green
managers and their global counterparts, the report webpage on the Climate Bonds Building Council of Australia, GRESB
potential issuers, infrastructure owners website. Case studies have been developed and Responsible Investment Association
and developers, as well as relevant state in this report to show the different types of Australasia for their comments and
and federal ministries including Finance, of opportunities available in the short- and content support.
Planning, Energy, Transport and Environment. medium-term future in Australia.
Australia GIIO Report Climate Bonds Initiative 3
Australia infrastructure overview
Australia stands at a crossroads on national development. Financial regulators Australian Prudential
An increasing range of voices, including the Reserve Bank Regulation Authority (APRA), Australian
of Australia (RBA), are calling for expanded infrastructure Securities and Investment Commission
investment.4, 5 Meanwhile, emissions continue to rise and issues (ASIC) and the Reserve Bank of
around the nation’s climate stance remain unresolved as pressures Australia (RBA) have all endorsed the
on energy, transport, urban congestion, water and service delivery recommendations of the Task Force on
continue to grow. Climate-related Financial Disclosures (TCFD)
and warned of systemic climate risks. This is
The Australian Infrastructure Plan (2016) existing and new climate targets, spur part of a global trend for financial regulators
emphasises that sustainability and resilience innovation, address congestion, broaden such as the Bank of England and others.11
should not be seen as fringe concepts.6 In the economic base, improve productivity
The formation of the Australian
2019, despite some progress,7 it is clear and promote a more sustainable national
Sustainable Finance Initiative (ASFI) will
that sustained emissions reduction has not economic and social development model.
also provide further impetus to green and
yet been effectively integrated into national
sustainable investment.
infrastructure priorities, let alone adaptation Green finance trends
and resilience measures for assets to withstand
Green bonds continue to be the primary
increasingly volatile climactic conditions.8
means of gaining exposure to green finance in Australian Sustainable Finance Initiative
While overall progress has been slow, the fixed income market. Cumulative issuance
The Australian Sustainable Finance
there has been an increase in some green from Australian entities as of H1 2019 reached
Initiative was established in 2019 to set out
infrastructure including a boom in small- to AUD15.6bn, placing Australia 11th in global
a roadmap for ‘realigning the finance sector
large-scale solar capacity. Sustainability in rankings and 3rd in Asia-Pacific.10 Issuance
to support greater social, environmental
commercial and public sector building design was almost AUD6bn in 2018 and has already
and economic outcomes’ for Australia.
has also become mainstream. passed AUD4bn in August 2019.
It brings together leaders from banks,
However, traditional high-carbon Australia’s major banks have pioneered
superannuation funds, insurance
infrastructure investments remain central green finance, adopting and promoting
companies, financial sector peak
to the economy including coal-fired power international best practice in green issuance
bodies, NGOs and academia with
generation, LNG and rail and ports expansion and supporting new issuers. Innovative
the aim of developing a Sustainable
to facilitate fossil-fuel industries. structures have emerged, including the
Finance Roadmap.
creation of new green investment products
Australia’s per capita CO2 emissions are
designed to appeal to investors with different The roadmap will be launched in 2020
one of the highest in the world. Further,
risk appetites. This includes green and and will recommend pathways, policies
infrastructure-related emissions account
sustainability-linked loans and green retail and frameworks to enable the financial
for more than half of the country’s total
deposit products. services sector to contribute more
greenhouse gas (GHG) emissions: 35%
systematically to the transition to a
from the electricity sector and 18% from the Green bond issuers – particularly the large
more resilient and sustainable economy.
transport sector.9 banks and State Treasury Corporations – have
It is intended to be consistent with
used green bonds both as a market signal
Australia ratified the 2015 Paris Agreement, global goals such as the UN Sustainable
around green policy and to meet increasing
committing to making finance flows consistent Development Goals and the Paris
investor demand, tapping the market to
with a pathway towards low carbon and Agreement on climate change.
refinance pools of existing eligible assets.
climate resilient development. Australia’s
Nationally Determined Contribution (NDC)
under the Paris Agreement is a reduction in Solar and wind projects dominate energy capacity addition pipeline
annual national greenhouse gas emissions of
26–28% below 2005 levels by 2030. 30
To reduce emissions, with the ultimate goal Proposed Committed Upgrade
of reaching zero carbon, state and federal 25
governments, the financial sector and
industry all need to increase their emphasis
20
on the provision of low carbon, sustainable
and resilient infrastructure. A greater share
of private sector investment is considered 15
crucial in doing so.
There is now a growing opportunity for 10
new partnerships between government
Data Source: :AEMO18
and investors to participate jointly in green
5
infrastructure investment, through expanded
green finance mechanisms.
GW
0
Simultaneously, investing in green
infrastructure will help Australia to reach All coal Solar Wind Water Biomass Battery Other
and gas Storage
Australia GIIO Report Climate Bonds Initiative 4
Why green infrastructure? 2020s Asia-Pacific Tokyo
Green Finance Centres
The Climate Action Tracker has rated
Australia’s commitment under the Paris Shanghai
Agreement as insufficient, highlighting
the infeasibility of meeting the target Hong Kong
due to a lack of climate policies and an
ongoing reliance on fossil fuels. The energy
sector has the highest carbon intensity of
any country in the G20. Australia is also
singularly under-prepared for a future Singapore
tightening of global targets.
Despite some state-based commitments,
a transition to a zero-carbon economy
is not yet under active consideration or
implementation by many domestic policy
makers and corporations. Delayed action
increases the cost of change as well as the
Sydney
volatility and structural risks to the finance
sector and underlying asset values.
In this national environment, major
stakeholders in banking, finance and
superannuation have a responsibility to act.
Integration with Asia’s green
Adaptive and resilient infrastructure provision When a central bank, a finance future
on an accelerated basis should become a core prudential regulator and a
part of the national response to the coming Tokyo, Hong Kong, Shanghai and Singapore
conduct regulator, with barely
climate emergency. Australia has all the are positioning themselves to become
necessary building blocks and expertise in the
a hipster beard or hemp shirt green finance hubs as Asian nations look
finance sector and capital in its retirement between them, start warning towards green finance to help meet their
pool for this acceleration to take place. that climate change is a financial infrastructure, sustainable development,
risk, it’s clear that this position energy and climate goals.14 The ADB
A bigger role for superannuation is now orthodox economic estimates regional infrastructure investment
Major infrastructure projects have been thinking... Companies that requirements of USD1.7tn per annum.15 The
delay or avoid adjusting to new 2018 Indonesia GIIO report reflects the scale
and many will likely continue to be
of opportunities in a near neighbour.16
financed through bank finance (particularly economic realities, no matter
energy and transport sectors) or through how famous or successful, can Australia has both the capacity and
government budgets (particularly water and quickly find themselves on the opportunity to anchor the southern tip of this
waste sectors). verge of a Kodak moment. arc of green finance centres that will emerge
in the early 2020s.
While such finance will continue to
Geoff Summerhayes, Executive
play a major role in funding, Australia’s Australia’s banks and superannuation funds
superannuation sector, already a global
Board Member of APRA19 have the combination of green finance and
presence in alternative investment, is infrastructure expertise, regional experience,
increasingly looking for opportunities to size and long-term investment horizons
despite widespread support the transition to
expand its role in the domestic economy. required to support increased investment in
clean energy generation has been delayed by
green infrastructure across the Asia-Pacific.
This includes the long-term funding and political inertia, is an obvious initial target.
operation of large-scale infrastructure assets Other sectors for increased investment An expanding green domestic market helps
in partnership with both government and the include transport, housing, waste and water. build the platform for Australia to become a
private sector to achieve more productive significant exporter of both green expertise
Australia has the foundations to expand
capital allocation, driving sustainable growth.12 and infrastructure capital into the region.
green infrastructure provision throughout
Improved integration with Australia’s
The largest superannuation funds, with the 2020s and beyond. Few nations enjoy
regional foreign policy engagement could
several decades of infrastructure experience this confluence of positive circumstances:
provide a further pillar.17
and a permanent ownership presence in the a robust banking sector with green finance
ASX are also seeking wider partnership roles expertise, a superannuation sector with proven Programmes to assess investability of
with both government and the private sector. infrastructure capability and willingness national climate project pipelines or
to explore new investment models, and initial co-investment with regional Multi-
This patient and growing pool of retirement
widespread community support for increased lateral Development Banks (MDBs) and
capital is yet to be effectively harnessed
government borrowing combined with new Development Finance Institutions (DFIs)
for large-scale domestic infrastructure
infrastructure investment partnerships may also offer potential for new engagement
investments.13 The energy sector, where
involving domestic institutional investors. and cooperative partnerships in the region.
Australia GIIO Report Climate Bonds Initiative 5
Brown to green transition in Australia
Global green investment opportunities are growing and yet In the resources sector, Rio has divested its coal assets,22
there remains a scarcity of offerings, pointing to a lack of supply while Glencore has restricted new coal investment. BHP has
of green issuance particularly from non-financial corporates, announced a new program of emissions reduction across Scope
i.e. the real economy.20 1, 2 and, significantly for a high-carbon exporting nation, Scope 3
emissions.23 It has also flagged a zero-carbon by 2050 ambition.24
Furthermore, segments of the real economy, that offer significant
emissions reductions potential - such as cement and concrete, A BtG strategy will require ‘brown’ organisations to commit to
mining and metals, oil and gas (including biofuels), transport and strategic change, undertaking tangible and verifiably climate-
manufacturing – are yet to be activated towards a brown-to-green relevant measures that relate to companies’ core business
(BtG) transition. When such industry sectors start to align with a activities. They will need to progress from broad statements of
2-degree emissions trajectory, new green financing opportunities strategy or intent to disclosure of climate risk as envisioned by
could be created for assets and projects with ambitious climate compliance with the TCFD and, ultimately, to a visible reflection of
targets and an increased focus on low carbon production modes. climate-friendly investment on balance sheets, in capex plans and
borrowing programmes.
The Climate Bonds Initiative has been active in promoting a BtG
transition strategy in GHG-emissions intensive industries around Credible green bonds are a highly visible means to support this
the world. transition from brown into green. Even a small initial share of green
capital expenditure could be a credible indicator of more to come,
BtG reflects the fact that, in the short- to medium-term, large
if it is combined with a re-orientation and acknowledgment to
companies in many sectors will inevitably straddle both brown and
investors that achieving low carbon targets and then zero-carbon
green assets, progressively reducing exposure to brown assets and
operating models are inevitable business destinations between
practices as they increase capex towards, and adoption of, greener
now and 2050.
modes of operation.
Notwithstanding statements from financial regulators, many ASX-
It also embodies a recognition that, both globally and locally, the
listed companies are yet to give climate risks and opportunities
expectation of institutional investors is that progress towards
due weight, let alone develop low carbon or net zero-carbon
low or zero-carbon business models, is increasingly indicative of
business models.25 One option to reverse this lack of urgency
corporate performance, hedging of climate risks and long-term
would be a BtG transition strategy developed through long-term
value accretion.21
engagement projects with major institutional shareholders.
If progress on lowering sector emissions continues to be minimal,
The emerging concentration of ownership between Australia’s
for Australia to reach its current Paris targets (or the coming
superannuation sector and ASX companies may provide an
ratchet to 1.5OC degrees), faster progress will be required from all
additional joint incentive for a series of such structural engagements.
major sectors of the economy.
Australia GIIO Report Climate Bonds Initiative 6
Renewable energy
Energy generation, transmission 2018 was a record-breaking year with Investment by large oil and gas companies
or storage technology that has investment in large-scale renewable energy in renewable energy development is an
low or zero carbon emissions. projects – mainly wind and solar – doubling emerging trend and an important part of
This can include solar energy, from AUD10bn in 2017 to AUD20bn in the brown to green transition. This includes
wind energy, bioenergy, 2018.26 By year end, 14.5 GW of new Shell (Delga Solar Farm), BP (Lightsource)
hydropower, geothermal energy, generation was under construction or and Total (Total Eren).
marine energy or any other financially committed. This is equivalent
The corporate PPA market is growing with
renewable energy source. to four times the energy output of the
20 contracts signed in 2018, accounting for a
much-debated Liddell Power Station (one
total of 932MW. Corporates are attracted to
Sector overview of Australia’s oldest and largest coal-fired
improving price certainty within a volatile market.
power plants).27
In 2018, 21% of Australia’s energy was The corporate PPA market is still in its early
supplied by renewable energy resources. Rising power prices are spurring stages and while promising, can involve high
While this lags behind other OECD investment in small-scale renewable transaction costs for project developers in finding
member countries, the percentage is energy both by businesses and and negotiating with buyers. Notwithstanding
up from 17% in 2017 with South Australia homeowners. Commercial solar the slight uptick in corporate PPAs, offtake
(53%) and Tasmania (95%) leading installations have grown 45% and issues continue to temper enthusiasm in the
the way. residential by 43%.28 sector with an overall slow-down in PPAs.
The Australian and New
Cumulative installed large -scale solar capacity Zealand sustainable finance
market is accelerating with
2000 the emergence of loans in both
green and sustainability-linked
formats. This follows the growth
1500
of green bonds over the last
three to four years.
The Australian market has
1000
developed in line with global
best practice, showing diversity
of product, transparency
Installed capacity MW
for investors and lenders,
500 innovation in the use of
proceeds and commitment to
uphold market standards
0 Christina Tonkin, Managing
2012 2013 2014 2015 2016 2017 2018 Director, Loans & Specialised
Finance, ANZ
Source: :Clean Energy Council32
State governments are playing a strong NT: 50% renewable
supportive role providing some certainty energy by 2030 QLD: 50% clean
in the absence of a national climate and energy by 2030
energy policy.
State-led action to support grid stability SA: Net zero
and clean energy integration includes emissions by 2050
system strategies and related roadmaps.
State government investment is also
supporting renewable energy project NSW: Net zero
trials, making solar more accessible for all emissions by 2050,
households and supporting the roll out of
ACT: 100% clean energy
large-scale battery storage VIC: 50% clean energy by 2030,
by 2020, Net zero
Net zero emissions by 2050
States with clean energy and/or 2050 emissions by 2040,
emissions targets include:31 TAS: Net zero emissions by 2050
Australia GIIO Report Climate Bonds Initiative 7Renewable energy generation is on the rise
while non-renewable generation remains flat
Non-renewable Renewable
25
20
15
10
5
GW
0
01
02
03
04
05
06
07
08
09
10
11
12
13
14
15
16
17
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
20
Source: Department of Environment and Energy33
Renewables are also a jobs story with the Battery storage and pumped hydro Investment pathways
sector employing over 13,000 people. In projects will be the likely winners of
Renewable energy project developers and
2018 alone, over 10,000 jobs were created the increasing focus on storage. Large
asset owners in Australia have access to a
in renewable energy facilities’ construction. storage projects have made headline news,
wide variety of funding options from banks,
This is underplayed in the political including the much-discussed Snowy 2.0
specialised project financiers, debt clubs,
narrative but it is a strong positive for the (a 2018 report case study) which will add
investment funds, direct investors and the
industry and one that may help to drive the 2,000 megawatts of energy generation
capital markets.
transition to a low carbon economy. and provide 175 hours of storage for the
National Electricity Market.29 Green bonds are best suited to large projects
However, issues with the grid and changes
or portfolios of assets and can be structured
to marginal loss factor calculations have Other storage projects include the 24-month
in a number of ways, including ABS, use
dampened the outlook, particularly for remote PowerBank trial in Western Australia,
of proceeds bonds, and project bonds.
projects in Northern Queensland, Northern which went live in November 2018. The
Aggregation of smaller projects such as
Victoria and Southern New South Wales. project connects a 105kW Tesla battery to
rooftop solar loans or leases can be done
the electricity grid, allowing participating
The lack of replacement policies for the through green securitisation (e.g. FlexiGroup
households with rooftop solar panels to
National Energy Guarantee (NEG) and green bond) or through banks originating
virtually store up to 8kWh of excess power
Renewable Energy Target (RET) has green loans and refinancing in the green
generated during the day from their solar
resulted in continued policy uncertainty and bond market (e.g. ANZ, CBA, NAB and
photovoltaic (PV) systems in the battery.30
there are concerns that the industry may Westpac). Renewable energy funds are also
lose the recent momentum it has built. The The Australian Renewable Energy Agency being used to support greenfield renewable
NEG was officially abandoned in late 2018 (ARENA) has announced up to AUD40 energy projects and stimulate innovation.
despite broad industry support. The RET million in funding towards the deployment
Publicly-backed funding support for
has been a major driver behind the growth of a pumped hydro energy storage (PHES)
renewable energy projects can be accessed
in renewables over the past few years, but project in South Australia.
through ARENA, Clean Energy Finance
ends in 2020.
Meanwhile, Tasmania is making a bid to Corp and Clean Energy Innovation Fund.
We expect solar and wind energy use its hydro resources to become the There are also private sector funds like
generation to continue to have the greatest Battery of the Nation, providing flexible, the Powering Australian Renewables Fund,
potential for investment. While growth will dispatchable energy in the state and on the which is an AUD2-3bn fund created by AGL
continue into 2020, the negative drivers mainland. HydroTasmania has short-listed to develop and own approximately 1,000
noted will likely result in muted growth 14 high potential pumped hydro sites with a MW of large-scale renewable energy power
compared to the dizzying heights of 2018. combined storage capacity of 4.8 GW. generation projects.
Australia GIIO Report Climate Bonds Initiative 8Darlington Point Solar Farm
Proponent: Octopus Investments and Edify Energy
Location: Murrumbidgee, New South Wales
Status: Under construction, with power generation expected at
the end of 2020
Classification: Solar, Generation facilities
Description: The Darlington Point Solar Farm is a 333 MW DC
Source: Edify Energy36
single-axis tracking project and currently the largest farm under
construction in Australia, on 1,993 acres of former grazing land
adjacent to TransGrid’s Darlington Point substation.
Output: The project will produce 333 MW of renewable energy,
initially through a recently awarded PPA of 150 MW.35
Cost: $450m
Financial structure: The project is co-owned by Edify Energy and
Octopus Investments (the UKs largest solar investor) with two
Australian banks jointly providing debt. A PPA has been entered
into with Delta Energy.
Asian Renewable Energy Hub
Proponent: CWP Renewables
Location: Pilbara, Western Australia
Source: Asian Renewable Energy Hub, 201938
Status: Planned with financial decision expected in 2022 and first
generation in 2025/6.
Classification: Solar and wind generation facilities
Description: The project is proposing to deliver 15 GW of wind
and solar to power local industry and international customers. The
anticipated renewables split will be 2/3 wind and 1/3 solar. The
project will generate very large volumes of cheap, clean renewable
energy, which is ideal for the large-scale production of green
hydrogen for markets both in Australia and overseas.
It has recently signed a land use agreement with indigenous Output: Solar, wind, hydrogen generation facilities, up to 3,000
landowners, making it the first project of this type to be built construction jobs and 400 maintenance jobs
exclusively on native title. Proponents are in current negotiations
Cost: AUD22-30bn
with the Western Australian Government to support necessary
grid upgrades. Recently, project proponents have announced a new Financial structure: Development capital will be provided by
focus on upscaling green hydrogen and derivative products. Macquarie Group and other partners.37
Update on 2018 featured case studies
Kidston Solar Project Snowy 2.0 SA-NSW Interconnector
Stage 1: Complete, Genex reported Feb 2019: Planning permission given for explor- July 2018: Project assessment complete,
the first revenue in December 2018. It is atory works. Early works are now underway. preferred option identified as a 330kV
ramping up to producing 145GWh of connector running from Robertson (SA) to
EIS for Main Works expected to be
electricity per year. Wagga Wagga (NSW) via Buronga.
submitted in late 2019 with commencement
Stage 2: In April 2018 environmental of main works to begin in 2020. Feb 2019: Project assessment conclusions
approvals were secured for the pumped report published.
April 2019: Salini Impregilo awarded the
hydro project. In July 2019 an AUD610m
AUD5.1bn contract for the civil works and July 2019: South Australian Government
federal concessional loan was approved.34
electromechanical component of the project. grants project with Major Project Status.
Australia GIIO Report Climate Bonds Initiative 9Low carbon transport
Transportation modes and ancillary Australian cities have lower populations and longer commute
infrastructure that produce low or times compared to global peers
zero direct carbon emissions. This
can include national and urban Brisbane
Average commuting trip duration (minutes)
Sydney
passenger rail and freight rail 35
networks; Bus Rapid Transit (BRT) Melbourne
Toronto
systems; electric vehicles; and, Atlanta Chicago New York
bicycle transport systems. It does not Perth Philadelphia
Los Angeles
include the building of road networks. 25
Capital mobilisation for low carbon
transport continues to target the use
of energy-efficient transportation 15
and the development of projects
that reduce carbon emissions. Alice Springs
5
Sector overview
0 500 10000 15000 20000
The transport sector accounts for 18% of
Population
Australia’s GHG emissions, up 22% in absolute Source: Department of Infrastructure and Regional Development43
terms from 2005.39 Without significant
changes to the transport and energy system
which is the main large-scale infrastructure As private sector appetite increases, funding
in Australia, emissions from transport are
network proposed by government. This sources will continue to diversify, and investment
projected to be over 80% higher by 2030 than
currently has 17 charging stations with will accelerate. Investors seeking exposure to
in 1990.40 Changing this emissions trajectory
a proposal to expand by adding 50 new low carbon transport projects and assets have
will require a massive increase in public
stations. There is also an opportunity for the a range of investment pathways to consider.
transport and rail systems, stronger vehicle
growth of private charging networks. Some
emissions standards and increased EV take-up. Government-owned low carbon transport
private providers have received government
assets are often identified in their green bond
Public transport and freight rail networks are subsidies in Europe and the US.
offerings. This pathway provides indirect
already seeing some increases in investment
exposure for investors to specific projects
- the primary drivers are population growth Investment pathways and provides attractive credit and liquidity
(with resultant increase in consumer
A variety of funding structures are available credentials for institutional investors.
demand), increased urbanisation and
to encourage private sector involvement in
worsening congestion in major cities. This More direct investment pathways
the long-term financing required including
is reflected in the emphasis on transport include participation in consortium debt
green bonds, outright asset acquisitions,
in ANZIP’s list of projects across Australia. arrangements and/or equity stakes in
public private partnerships (PPP) and the
By value, over 75% of the projects listed individual projects via PPPs or other public-
securitisation of green assets.
on ANZIP relate to transport, over 50% private ownership and financing structures.
of which could be considered low carbon In addition to public funding, the private
transport projects (mostly rail projects). sector has a strong pipeline of transport
projects including PPPs, operating franchises
Large rail projects are being developed More and more investors are
and rolling stock leases. 42
across the country with the largest talking to us about climate
including Sydney Metro (case study A key principle in the Australian resilience and how NAB can
right), Melbourne metro and Brisbane Infrastructure Plan is that more diverse support the capacity of the
metro. These large multi-billion-dollar sources of funding are required to deliver
financial sector to better
projects have a number of expansion infrastructure priorities. This includes value
stages under construction, in planning or capture where the recommendation is that,
support investments in
proposed (Melbourne Suburban Rail Loop “all governments should routinely consider climate resilient and green
and Melbourne Airport Rail). The drivers land value capture in public infrastructure infrastructure. The 2019 GIIO
behind urban rail expansion remain clear investments”. This model is used in Hong report is an essential tool for our
and we expect such projects to dominate Kong but not widely in Australia. industry because it provides a
infrastructure spending for years to come.
From 2019/2020, the government has stated snapshot of the many projects
Electric vehicles (EVs) have also received that it will invest AUD13bn in transport that governments, policy
increasing attention over the past year with infrastructure through innovative financing makers and investors can direct
sales reaching new highs, albeit from a very options, which include concessional loans, capital towards.
low base in comparison with other developed guarantees, phased grants and availability
countries. Australia’s EV market share payments, equity injections and value David Jenkins, Head of
is 0.1% compared to China (2.2%), New capture. Government-backed concessional Sustainable Finance, Corporate
Zealand (1.1%) and Sweden (6.3%).41 One loans are a new structure which provides & Institutional Banking,
EV opportunity was identified in the pipeline greater leverage against the revenue streams National Australia Bank
- the Queensland Electric Super Highway of transport (i.e. fares).
Australia GIIO Report Climate Bonds Initiative 10Sydney Metro
Proponent: NSW Government
2018ANZIP
Location: Sydney
Source:
Status: Part complete, part under construction, to be fully
Source: Auckland Transport,
operational by 2025.
Classification: Public Passenger Transport, Rail, Infrastructure
Description: Sydney Metro is Australia’s largest public transport
project and is split into four sections.
• Northwest was opened on 26 May 2019.
• The City and Southwest: Planning approval was received in 2017,
and construction has begun. Services are expected to start in 2024.
• West project will connect the City to Parramatta doubling rail Cost:
capacity between the 2 areas. Construction is expected in 2020. • Northwest: AUD8.3bn
• The Greater West project will be a rail link to Western • City and South West: AUD11.5 to AUD12.5bn
Sydney Airport and the planned Badgerys Creek Aerotropolis. • West: AUD10bn
Construction is due to commence in 2021 with completion in • Greater West: AUD15-AUD20bn
2026 along with the airport.
Financial structure: A range of financing structures have been used,
Output: 31 metro stations and more than 66 kilometres of new including State government funding with traditional procurement
metro rail, in Sydney, over four stages. and PPPs. Not all financing structures are confirmed.44
Geelong Fast Rail
Proponent: Australian Government with funding match from
Victorian Government
Source: ABC 2018
Location: Geelong Region, specifically Sunshine to Wyndham Vale
Status: Planned
Classification: Public Passenger Transport, Rail, Infrastructure
Description: The project will include the construction of new
electrified track pairs, track and signalling upgrades and new
station platforms. Investigations are also being carried out to
determine how it can integrate with the planned Melbourne
Airport Rail Link. A Geelong Fast Rail Reference Group has been
established, chaired by MP Christine Couzens (seat of Geelong).
Cost: An initial AUD2bn (Federal Government), with an
Output: New rail tracks, stations, including a new super hub at
anticipated funding match from the Victorian Government.
Sunshine to facilitate better integration of rail services. This will
increase the capacity of current services, in line with regional Financial structure: Funding from Federal Government and
population growth forecasts, while decreasing commuting times. Victorian Government, plus PPP arrangements.45
Update on 2018 featured case studies
Canberra Light Rail – Stage 1 Melbourne Metro Rail Brisbane Metro Inland Rail
Operations for Stage 1 Work is underway to build 9 kms Early works including The Inland Rail Programme
commenced in April 2019. of rail tunnels that will service intersection upgrades have Business Case is now
The final cost of Stage 1 was 5 new underground stations. commenced. Council is working completed, with formal
AUD675m Construction is estimated to be to prepare for construction by planning approvals in process
12 months ahead of scheduled relocating some public utility for 5 projects in NSW and QLD.
completion (2025). The cost services. Offices are now established in
estimate is expected to be 165% Sydney, Melbourne, Brisbane
of the original budget. and Toowoomba.
Australia GIIO Report Climate Bonds Initiative 11Sustainable water management
Assets that do not increase Better water recycling is being looked Investment pathways
greenhouse gas emissions or to as a cheaper and more efficient
Most water assets in Australia are publicly-
that aim at emission reductions alternative to increasing water supply than
owned, and this is unlikely to change in
over the operational lifetime of desalination. The primary barriers are cost
the medium-term. The urban and rural
the asset, address adaptation, and perceptions. Recycled water is not used
water corporations are owned by the State
and increase the resilience of for drinking water supply in Australia, but
Government and funded by the respective
surrounding environments. This there are opportunities and initiatives to
State treasuries.
covers built as well as nature- increase its use in industrial, agricultural
based water infrastructure. and other applications. In Sydney, the Similar to the investment pathways for low
Central Park Recycled Water Scheme was carbon transport, the primary investment
Water management projects the largest recycled water scheme in the pathway for sustainable water infrastructure
could include water capture world when it was launched in 2014. is using taxpayer funds through government
and collection, water storage, The scheme collects wastewater from budgets. Thus, for green bonds in this sector,
water treatment (with methane residential, commercial and retail precinct the main opportunity is for green bonds to be
emissions treatment), flood buildings, treats it and distributes it within issued by State Governments.
defence, drought defence, the precinct to supply water for cooling
stormwater management, towers, irrigation, toilet flushing and
A few privately-operated initiatives do exist
and ecological restoration/ washing machines.49
– these include the Central Park Recycled
management. Water Scheme, operated by a private
Other initiatives include Australia’s first utility. Investment in the construction,
Sector overview Groundwater Replenishment Scheme that ownership and refinancing of new types of
re-injects recycled water into climate- infrastructure such as water desalination
Climate change has already led to significant
independent groundwater aquifers for later assets, commercial and industrial water
changes in rainfall distribution and water
use, in line with global best practice (see infrastructure may provide further options
availability across Australia. Bureau of
case study below). for investors.
Meteorology data shows that April–October
rainfall is decreasing across South West Meanwhile, the demand for water from The Australian Water Association (AWA)
Australia with a 20% decrease in May-July industrial applications and agricultural has undertaken research showing there
rainfall in the same region. This has been supply chains also continues to grow, are a range of alternative financing options
accompanied by a long-term increase in impacting aquifer recharge and surface water available for water infrastructure projects
extreme fire weather and a longer fire season flows. Downstream license holders relying from a variety of investment sources. These
across large parts of Australia.46 on variable offtakes remain highly exposed, include green bonds, PPPs, value capture,
bolstering calls for a new national water plan long-term leases and Regulated Asset Base
The regulation of water assets varies
in 2020 to spur technological innovation Model (RAB).51 The RAB model is where
between the jurisdictions as does the
through PPP arrangements underwritten by publicly-owned entities and/or private
urgency to upgrade and replace aging
the National Water Infrastructure (NWI) companies own, invest in and operate infra-
infrastructure and respond to the needs of
Development Fund and NWI Loan Facility.50 structure assets. In exchange for the delivery
a growing population and the challenge of
of services, an economic regulator will agree
climate change.
to ‘fund’ the costs of the infrastructure
Enhanced planning processes and through the provision of regulated revenue.
increased upfront investment will be
Westpac recognises the This is particularly relevant for industries
required for water infrastructure to meet the transition to a net zero emissions where there is a high risk of monopoly
dual challenges of climate change and rapid economy cannot be achieved pricing (e.g. water supply).
urbanisation particularly as Australia’s major without the active support of
cities are forecast to need 73% more than major financial system actors.
the current water supply by 2050.47 Banks, insurance companies
The drought across Eastern states and superannuation funds all
has continued to dominate the have a vital role in ensuring
headlines in 2019 and is a major driver investment flows towards the
in infrastructure discussions and planning green infrastructure that will
for the sector. In NSW, the Sydney help reach this goal. Accelerating
Desalination Plant, much debated over
green finance, including green
the past decade given its inactivity was,
in January 2019, restarted after a seven-
bonds, green loans and green
year hiatus.48 The increasing severity and underwriting is increasingly the
frequency of droughts means that it, and market mechanism to support
other desalination projects around the this transition
country, may soon be expanded. Sydney’s
was built to allow for a doubling of capacity.
Lyn Cobley, Chief Executive,
It can provide 15% of the city’s water needs, Westpac Institutional Bank
while in Perth, 50% can already be provided
through desalination.
Australia GIIO Report Climate Bonds Initiative 12Groundwater replenishment scheme
Proponent: Water Corporation
Source: Water Corporation
Location: Craigie, Western Australia
Status: Under construction
Classification: Water, Nature-based solutions
Description: The is the first full Groundwater Replenishment
Scheme of its kind in Australia. It will provide a new climate-
independent water source to boost potable supplies in Perth by
pumping 28bn litres of water into aquifers for reuse. Stage 2 of
the Scheme has recently commenced, involving constructing a
second Advance Water Recycling Plant at the Beenyup facility,
drilling four new bores for discharge and monitoring and a new
13km pipeline.
The pipeline will be finished in mid-2019, with full construction
complete in late 2019 before testing and commissioning.
Output: The project will pump 28 billion litres of potable water
into Perth aquifers for use when needed.
Cost: AUD262m
Financial structure: Government plus PPP arrangements52
Annual rainfall totals in the Murry-Darling
Basin, July 1911 to June 2018
Mean for 1997-98 to 2008-09 Mean for 2012-13 to 2017-18
800
Long-term mean Peak of the
Millennium
Drought
600
400
Annual rainfall total (mm)
200
0
3
19 8
19 3
19 8
19 3
19 8
19 3
19 8
19 3
19 8
19 3
19 8
19 3
19 8
19 3
19 8
19 3
20 98
20 03
20 8
20 3
8
-9
-5
-6
-1
-2
-3
-4
-7
-8
-1
-7
-1
-2
-3
-4
-5
-6
-8
-0
-1
-
-
12
12
17
17
77
72
22
27
32
52
37
57
92
62
67
97
82
87
42
47
02
07
19
19
Source: Bureau of Meteorology
Update on 2018 featured case studies
Shoalhaven Reclaimed Water Management Wyaralong Water Treatment
REMS 1B Scheme has commenced construction, with completion Stage 3: Remains in planning stages, with completion date
expected in 2019. estimated to be in late 2022.
Australia GIIO Report Climate Bonds Initiative 13Sustainable waste management
The efficient use of resources to While the ban has spurred much debate and A common theme in the industry is re-
cut down on waste production, some political momentum, the complexity of envisioning waste as a resource where
coupled with collection and negotiations between states and the federal recycled materials produce jobs and revenue
disposal systems that promote government have hampered attempts to streams. If policy and waste streams are
reuse and recycle, thereby resolve the problem. In August 2019, the more certain, there may be greater impetus
minimising residual waste going federal government committed AUD20m to to invest in EfW or plastics recycling plants.
into energy from waste (EfW) grow Australia’s recycling industry.
A number EfW facilities are in various stages
facilities. Where waste must go This is a strong signal and comes on top of of development and procurement across
to landfill, there are gas capture state commitments including AUD47m by Australia. These include the two case studies
systems installed to minimise NSW and AUD13m by Victoria. as well as the Australian Paper Project, East
emissions as well as measures Rockingham Project and Ballarat Waste to
to minimise run-off and other The 2019 Australian Infrastructure Audit
Energy Project.
negative impacts on surrounding notes that waste management is poorly
environments planned with generation increasing but New Climate Bonds Criteria covering
infrastructure declining. It highlights a lack waste management has been open for
Sector overview of mature markets for private investment in public consultation and is now undergoing
recycling and waste disposal. final review. The criteria is scheduled for
Globally, the waste sector has the potential
publication in Q4 2019. EfW projects have
to contribute a 10-15% reduction in global The National Waste Policy, originally
been the source of much debate around the
GHG emissions. Opportunities in prevention, put forward in 2009 and updated in late
world. Climate Bonds Initiative views them
reuse, recycling, and energy recovery can 2018, provides a national framework for
as necessary transition assets to deal with
achieve significant mitigation by reducing waste and resource recovery in Australia
residual waste. Specific criteria for EfW are
landfill emissions, reducing emissions linked and outlines roles and responsibilities
under discussion.56
to resource extraction and production using for collective action by businesses,
virgin materials, and providing an alternative governments, communities and individuals.
energy source that substitutes fossil fuels. The 2018 update focuses on waste
Investment pathways
avoidance, improved material recovery and Most of the major waste management assets
In Australia, waste is responsible for
use of recovered material. A key proposal is and projects in Australia are publicly owned,
approximately 2% of GHG emissions.
a common approach across states.55 with public financing used primarily for
Waste recovery was increased to 57%
waste treatment facilities, waste to energy
in 2018 (20% in 2007) and the average Policy certainty is vital, as investment in
processing and sanitary refill infrastructure.
waste production per capita has decreased large facilities for EfW or plastics recycling is
10% since 2007. However, overall waste expensive and therefore not possible without Waste treatment facilities usually demand
generation continues to increase as the regulatory certainty. One issue is the lack of significant capital. Currently, the majority
population grows.53 standardisation of recycling regulations and of funding comes from State government
standards across states and territories. budgets. The primary green bond
The pipeline review revealed few waste
opportunity is through green bonds issued by
projects that met the minimum project
State governments.
size requirement (AUD50m). This is
a feature of the sector, particularly in We are committed to playing our Environmental levies have also been used
recycling where small projects dominate. role in limiting climate change historically to finance waste treatment
The exception to this is EfW projects (also and supporting Australia’s projects. In July 2019, Queensland’s waste
referred to as Waste-to-Energy). The 10 levy commenced for 39 out of 77 local
transition to a low-carbon
largest recycling projects identified are listed government areas. The levy aims to reduce
in the pipeline even through they did not
economy, but we can only do waste going to landfill and provides funding
meet the size hurdle. this by working closely with our for better waste recovery practices.57
customers, communities and
Prevention projects in particular were There are also new facilities proposed for
industry partners. The Green
difficult to identify. While prevention is development via PPPs. Investment pathways
desirable, it is challenging to convert into
Infrastructure Investment include participation in consortium debt
fundable infrastructure projects. Prevention Opportunities (GIIO) report arrangements and/or equity stakes in
is arguably not part of the waste sector itself will help us pursue our goals, individual projects via PPPs or other public-
but cuts across all sectors (much like energy by outlining the projects that private ownership and financing structures.
efficiency) which will require a different will make a direct contribution Privately owned asset and projects, which
model to address. to international climate targets include recycling facilities and some waste
The industry faces numerous challenges and long-term environmental to energy facilities, also offer other means of
ahead- posed by population growth, lack of sustainability debt and equity investment.
investment and, more immediately, import
bans. China’s ban on the importation of
Andrew Hinchliff – Group
many recyclable materials in 2018 has Executive, Institutional Banking
resulted in materials being stockpiled and and Markets, Commonwealth
saw thousands of tonnes of recyclables sent Bank of Australia.
to landfill.54
Australia GIIO Report Climate Bonds Initiative 14Kwinana Thermal Waste to Energy
Proponent: Macquarie Capital, Phoenix Energy and Dutch
Infrastructure Fund
Source: SEQ Water, 2018
Location: Kwinana, Western Australia
Status: Under construction
Classification: Waste, Energy from Waste
Description: The project will develop a waste processing facility
that will use moving grate technology to process approximately
400,000 tonnes of municipal solid waste, commercial and
industrial waste and/or pre-sorted construction and demolition
Source: Acciona
waste per annum, to produce approximately 36 MW of baseload
power for export to the grid.
Output: 36 MW of baseload power. This will be among the first
utility scale waste to energy facilities constructed in Australia,
diverting approximately 25% of Perth’s post recycling rubbish
(400,00 tonnes) from landfill sites.
Cost: AUD696m
Financial structure: Private investment, co-developed by Macquarie
Capital and Phoenix Energy Australia, with co-investment by the
Dutch Infrastructure Fund and funds from CEFC.58
Exports of waste materials for recycling by category from Australia to all destinations 2007-18
Other Plastics
5
4
Paper and cardboard
3
2
Tonnes (millions)
1 Metals
0
07
08
09
10
11
12
13
14
15
16
17
18
20
20
20
20
20
20
20
20
20
20
20
20
Source: Department of Environment and Energy59
Australia GIIO Report Climate Bonds Initiative 15Swanbank Thermal Waste to Energy
Proponent: REMONDIS
Location: Southeast Queensland
SEQ Water, 2018
Status: Planned, construction expected in 2020
Classification: Waste, Energy from Waste
Remondis
Description: A Green Energy and Recycling Park in southeast
Source:
Source:
Queensland to generate up to 50 MW of baseload electricity and
around 200 construction and 50 operations jobs. REMONDIS
operates more than 50 WtE projects in Europe, and also owns
landfill sites. The Queensland Government is currently assessing
the project proposal. Approval will secure progress towards a
pipeline of similar projects. The construction period is estimated at
four to five years.
Output: 50 MW baseload power generated via conversion of
between 300,000 and 500,000 tonnes of waste per year.diverting
approximately 25% of Perth’s post recycling rubbish (400,00
tonnes) from landfill sites.
Cost: AUD400m61
Financial structure: TBA
Resource recovery and recycling rates of core
waste by jurisdiction, 2016-17
100
Recycling Energy recovery
80
60
40
20
0
%
ACT NSW NT QLD SA TAS VIC WA Australia
Source: Department of Environment and Energy60
Australia GIIO Report Climate Bonds Initiative 16Green buildings
Commercial and residential Green Star rated buildings in Australia Investment pathways
buildings, new or upgraded, have been shown to produce 62% less
Low carbon residential and commercial
operating with low carbon GHG emissions than the domestic building
buildings in Australia are attractive to
emissions. Credentials and average buildings and consume 51% less
private-sector investors. Consequently,
emissions performance are potable water than if they had been built to
the vast majority of the capital required for
demonstrated through an meet minimum industry requirements.65
construction, ownership and refinancing of
accepted rating or ‘green’ The 2018 GRESB Real Estate results also green buildings is provided by the private
assessment process. showed that Australian real estate sectors sector without government support.
Sector overview are leading the world in sustainability
The private sector uses a wide variety of
performance. While the global average
Globally, the greening of buildings has equity, debt and project finance structures for
GRESB score was 68 points, Australia and
the largest potential to significantly reduce green building development, including funds,
New Zealand achieved an average GRESB
GHG emissions compared to other major green loans and green bonds. Government-
Score of 76 (73 in 2017). This compares to
emitting sectors.62 owned green buildings have also been
70 for North America and 66 for Europe.66
financed with sub-sovereign green bond.
In Australia net zero goals are becoming
In early 2019, Energy Ministers released
mainstream in property. Building industry
the Trajectory for Low Energy Buildings, a
superannuation fund Cbus has committed Australia has the foundations to
national plan that sets a trajectory towards
to net zero emissions by 2030 across its expand green infrastructure provision
zero energy (and carbon) ready buildings
listed and unlisted property portfolio63 while throughout the 2020s and beyond.
for Australia.67 The Trajectory outlines
Investa Office Management is pursuing a net Few nations enjoy this confluence of
opportunities for the building sector while
zero emissions target by 2040.64 positive circumstances: a robust banking
proposing to strengthen energy efficiency
sector with green finance expertise,
Green building certification programmes are provisions in the National Construction
a superannuation sector with proven
now institutionalised. As at July 2019 there Code (NCC) for residential and commercial
infrastructure capability and willingness
are 2429 Green Star-rated projects up from buildings from 2022. It also considers
to explore new investment models.
1986 in 2018. options for improving existing buildings.
One Melbourne Quarter
Proponent: Lendlease
Location: Victoria
Source: Melbourne Quarter71
Status: Completed in 2019 (first building)
Two Melbourne Quarter is currently under construction
Classification: Low carbon buildings, Commercial
Description: One Melbourne Quarter is the first building which
will be part of a 2.5 hectare precinct development.
One Melbourne Quarter achieved 6-Star Green Star certification in
April 2019 while Two Melbourne Quarter has been registered for
certification.
Output: A 12 story 6-Star Green Star commercial building
in Melbourne. It is the first building in a planned precinct
Financial structure: Capital model used was ‘fund through’ - a
development.68
funding model structured through a forward sale to a capital
Cost: One Melbourne – AUD175m partner resulting in staged payments prior to building completion.
Two Melbourne (25 storey, yet to be completed) was sold The precinct is owned by the Lendlease-managed Australian Prime
to Australian Prime Property Fund and First State Super for Property Fund Commercial.
AUD550m.69
Precinct cost estimated to be > AUD2bn70
Australia GIIO Report Climate Bonds Initiative 17You can also read
