NRF Net Zero Fund’s concessional rate ‘critical’ given smaller innovation pool
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More news: The NRF Net Zero fund’s lower target rate of return is an important step in ensuring startups focused on supporting decarbonisation can access sufficient funding, according to climate tech network Climate Salad CEO Mick Liubinskas.
Liubinskas told Capital Brief that “Australia's small market of customers and capital for innovation makes this discount critical to compete globally”.
“My big hope is that this translates into a series of funding announcements of industry building companies such as MGA Thermal, Sicona, Uluu, and Sundrive.”
More broadly, Liubinskas welcomed the speed of the design finalisation since consultation first opened in mid-September 2025.
On Wednesday, the Industry Department released a summary of consultation feedback. The department said it was recommended the fund accept “higher risk and lower returns than commercial investors, particularly for first-of-a-kind projects”, with concessional parameters “widely endorsed”.
“Many submissions viewed the government’s role in providing patient, concessional capital and de-risking investments as being crucial to overcoming barriers such as high capital costs, lack of offtake arrangements, lengthy approval processes, market uncertainty, and international competition,” the department’s consultation summary reads.
The consultation included support for a “flexible, blended finance toolkit” that could combine the use of concessional loans, equity and guarantees “particularly in areas with acute market failures”.
There was also an emphasis on balancing immediate emissions reduction and support for projects that “drive future competitiveness and innovation”, which require strategic investment to overcome first mover disadvantage and to support scale-up opportunities that are “often commercially marginal”.
The fund could bridge the “missing middle” between early-stage grants awarded by agencies like the Australian Renewable Energy Agency and later-stage commercial finance provided by the Clean Energy Finance Corporation.
Liberals argue NRF Net Zero Fund will be ‘loss-making machine’
More news: Shadow Minister for Industry and Innovation Alex Hawke has described the National Reconstruction Fund’s Net Zero subfund as a “loss-making machine” after the federal government announced that its target rate of return would be 1% below the five-year government bond rate.
Hawke said in a statement that “Labor is now explicitly directing the NRF to back ‘losers’. By setting a return target below the bond rate, they are admitting these green projects cannot stand on their own two feet”.
He argued that, because the Net Zero fund is targeting a rate of return below the interest rate the federal government can borrow money at, the subfund has a “guaranteed, structural loss on every dollar spent”.
In an earlier statement, Industry and Innovation Minister Tim Ayres said “backing Australian heavy industry and manufacturing to reduce its emissions and lower energy costs is a big national challenge that demands leadership, planning and an appetite for risk”.
“Globally competitive financing from the NRF’s Net Zero Fund will make sure public investment in decarbonisation crowds in billions of dollars in private capital and drives down industrial energy costs and emissions, while supporting new manufacturing jobs in the regions,” Ayres said.
Climate Change and Energy Minister Chris Bowen argued that in order to meet the government objective of a Future Made in Australia it needs to "help our hardest-to-abate industries modernise and stay globally competitive".
“Cheaper finance means more projects can stack up, more Australian supply chains can grow, and more industrial emissions can come down," Bowen said.
NRF’s $5b Net Zero Fund rate of return confirmed as 1% below bond rate
The news: The National Reconstruction Fund’s $5 billion Net Zero Fund will have a target rate of return that is 1% below the five-year government bond rate, which is more concessional when compared to the general investment mandate.
The fund will focus on helping large-scale industrial facilities decarbonise and will also support the scale up of manufacturing renewable and low emissions technologies.
The numbers: The five-year Australian government bond yield was just under 4.5% at the time of writing.
The NRF’s general portfolio target rate of return is between 2% to 3% above the five-year government bond rate.
The $5 billion subfund draws on the NRF’s existing $15 billion allocation and replaces the existing $3 billion investment target under the renewables and low emissions technologies priority area.
The context: The Net Zero Fund was announced in mid-September 2025 alongside the government’s Industry Sector Plan to help heavy industry decarbonise. It will also support the scale-up of low emissions technologies.
The fund will be implemented by mid-2026.
Eligible projects include “businesses involved in related manufacturing of products for use in or in connection with”:
- Waste Reduction,
- Renewable energy generation, transmission, distribution or storage,
- Energy efficiency,
- Recycling.
This could include component manufacturing for wind turbines, batteries, solar panels or hydrogen electrolysers.
Consultation on the design of the fund received 127 written submissions from industrial manufacturing and energy sector organisations, unions, researchers, think tanks and other representative bodies.
An industry forum that featured 60-executive level representatives was also held by Industry and Innovation Minister Tim Ayres.
The sources: Department of Industry media release, Minister Tim Ayres and Minister Chris Bowen joint media release, Shadow Minister Alex Hawke media release
