$370m of ARENA funding pushed into the never never
While the government has said it will not be cutting funding to ARENA, the table below illustrates some very major shifting of ARENA’s expenditure out beyond the forward estimates and into the never-never.
The Clean Energy Council understands that in fact $370 million has been pushed out to beyond 2020. On top of this another $159 million has been rolled back into the Education Investment Fund, which was allocated to Solar Flagships and had been attached to ARENA.
2013-14 Budget funding allocation and difference relative to ARENA legislation
According to the government, the funding profile for ARENA has been changed to better reflect program demand and to extend the life of ARENA by two years to 2021-22.
Climate Spectator discussed the changes with ARENA’s CEO, Ivor Frischknecht, who explained that such a deferral was judged to be a realistic assessment of their expenditure. At the same time he provided reassurance that such a profile would be revisited if it turned out that there was greater demand from worthy projects. He was also pleased that the government had significantly increased the funding for departmental resources to support ARENA’s functions.
As I commented on last year’s budget, some level of expenditure deferral in 2012-13 and 2013-14 seemed inevitable and appropriate. ARENA only just appointed a CEO and board in June last year, and is still finalising its funding strategy and programs in consultation with industry. Plus there are considerable lags typically involved in the development of renewable energy projects and many of the projects funded under legacy programs inherited by ARENA were facing serious technical and commercial difficulties.
Far better for ARENA to thoroughly think through its approach and where it might get the best bang for buck, than rush through a bunch of funding announcements on projects that either won’t end up coming to fruition, or won’t make much difference.
Yet it’s still difficult to reconcile this with what has been announced in the budget.
The government expects half a billion dollars to be spent in the space of the next 12 months, but then thinks ARENA will struggle to spend its allocated budget of nearly $300 million four years from now. Admittedly next year ARENA’s expenditure will be boosted by construction of AGL’s 150MW solar project, and hopefully another large scale solar PV project by Pacific Hydro or Infigen.
Nonetheless, given the four year lead time and the big dollars that can be easily incurred in developing renewable energy projects, spending $300 million in 2016-17 shouldn’t be that much of a stretch. For example a single solar thermal power project with energy storage could be built within two years of financial close and consume the entire $300 million in one go.
As revealed in AEMO’s 100% renewable energy modelling, such a technology is likely to be important to Australia’s decarbonisation objectives and worthy of funding consideration by ARENA. Furthermore there are other technological examples that could usefully employ $300 million within the 2016-17 timeframe.
Of course the legislation governing ARENA means its board should be free to change this funding profile if it sees fit. But it is disconcerting that such an announcement has been framed by the government as part of a broader response to a drop in revenue from the lower than expected carbon price.
ARENA is supposed to be wholly independent from government. To give investors confidence about its independence, ARENA should be making announcements about its expected expenditure profile independent of the overall government budget and irrespective of what happens to carbon pricing revenue.