ARENA saved but clouds remain

The arrival of the Palmer United Party with Ricky ‘Revhead’ Muir is making for a hectic and confusing time for carbon pollution control policy.

Just yesterday the PUP Party joined with Muir to say they’ll block the government’s plan to abolish the Australian Renewable Energy Agency. However, it is not all sweetness and light.

There are still some problems surrounding its funding in the short term. And room for the government to replace the board members with others relatively soon, which could possibly freeze ARENA’s activities.

Funding likely to be tight until 2017-18

That’s because the government, in quite a tricky move back in November, implanted amendments to ARENA’s legislated funding as part of the repeal bill for the carbon price. This meant that ARENA’s available legislated funding over the period 2013-14 to 2016-17 was reduced by $644 million (although a lot of this money was deferred into future periods rather than permanently cut). The PUP and Muir have said they’ll vote in favour of the carbon price repeal bill without requiring the ARENA funding reductions to be removed from the bill.

This is likely to mean ARENA’s free, uncommitted funding available for new projects will be relatively tight for the next few years before ballooning to several hundred million in 2017-18.

Precisely how much free money ARENA has is difficult to know because ARENA management is reluctant to provide a number as of the time of writing.

They explain that it is highly fluid because some funded projects ultimately end up not proceeding, freeing up money to support other projects.

In November, when the reduction in funding was announced, ARENA said this left it with $200 million in uncommitted funds. However, based on discussions last night with chief executive Ivor Frischknecht, the agency has since then been extremely busy signing funding agreements to support a substantial number of projects. We don’t know how much money this involves because ARENA has a (wise) policy of not announcing project funding agreements until the projects have confirmed all their financing, and are committed to construction (ARENA typically will only fund a sub-component of a project’s cost.). This can often not occur until several months after ARENA commits funding to a project.  

Working backwards from a range of snippets of information from Frischknecht, and the budget papers up to May, suggests ARENA may have $70 million left to spend over the years 2014-15 to 2016-17. Now, this could likely be a bit higher if some past funding agreements expire due to projects failing to proceed to construction. But at the same time, more funding commitments are likely to have been made since May which could possibly reduce available funding by a maximum of $30 million. 

Either way it seems likely that ARENA will be heavily constrained in the money it can provide to project proponents prior to 2017-18, but things look very bright from then onwards.

ARENA board members’ appointments will soon expire

But there is probably a bigger cloud hanging over the agency in that the contracts for all ARENA board members are all about to expire. It’s possible that the government could replace the board with new members that could put the brakes on ARENA funding new projects.

Whether they actually follow through on such a move is unclear. It seems neither Greg Hunt nor the responsible minister in Ian Macfarlane have a strong desire to have the agency abolished. Also, the politics of such a defiant move against the will of the Parliament and a popular technology could work out badly for the government. They may simply take the pragmatic view that if the money is locked up in ARENA thanks to the Senate, they might as well use it to their advantage by taking credit for the projects it funds and cutting the ribbons on the projects the agency will support.