Yesterday in part 1 of this special report, it was explained that government involvement in the Whyalla solar thermal project extended back well before they allocated – and then subsequently recently withdrew – $60 million in funding via the Renewable Energy Development Program (REDP).
Where we left off was in 2009. ANU and Wizard Power’s first prototype solar dish had been built at ANU and underwent on-sun testing in June that illustrated the technology had great promise.
However Wizard Power had also secured $7.4 million back in 2005 from a government program focussed on energy storage. This enabled it to take the solar dish technology beyond prototype to the next stage by building a further four solar dishes in Whyalla.
But according to Wizard Power the energy storage component of the project, which involved ammonia, was looking less promising. So the project was stalled until government granted approval to modify the project to use an alternative energy storage option (possibly molten salt).
Bigger equals better for politicians
In the meantime Labor had come to power in November 2007 with the promise of establishing a $500 million Renewable Energy Fund to support projects which had to be large-scale, commercial demonstrations to qualify. Why the projects had to be large-scale, and why it might not also be worthwhile using the fund to support pre-commercial projects, was never really explained.
Most likely it was conceived that way because it was almost precisely modelled on an existing and poorly conceived Howard government Energy White Paper program – the Low Emission Technology Demonstration Fund.
The Renewable Energy Fund was then rebranded as the $435 million Renewable Energy Demonstration Program (REDP), which was launched a year and a half later in February 2009.
Looking at this as an outsider it seems it would have been wise for everyone to wait until the four dishes supported through the energy storage program had been built and operational before doing anything else. But there was no indication from government there would be any funding to follow REDP to assist with the next scale-up step for the dish technology.
Given this uncertainty around future funding, and the fact that REDP insisted upon projects being ‘large scale’, it’s perhaps unsurprising that Wizard Power, as part of a consortia known as Solar Oasis, proposed to establish a 300 dish project, before its four dish project was completed.
Yet it was a decision that Wizard Power’s former executive chairman Tony Roby says they have come to regret. It ended up tying his company in a highly uncertain holding pattern for around four years and passing-up other opportunities until Whyalla could be completed.
But at the time it got involved the whole selection process around REDP was expected to be completed in a few months with funding deeds signed by July 2009.
Then in the May budget, Prime Minister Kevin Rudd surprised everyone by hatching the $1.6 billion Solar Flagships. It would take $135 million of its funding out of REDP and had the aim of building even larger-scale solar power projects than what REDP was seeking.
A new body called Renewables Australia was also to be established (which sounded eerily similar in function to the Australian Renewable Energy Agency). This body would then consider the solar bids under REDP. Renewables Australia was then creatively reinterpreted into the Australian Centre for Renewable Energy (ACRE), which was essentially a board of a few people with no staff and not much funding beyond REDP.
These announcements threw the solar bids of REDP into limbo.
Ultimately Solar Oasis was recommended for funding to the energy minister in January 2010, seven months later than planned. Rather bizarrely it then took another four months until the energy minister finally got around to announcing Solar Oasis as a successful bidder.
As this whole process was going on, Wizard Power was still awaiting a decision from the Department of Resources Energy and Tourism to use molten salt instead of ammonia for its four dish energy storage project. By now Wizard had spent a large proportion of its $7.4 million energy storage grant and no dishes had been erected. According to Tony Roby, they were now dealing with completely new personnel within the Department.
Public service risk management enters the fray
I suspect (but have been unable to confirm) that at the same time it dawned on staff within the Department that the government had awarded $60 million for 300 dishes despite being yet to see evidence of four dishes from an earlier $7.4 million grant.
What’s more, the guidelines for REDP specified that funding was for projects that had been “proven at pilot plant scale”. Yet the ANU prototype had only first commenced on-sun testing in June 2009, around a month after applications for REDP funding had closed.
This would no doubt have made the public service extremely nervous and probably pushed them into bum-covering mode.
Interestingly Solar Oasis was not unusual in respect of employing a technology that was still to be thoroughly tested.
The ANAO in their audit of the REDP found that the government sought to:
“Manage technology risks arising from some of the projects through the use of conditions precedent. This approach helped to ensure that grant recipients were in a better position to demonstrate their technology on a large scale prior to receiving REDP funding. Four grant recipients have conditions precedent that involve testing part of their technology, for example completing a proof of concept project (outlined earlier) or a pilot project to demonstrate a mass manufacturing approach.”
In the end the government had created a funding source which, for a number of technology proponents (particularly in geothermal), was their only option for making further significant progress. Irrespective of whether they had successfully passed the pilot stage and were ready for commercial demonstration scale-up, they were going to apply for funding. If this meant proposing to run before you could crawl, so be it.
The government faced a dilemma. It could either:
a) Admit the program was poorly conceived in the first place and completely reconfigure REDP into a more broadly based program that could support technologies along a range of levels of maturity and sizes, including smaller-scale pilots (which is what Renewables Australia was actually billed to do); or
b) Plough on, agreeing to fund some projects that looked like they might turn out to be good, but clearly weren’t yet at the stage of commercial-scale demonstration.
In the end it chose the latter. But to manage risk exposure, and remain somewhat faithful to the REDP’s original purpose, a range of hurdles and steps were imposed, which proponents had to surmount before government was in any way on the hook.
22 months to negotiate a funding deed
In the case of Solar Oasis, the government understandably wanted the energy storage four dish project completed first and used as a test before anything else occurred. But because Solar Oasis would use steam instead of molten salt or ammonia as its heat transfer fluid, this requirement was dropped. Then they asked for other project staggering and testing phases. According to Wizard Power, many of these were either commercially or technically impractical, or simply added extra difficulty to manage non-existent risks.
These negotiations went through several iterations, which Wizard Power says were usually interspersed with periods as long as several months when it heard nothing from the Department. Wizard also claims that it was common for new conditions to be inserted by the Department without any explanation as to why they were required.
All up 22 months transpired between when the project was announced and when the funding deed was finally signed in March 2012.
However the project still faced a range of hurdles before it could even commence construction. Least of all was the financing for the remaining $170 million capital cost of the project not covered by government funding.
This next stage in the project will be covered in the third and final part of this special report along with the key lessons learnt.