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Turnbull’s sleight of hand on clean energy investment

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Prime Minister Malcolm Turnbull has put his own stamp on clean energy investment in Australia, dumping Coalition plans to scrap the Clean Energy Finance Corporation, but announcing new plans to essentially de-fund the Australian Renewable Energy Agency and replace it with a new “Clean Energy Innovation Fund.”

hunt turnbullThe retention of the CEFC will be welcome and signals a potential shift from the anti-renewable policy stance of the Abbott regime that preceded him.

But the move to de-fund ARENA and create a “new” fund using money already allocated to the CEFC is nothing but a sleight of hand, and an elaborate ruse by Turnbull to save more than a $1.3 billion and get his new pet-word “innovation” included in a financing scheme. It may also be designed to meet Australia’s Paris commitment to invest “new money” in clean energy innovation.

But the move may back-fire, because although the new set-up will continue to support near commercial projects, the technologies and ideas at the formative stage of the innovation process may be left stranded, without funding. According to the former chairman of ARENA, Greg Bourne, Australian innovation may move overseas to get the necessary support. So much for the innovation nation.

The Turnbull government has been showing less interest in ARENA, and its cost to the budget, and over the last few months has not renewed contracts for directors, and allowed it to narrow to a single director, the head of Greg Hunt’s environment department.

ARENA will continue to manage its current projects, and complete its $100 million funding program for large scale solar projects. But after that its funding will be stopped and it will effectively be morphed – along with its staff – into an annexe of the CEFC and the new fund.

Under the new plan hatched by Turnbull and Hunt, ARENA’s grants-based funding strategy will be replaced by “innovative” finance such as debt and equity funding – effectively lending money and buying shares in the investments.

The remit under the new CEIF banner will also move beyond renewable energy and include energy efficiency, already a major focus of the CEFC, and “low carbon investment”.

Hunt said the CEIF will mostly invest in “storage, in new  battery technology, in smart  grids, in some of the exciting  solar visions that people have  hoped for and imagined for  Australia but which are only  now really becoming reality.” The sort of thing that ARENA was already doing, but may now happen under a fund rebranded by the Coalition.

The new fund will have $100 million a year to invest, but this money will come from funds already allocated to the CEFC. It is being drip fed over 10 years so as “not to overwhelm the market”.

The long term unallocated ARENA budget – amounting to around $1.3 billion – has been withdrawn. This, however, needs approval from parliament, and Turnbull may have a fight on his hands to achieve this once Labor and the Greens see through the proposal, unless it occurs in a joint sitting post a double dissolution.

The Coalition effectively killed ARENA’s unallocated $1.3 billion funding in last year’s budget, excluding it from the forward estimates. But if the Coalition wants that money to disappear completely it needs to change the act, and that will require support from the Senate.

Turnbull said the new fund would target early-stage clean energy projects that had trouble growing to the size and maturity needed to attract private equity. He cited one project that could be supported as the solar tower plus storage facility proposed for Port Augusta by US company SolarReserve.

“We are promoting innovation and new economic opportunities, enhancing our productivity, protecting our environment and reducing emissions to tackle climate change,’’ Turnbull said in a statement. “An example of a project could be a large scale solar facility with storage in Port Augusta.”

That comment drew  enthusiastic support from local community groups pushing for those solar towers – although less so from the CEFC itself. But again Turnbull appears to be giving with one hand and taking with another.

One major concern is the future of the “research” component of ARENA, which has been playing a critical role in providing data, information and knowledge on new technologies, such as grid integration, mapping solar and wind resources.

The Government will also set a target rate of return of one per cent above the government bond rate – compared to the CEFC’s target of 4 per cent above the government bond rate – effectively turning it into a venture capital fund, although one already exists in the form of the Southern Cross Ventures.

“We hope that they do better but that’s their target, so instead of giving  100 per cent of the taxpayers’ money  away, our goal is to receive 100 per cent of the taxpayers’ money  back but with an additional return,” Hunt said at a news conference.

Hunt was particularly critical of ARENA, saying that grants had been made “without a lot  of follow-up as to whether it’s effective.” Others noted that ARENA had recouped $600 million in projects that had been approved by the Howard and Labor governments but did not look promising.

Still, it appears that the government did not approve of large grants to individual projects that offered no return to the taxpayer.

While technically ARENA will not be “merged”, it will be stripped of all its powers. Its few remaining executives will help assess projects for the new fund, but will not be involved in decision making, which will lie entirely with the CEFC board.

Clean Energy Council CEO Kane Thornton said the move effectively took with one hand and gave with another, by reducing ARENA’s access to capital grants and replacing it with new mechanisms using CEFC’s existing money.

Thornton said the new fund will be able to provide both debt and equity, but the question remained to what extent debt and equity can replace the gap previously filled by grants.

“We are pleased that the CEFC is going to live on, but we are disappointed that the government will press on and reduce the budget for ARENA and its ability to provide capital grants.

“These have been critical to ARENA’s success to date, not only in funding large scale solar projects but also in its significant R&D support.”

Staff within ARENA are believed to be horrified by the changes, particularly the decision to bring a halt to funding to start-up technologies and research. They say the focus on the new fund, and the need for it to get a return on investment, will effectively rule out a whole category of funding requirements.

“How many early stage renewable energy projects out there are in a position to one, pay back the money, and give a return on investment,” said one.

Mark Butler, Labor’s climate change spokesman, said Turnbull was trying to make his government look different to Tony Abbott’s, “but he has failed again.”

He accused Turnbull and Hunt of “hitting renewables at the CSIRO” while giving money for research into ‘health effects of wind farms’, and noted Turnbull continued to support Abbott’s direct action policy, which Turnbull had called” fiscal recklessness on a grand scale.”

“Malcolm Turnbull is a sell out on renewable energy just like he is on climate change,” Butler said. “How can we trust them? No new ideas, no new money, just smoke and mirrors.”

John Grimes, the head of the Australian Solar Council, was even more damming.

“Malcolm Turnbull’s Clean Energy Investment Fund is like an exquisitely decorated Easter Egg. It looks great on the outside, but inside it’s a rotten egg,” he said in statement.

“By its very nature early stage research is speculative.  Almost no projects will be fundable under this model.  This will cut the guts out of renewable innovation in Australia”.

 

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