Origin Energy, the country’s largest energy utility, has delivered a damning assessment of some of the grants-based support programs for clean energy projects, such as the $1.5 billion Solar Flagships scheme, saying they were a boon for legal and technical service providers, but did little for actual deployment of technologies.
The comments are included in a submission to the Clean Energy Finance Corporation (more are detailed here) which was delivered last December, around the same time as it was first revealed (by this reporter) that the two successful Solar Flagships candidates had failed to meet financing deadlines.
Many in the industry have been scathing in their assessment of the grants-based schemes, noting that despite the grand announcements and photo opportunities, little had actually been deployed. This has been one of the principal reasons for the establishment of the CEFC, or for more market-based mechanisms such as feed-in tariffs. Not that Origin is a great fan of the latter and is cautious about the CEFC.
Origin’s comments should also be seen in the light of the critical role it plays in deployment of such technologies. It, and other electricity retailers, have been criticised for their failure to award power purchase agreements to facilitate the financing and development of wind farms and solar projects, although they argue this is simply a function of a market distorted by poorly conceived solar energy schemes, and the surplus of renewable energy certificates.
In its submission to the CEFC, Origin notes that there are fundamental challenges with the structure of some of the capital grant programs that can prevent the money from being invested, even after it is allocated — a situation highlighted often enough on this website and in a Grattan Institute report last year.
Origin cited the Low Emission Technologies Demonstration Fund (LETDF), which awarded $500 million in grants, but in the case of Solar Systems, for example, only disbursed $5 million out of total funding of more than $100 million before the company went bankrupt. (It is seeking to access more of those funds now that it is owned by Silex Systems).
But Origin also used the Solar Flagships program as an example of how professional/legal/technical services providers often benefit most, and create the potential for conflicts of interest.
“Given the sheer number of proponents in the early stages of these processes, firms may have multiple teams working on competing bids,” the submission says. “Given the limits of technical expertise in a number of these new areas (eg solar thermal) it is often the case that a technical services firm has a technical expert/representative on the selection panel for a program, and also be involved as a technical advisor to (or indeed, an equity proponent in) applicants for funding. There is scope for conflicts of interest to arise in this regard.”
Origin says the shortlisted solar flagship (there were eight in total out of 52 applicants) companies were granted funding to undertake the preparation of their ‘final submission’. It says most of these funds would have gone straight to the bottom line of technical and legal consultant companies, rather than into the technology development space. Some firms, it notes, could charge $1 million or more to make engineering and resource assessments and design work, and for legal fees in “negotiating” deeds. “So a perverse outcome is that, in order to comply with the submission criteria, companies spend a significant amount of funding, and often divert funding from what they do best, that is technology development.”
Origin also echoes the criticisms of the schemes made elsewhere, noting that the grants are capital in nature, do not help provide certainty around revenue streams, which is critical to ongoing deployment rather than one-off demonstration plants, and don’t actually reduce the need for the developer’s own equity.
It also notes that project milestones agreed as part of a ‘deed’ which is signed by the minister, means flexibility around those milestones at a later stage is difficult to achieve. “The entire deed needs to be ‘re-opened’ and resigned by the minister, and at his or her discretion,” it noted. This leads to the perverse outcome where, as companies miss the schedule associated with milestones, even if they reach budget targets, the government has every right to not make reimbursement (ie it can at its absolute discretion reallocate the money where it likes).
“This also leads to a relationship between the companies and government department that is less than ‘collaborative’ with the government department itself at a distance to project progress. The funding is matched to private sector investment, which cannot be given over the life of the project (eg companies typically employ a yearly budget/commitment cycle and in some instances, as a passive investor in providing the matched funding, cannot provide government with anything other than a year on year commitment).”