The Morrison government’s stalled Underwriting New Generation Investments (UNGI) program is set to come under scrutiny by the federal government expenditure watchdog after the Australian National Audit Office (ANAO) included the program in its proposed audit hit list for 2020-21.
The UNGI program has been operating effectively behind closed doors since its announcement in November 2018, with vague offers of funding being made by the Morrison government to new generation projects. But no official agreements for loans, grants or guarantees have been provided by the government, yet.
In a draft work plan for the 2020-21 year published on Monday, the ANAO included the UNGI program on its list of government programs proposed for audit, that would focus on ensuring the “effective, efficient, economical and ethical delivery of the Australian Government’s response to the COVID-19 pandemic”.
The UNGI program has attracted criticism due to perceptions that it will serve as vehicle for the Morrison government to channel taxpayer funds into new investments in coal and gas generators.
At the same time, the offer of funding – even without any meaningful commitments – has had the perverse outcome of hindering private sector investment in new projects, with the heads of major energy companies, including Origin Energy and EnergyAustralia, delaying projects until the outcomes of the UNGI funding decisions are known.
Not only does it leave the government with an impotent policy for supporting investment in new generation but also a policy that is actually working to make it more difficult for the private sector to investment in new projects.
The operation of the UNGI program has been opaque since its conception almost 18 months ago, with the Morrison government negotiating behind closed doors over how public funds could be used to support new gas, coal and pumped hydro generators, without any guidelines or eligibility criteria being made public.
Independent MP Zali Steggall and think tank The Australia Institute had written to the ANAO requesting an audit of the UNGI program, citing the lack of transparency around how the Morrison government is making decisions under the program.
Steggall welcomed the ANAO’s moves to include the UNGI program on its audit list.
“This is great news for accountable and transparent governance. Ever since ‘sports rorts’ it has become imperative that we restore trust in our institutions by ensuring that all government programs are above board,” Steggall told RenewEconomy.
“Taxpayers deserve to know their money is being spent wisely and in accordance with good governance, addressing the challenges of the future, rather than being mired in ideology. This is doubly so in the current economic climate.”
“This audit will hopefully shine a light on a program that will direct significant funds that has been opaque and problematic from its inception,” Steggall added.
The Australia Institute commissioned legal advice on the operation of the UNGI program, which raised concerns over its lack of transparency, as well as questions over the legality of the program which currently has not gained authorisation from parliament to commit taxpayer funds.
Without the enabling legislative amendments, legal experts have argued that the UNGI program could be open to a constitutional challenge, as the government lacks the proper legal authority to commit taxpayer funds to generators under the program.
“It is great news the Australian National Audit Office has announced it will review the Underwriting New Generations Investment program, following concerns the program risks becoming another sports rorts type scandal,” the Australia Institute senior researcher Tom Swann said.
“UNGI is a flagship policy for the Minister for Energy and Emissions Reduction, who now touts it as part of the ‘gas fired recovery’. But 18 months after it was announced, UNGI is from a governance perspective still a complete dog’s breakfast.”
“The Australia Institute’s analysis, provided to ANAO, shows the program still has no legal basis, no formal guidelines or criteria and is following no clear policy development process. So far the program has succeeded only in fuelling uncertainty. It is no solution for the lack of a clear and credible climate and energy strategy,” Swann added.
The UNGI program was conceived by the Morrison government as a response to recommendations from the ACCC that the government underwrite new power station projects designed to sell power directly to small and medium businesses to improve access to lower-cost supplies of electricity.
The Morrison government has interpreted that recommendation as suggesting it should underwrite new dispatchable generators, seemingly regardless of whether the power was being sold to the small or medium businesses targeted by the ACCC recommendation.
“The ACCC’s Retail Electricity Pricing Inquiry identified the need for new firm generation in the system to improve reliability, promote competition and drive down prices, particularly for our commercial industrial sector,” a spokesperson for energy minister Angus Taylor told RenewEconomy.
“The UNGI program, which is the most cost-effective way to bring firm generation into the market, is a direct response to this recommendation of the ACCC.”
In October last year, the Morrison government announced it would establish a $1 billion Grid Reliability Fund, to be administered by the Clean Energy Finance Corporation and which would be used to fund the government’s underwriting commitments under the UNGI program.
The legislation required to establish the Grid Reliability Fund has been stalled by the suspension of federal parliament due to Covid-19, but it is understood that a package of amendments has been drafted and may be progressed as parliamentary sittings resume.
The first dozen projects had been shortlisted by the Morrison government, a list of gas, pumped hydro and a coal generation projects, were announced in March last year and in the days leading up to Christmas, energy minister Angus Taylor announced that two of the shortlisted gas fired generators had secured financial support under the UNGI program.
It is understood that the Vales Point coal-fired power station is set to receive $11 million in taxpayer funding towards the costs of upgrades and repairs.
Taylor also struck a deal with the NSW government in January that included a commitment to up to three projects in NSW, but no official decision has been made about which three projects would receive the underwriting support under the UNGI program.
Until the parliament can approve the necessary amendments, which will enable the Clean Energy Finance Corporation to commit funding to UNGI projects, the program will likely remain in limbo.
The ANAO is the federal government’s chief internal auditor and recently uncovered the details of the ‘sports rorts’ saga, where evidence emerged that the Morrison government had directed funding for community sports grants in a way that worked to maximise their electoral chances, rather than based on merit.
The proposed audit list also includes Snowy Hydro’s governance arrangements for the Snowy 2.0 expansion project, to which the federal government has committed an investment of $1.38 billion, and is expected to attract a total price tag of $4.5 billion, before additional network infrastructure is taken into account.
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