ARENA told to strengthen processes, as decisions on future loom

The Australian Renewable Energy Agency has been told to improve its evaluation processes after an audit of the agency found it could not conclusively demonstrate it was directing funding to projects that needed the funding.

The federal Auditor-General, who is tasked with overseeing the expenditure of government funds, published the outcomes of its review on Thursday, issuing six recommendations to ARENA to tighten up its processes.

In a report published by the Australian National Audit Office (ANAO), the auditor found that in some circumstances, ARENA was unable to clearly demonstrate that renewable energy projects that had received grant funding would not have gone ahead without it.

The results of the audit have been released at a crucial moment for ARENA, as the agency approaches the end of its funding allocations, and there have been ongoing calls for its funding to be extended for at least a few additional years.

ARENA was established in 2012 for the purpose of boosting the supply and competitiveness of Australia’s renewable energy sector. Since its formation, ARENA has provided almost $1.7 billion in grant funding to support the development and demonstration of emerging technologies and has been particularly instrumental in the emergence of Australia’s large-scale solar industry.

The assessment raises questions around whether some projects received ARENA funding when it was not needed, but overall, the ANAO found that ARENA’s funding programs had largely been effective, and achieved the objectives of the agency.

While the ANAO did not directly conclude that ARENA’s funding was ineffective, the audit office did conclude that external evaluations of ARENA’s outcomes “do not clearly demonstrate the extent to which ARENA’s programs are … improving the supply and competitiveness of renewable energy in Australia.”

However, the ANAO found that positive progress was being made in Australia’s renewable energy sector and that the supply of wind and solar in particular had grown dramatically since ARENA’s inception. The questions raised by the audit related to the degree to which ARENA could claim credit for these gains.

“Performance reporting and evaluation frameworks do not position ARENA to demonstrate that it is achieving its objectives,” the audit office said.

“ARENA’s grant guidelines are appropriate and aligned with strategic plans except in relation to describing its assessment of additionality to determine whether proposed projects would achieve outcomes that would not otherwise occur without public funding.”

The most recent evaluation completed by ARENA by consultancy EYfound that ARENA has been highly effective at attracting private sector investment, creating jobs and supporting research, but did find it difficult to directly quantify the additionality of ARENA funding.

A survey of funding recipients completed by EY found that 73 per cent of funding recipients surveyed did not believe their project would have been successful without ARENA’s involvement. For projects looking to build generation projects (as opposed to research projects), EY found that as many as one-in-five projects could have gone ahead even without ARENA funding.

Of concern to the ANAO was the management of conflicts of interests in ARENA’s evaluation processes, which at times saw groups and individuals with an interest in ARENA funded projects subsequently engaged in some of the agency’s evaluation processes.

The ANAO cited examples were funding recipients, or members of ARENA’s advisory committee, had been engaged to complete an evaluation of ARENA’s programs, without potential conflicts of interest being identified and disclosed.

The ANAO has recommended to ARENA that the agency boost its performance measurement frameworks, to ensure funding is being directed towards projects that are would not otherwise occur without grant support.

It was also recommended that ARENA introduce strengthened measures to manage potential conflicts of interest with those dealing with the agency.

ARENA has agreed to all of the recommendations of the Auditor-General.

“It is pleasing that the ANAO has concluded that ARENA’s management of its grants programs is largely effective, that grant project selection is aligned with ARENA’s objectives, and that management of grant funding agreements is largely effective. ARENA agrees to all recommendations and has commenced implementation,” ARENA said in response to the audit report.

Federal energy and emissions reduction minister Angus Taylor welcomed the ANAO’s finding that ARENA’s funding had been effective, and said that the Morrison government would work to address the recommendations raised.

“It is pleasing the ANAO found that ARENA’s grants program management and its funding agreements are largely effective,” Taylor told RenewEconomy.

“I note that ARENA has agreed to all of ANAO’s recommendations and is already taking active steps to improve its processes. We will work with ARENA to ensure that its performance management framework provides the reliable basis needed to show that ARENA is delivering on its objectives.”

Taylor also flagged that a decision about ARENA’s future funding will be made within the usual budget processes.

“ARENA’s funding is guaranteed until 2022 and the Government has always said that ARENA’s funding will be addressed in the most appropriate Budget context,” Taylor added.

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