Chapter 6 Audit Report No.1 2012–13 Administration of the Renewable Energy
The Renewable Energy Demonstration Program (REDP) was designed to ‘accelerate
the commercialisation and deployment of new renewable energy technologies for
power generation in Australia by assisting the demonstration of these
technologies on a commercial scale’.
The program was launched on 20 February 2009 as a merit-based
competitive grants program. The Government initially committed $435 million
to the program, with the private sector to contribute at least two dollars for
every one dollar provided.
The Department of Resources, Energy and Tourism (RET) was the administering
agency responsible for the REDP’s design and implementation.
The REDP formed the bulk of the Government’s 2007 election commitment to
a $500 million Renewable Energy Fund, which was originally proposed to be
funded for the period of 2008–09 to 2014–15.
Initial details of
the REDP were announced in May 2008 as part of the budget process, during which
a decision was announced that funding would be delayed until the 2009–10 financial
year to ‘allow time for consultation and decisions on funding guidelines’, and to
‘allow potential applicants to plan projects in accordance with these
guidelines and in the context of other climate change policies’.
In December 2008, however, the Government announced that the Renewable
Energy Fund would be brought forward for investment in the subsequent
18 months. Bringing the funding
forward was intended to:
- turbo charge investment in solar and renewable energy projects;
- complement the Carbon Pollution Reduction Scheme;
- stimulate the economy; and
- create low pollution jobs for the future.
The department received 63 applications under the REDP, of which 61 were
considered by the Department to be eligible for funding (36 non‑solar
and 25 solar). An independent advisory committee, the Renewable Energy
Committee (REC), was appointed to assess applications against the specified merit
criteria and to make recommendations for funding. On 6 November 2009,
the Minister for Resources and Energy announced grants for four non-solar
projects (two geothermal energy, one wave energy and one combination energy).
As part of the 2009–10 Federal Budget, the Government announced the $1.5
billion Solar Flagships Program and the establishment of the Australian Centre
for Renewable Energy (ACRE). As a result, solar energy projects were excluded
from the REDP and $135 million of its funding was transferred to the Solar
In 2009, the Minister subsequently allocated up to $100 million to the
ACRE board to make recommendations on solar energy REDP applications. An
interim ACRE board—comprising the same members as the REC—assessed REDP solar
applications using the REDP guidelines and made funding recommendations to the
Minister. On 11 May 2010,
grants for two solar technology projects were announced.
Table 6.1 provides an overview of projects selected for funding.
Table 6.1 Projects funded under REDP (solar and
Amount of Grant (millions)
Plant Capacity (MW)
A hot rock geothermal energy demonstration plant in
Innamincka, South Australia.
Solar thermal big dish demonstration plant in Whyalla,
Victorian Wave Partners
Ocean energy demonstration plant off Portland, Victoria.
A heat exchanger within insulator geothermal energy
demonstration plant in Paralana, South Australia.
Solar powered booster for coal-fired power station at Kogan
Combination of solar, wind and biodiesel technologies on
King Island, Tasmania.
Audit Report No.1 2012–13, p. 45.
The Department of Resources, Energy and Tourism and the Australian
Renewable Energy Agency
RET was formed in December 2007, with functions transferred from the former
departments of Industry, Tourism and Resources; Education, Science and
Training; and Environment and Water Resources.
On 1 July 2012, the Australian Renewable Energy Agency (ARENA) was
established by the Government in order to consolidate renewable energy support
into one independent statutory authority within the Resources, Energy and
Tourism portfolio. ARENA, which replaced ACRE, is now responsible for managing
existing renewable energy programs, including the REDP.
Grants program administration framework
At the time of the REDP’s launch, the Government was in the process of
implementing a suite of reforms to improve grants administration. Although the
enhanced legislative policy framework for grants administration—including the
Commonwealth Grant Guidelines (CGGs)—did not come into full effect until 1 July
2009, after the commencement of the REDP assessment process, the reforms had
been already given immediate effect through revised Finance Minister’s
Instructions issued in January 2009.
The CGGs establish seven key principles for grants administration: robust
planning and design; an outcomes orientation; proportionality; collaboration
and partnership; governance and accountability; probity and transparency; and
achieving value with public money. The CGGs also highlight the importance of
record keeping to public accountability through ‘proper maintenance and availability
of relevant documentation’.
The ANAO audit
Audit objective and scope
The objective of the audit was to assess the effectiveness of RET’s
administration of the REDP (both solar and non-solar components), including
progress towards achieving the program’s objectives. The audit examined whether
the department had established effective arrangements to:
- implement the REDP,
including governance arrangements;
- assess applications
for REDP funding assistance and recommend projects to the Minister for funding
- negotiate funding
agreements for approved projects; and
- monitor progress
towards the achievement of the REDP objective.
Overall audit conclusion
The audit report concluded that RET ‘did not manage key aspects of the
program’s implementation well’, and had departed from ‘generally accepted
practices for sound grants administration, which had only recently been
reinforced by the release of the Commonwealth Grant Guidelines’.
The report identified particular weakness in the following three aspects
of the program’s administration:
- Program planning—the department did not complete an
implementation plan and did not perform a risk assessment until some eight
months after the REDP’s launch.
- Probity arrangements—the department did not keep records of the
consideration of conflict of interest declarations by several members of the
REC, nor the involvement of those members in discussing the individual
applications for which they had declared a conflict. The department’s probity
office did not observe the REC’s assessment deliberations or perform the
required oversight tasks.
- Assessment of applications—the assessment process ‘fell short’ of
the expected level of transparency and accountability, with insufficient
documentation retained to evidence key aspects of the process.
In making these conclusions, the Australian National Audit Office (ANAO)
recognised the ‘challenging environment’ the department was operating in. The
REDP was the first major program to be implemented by RET, which as a new
department was still establishing its core functions. Additionally, the REDP’s
accelerated implementation ‘meant that grant applications, assessments and
decisions had to be completed within a compressed timeframe, adding to the
program’s implementation risks’.
The audit report also acknowledged that since the REDP’s assessment
processes had taken place, the department had progressively strengthened its
governance arrangements and guidance, better positioning it to effectively
manage grants programs.
The ANAO made one recommendation aimed at the department enhancing its
existing guidance materials for managing grants programs through greater
coverage of the requirements relating to the documentation of merit assessment
Table 6.2 ANAO recommendation, Audit Report No.1 2012–13
To improve accountability
and transparency in grants administration, the ANAO recommends that the
Department of Resources, Energy and Tourism strengthens processes for
undertaking assessments of future grant programs by:
(a) providing additional
guidance in relation to documenting assessment and selection processes in the
department’s grants administration manual; and
(b) reinforcing to
departmental officers and advisory committee members the importance of
documenting assessments against eligibility and merit criteria.
RET Response: Agreed.
The Committee’s review
The Committee initially scheduled a public hearing for Wednesday 19 September
2012 with representatives of the following organisations:
- The Australian National Audit Office
- The Department of Resources, Energy and Tourism.
The public hearing was unable to take place on the day scheduled due to a
series of divisions in both Chambers, and the Committee resolved to undertake
the remainder of the inquiry through written correspondence.
The Committee sent the department eight initial questions in writing,
and one supplementary question.
The responses from RET provided the Committee with evidence on the
- Status of REDP projects
- Effectiveness of program acceleration
- Implementation of the ANAO recommendation
- Improvements to grant administration processes
- Development of Key Performance Indicators
- Management of conflicts of interest
- Support from other departments.
Status of REDP projects
The Committee requested that RET provide a brief progress update on the
development of each of the six projects funded under the REDP, including when
each project was expected to be fully operational and whether any were currently
The department advised that none of the projects were generating
electricity, and provided a brief update on each project, as summarised in
Table 6.3 Progress updates for REDP funded projects
RET progress update
Geodynamics Cooper Basin ‘Hot Rocks’ Geothermal
Geodynamics successfully completed drilling of its 4.2 kilometre
deep Habanero 4 well in September 2012. Challenges with the reverse cementing
of the final section of the well have been overcome and the company is
preparing to commence a ‘fraccing’ process to enhance the reservoir.
Solar Oasis Whyalla ‘Big Dish’ Solar Thermal project
The funding deed for this project was executed on 8 March
2012. Solar Oasis is undertaking activities required to implement the
End of 2016
Victorian Wave Partners Portland Wave Power Demonstration
The company has recently signed an agreement with Lockheed
Martin to provide engineering and project management support as a new project
participant following the withdrawal of Leighton Contractors from the
The project is in the process of renegotiating its funding
agreement, including project timing, with the Australian Renewable Energy
MNGI/Petratherm Paralana ‘Hot Rocks’ Geothermal
This project is contingent on the company securing the
funding needed to complete its precursor drilling program.
CS Energy Kogan Creek Solar Boost
This project is performing well. Bulk earth works are now
complete and supporting towers for the first three solar steam generators
have been erected and over 250 reflectors (mirrors) have been installed. The
Dalby factory commenced fully automated construction of reflectors in June
2012. Construction of the first three solar steam generators will be
completed by November 2012.
Hydro Tasmania King Island Renewable Energy Integration
This project is progressing well and has recently
successfully installed and commissioned the Diesel Uninterruptable Power
Effectiveness of program acceleration
Noting the audit report’s findings about the challenges caused by bringing
forward the REDP’s implementation in December 2008, the Committee asked how
successful the REDP had been in achieving the aims of this acceleration, which included
stimulating the economy and creating low carbon jobs for the future.
The response from RET indicated that although the REDP was accelerated
during the global financial crisis, it was ‘not formally part of the
Government’s stimulus package’, and ‘accordingly these outcomes were not part
of the REDP’s objectives’.
Implementation of ANAO recommendation
The ANAO’s recommendation called for additional guidance to be provided
in the department’s grants administration manual, and a reinforcing to staff of
the importance of documenting assessments against eligibility and merit
criteria. As noted earlier, RET agreed with the recommendation.
The Committee enquired as to what progress had been made on implementing
the recommendation to date; what future work was planned; and when that work
would be completed.
RET responded that it was in the process of revising its grants administration
manual and would ‘ensure that the additional guidance recommended by the ANAO
is incorporated into the new procedures’. The work was due to be complete by
January 2013. The department advised that the findings of the audit had
meanwhile been promulgated to program managers through its Program Management
and Delivery Committee.
Improvements to grant administration processes
The department also summarised for the Committee the changes it had made
to strengthen program management since the REDP’s implementation:
- Establishment and promulgation of a Grants Administration
Procedural Rule and Grants Administration Manual in February 2011
- Establishment of a Program management and Delivery Committee in
- Establishment of genesis files for all programs, containing key
planning and implementation documents
- Establishment of a program evaluation timeline, including
mid-point and final evaluations for all programs
- Inclusion of a rolling program of Grants Administration Reviews
in the department’s Internal Audit program, focusing on compliance
- Establishment of the RET Grants Network of program managers, used
to disseminate best practice information and discuss issues
- RET’s joining of the Program Management Community of Practice
Forum, a quarterly interdepartmental ‘round table’ forum to discuss issues and
share innovative ideas
- Establishment of a risk management framework in May 2010
- Establishment of a RET Program Management framework
- Establishment of a Legal Services Panel in 2009, which is used to
engage probity advisors for implementation of larger programs.
Development of Key Performance Indicators
During the audit, the department told the ANAO that it had not developed
Key Performance Indicators (KPIs) for the REDP, but that it was in the process
of doing so while implementing the recommendations of ANAO Report No. 5
(2011–12) Development and Implementation of Key Performance Indicators to
Support the Outcomes and Programs Framework.
The Committee asked RET whether this work had now been completed, and if
so, for an outline of the KPIs that had been developed and how the department
would ensure that the system for data collection, monitoring and reporting was
The department advised that a range of KPIs had now been approved for
the REDP. The KPIs were developed in consultation with the RET procurement team
and consulting firm BPPM Pty Ltd, and were consistent with ANAO
RET listed the program’s KPIs, which are divided into two sections:
‘operational KPIs’, which relate to program design and implementation; and
‘objectives focused KPIs’, which specify the program objectives and outcomes.
The department advised that its KPI template ‘sets out the information
or data to be collected in order to measure performance against these KPIs, who
is responsible for providing the information and the frequency and method of
data collection required’. It noted that ARENA would be monitoring KPI
compliance for the REDP projects.
Management of conflicts of interest
The audit report records that on 11 May 2009, the Special Minister of
State wrote to the Resources Minister to highlight the importance of
effectively managing conflicts of interest for the REDP, and to advise that
committee members were to ‘remove themselves from the assessment of any such
projects’ where there was a conflict of interest.
Five members of the REC had declared associations with entities when
asked to identify any potential or actual conflicts of interest. The department
advised the ANAO that an assessment had been made of the materiality of these
associations, but the ANAO found no recorded evidence of this assessment.
Nevertheless, in its response to the draft audit report, the department
repeated its view that no REC member had a material conflict of interest.
The Committee noted the audit report’s adverse findings on the
management of potential conflicts of interest by RET, particularly in regards
to the lack of documentation. It asked the department to explain how the
assessment was made of the materiality of REC member’s declared associations
with entities; why there was no documentation of this assessment; and what
evidence it had to support its statement that no REC member had a material
conflict of interest.
In its response, RET maintained that ‘due process was followed’.
The department explained that all members of the REC had signed confidentiality
agreements and submitted conflict of interest returns against all projects, and
it was ‘decided by the Acting Program Manager and the REC Chair that none of
the potential conflicts were material’.
In addition, RET advised that potential conflicts were regularly
discussed at REC meetings:
The first item discussed at every REC meeting was previously-disclosed
and new potential conflicts. In all cases, REC members agreed that the
conflicts were minor and that they would prefer the potentially conflicted
person to stay in the room and partake in the discussion. Members accepted that
in their deliberations they could make judgements on the comments of
potentially conflicted members given that they had knowledge of the potential
RET noted that the REC members’ confidentiality agreements and conflict
of interest declarations had been maintained on departmental files, and showed
… no REC members had an actual or perceived conflict of
interest that was material. No REC members had conflicts of interest with
applicants that would benefit them, either personally or financially, if the
applicant had been successful in obtaining REC funding.
The department attributed the lack of documentation of these matters to
the compressed timeframes that resulted from the REDP’s acceleration, adding:
RET accepts that some of the documentation and record-keeping
should have been better handled. This includes the assessment by the Acting
Program Manager and the REC Chair that none of the potential conflicts
identified were material. This assessment was not documented but any potential
conflicts of interest were transparent and widely understood by participants.
RET was also asked by the Committee whether any of the potential
conflict of interest associations declared by members of the REC related to
entities involved in projects that ultimately received REDP funding, and if so,
what assurance could be offered that the REC member was not involved in the
decision-making for this project’s application for funding.
The department informed the Committee that one such declared association
did relate to an entity that was awarded funding. The association was in the
form of a small shareholding in a company listed on the Australian Stock
Exchange. It was noted, however, that the project funded by REDP was a
‘relatively minor activity in its overall portfolio of activities’. The
department reiterated that ‘all potential conflicts, including this one, were
disclosed to and considered by the REC as part of its deliberations on the
In response to another question, the department advised that it had not
received any complaints about the REDP process or outcomes from any organisations
who missed out on funding.
Support from other departments
The audit report noted that the REDP was the first major program to be
implemented by RET as a new department, and that at the time the REDP was being
implemented RET was still establishing core departmental functions. This
finding was reiterated in RET’s response to the proposed ANAO report.
The Committee asked about the support RET received, as a relatively new
department during the REDP’s implementation, from its ‘parent’ departments—that
is, those departments who had transferred functions to RET—in relation to
managing grant programs.
The department replied that it had received ‘no direct support’ from other
departments in the implementation of the REDP. It noted that there had,
however, been some ‘knowledge transfer with staff who moved into RET as a
result of the 2007 Machinery of Government changes who had made use of
AusIndustry templates and procedures’.
In response to a supplementary question, the department advised that it did
not request assistance from any other agency in managing the development and
implementation of the REDP, nor did it receive any offers of additional
resources to assist in delivering the program.
The Committee was disappointed by the adverse findings contained in the ANAO’s
audit on the administration of the REDP.
However, the Committee recognises that the problems occurred within a
difficult context. RET was implementing a major grants program under an
accelerated timeline whilst also establishing a new department. The Committee
also acknowledges the significant improvements that have been made to RET’s
procedures in the period since the REDP commenced, and commends the department
for these efforts.
The Committee’s comments on several aspects of the program and the audit
report are contained below.
Progress of funded projects
Based on the information provided by RET, of the six projects funded
under the REDP, only two appear to be firmly on schedule to be fully
operational by 2014–15. Of these, one project—the King Island Renewable Energy
Integration Project—is not of the ‘large scale’ that was intended under the
A third project — the Innamincka ‘Hot Rocks’ Geothermal Demonstration—is
also expected by the department to be fully operational by around the end of
2014–15. However, the Committee notes the extensive setbacks this project has faced
due to technical barriers, which have led to delays and cost overruns, causing
Geodynamics’ joint venture partner Origin Energy to cease its financial
contributions to the project. The Committee welcomes
recent progress on the project, but also notes that current activity is focused
on a relatively small pilot plant based on the ‘Habanero 4’ well. The final
completion date for the project can be far from certain.
The department’s update stated that the funding deed for the Whyalla
‘Big Dish’ Solar Thermal project (Solar Oasis) had only been executed in March 2012.
The Committee notes the ANAO’s comments on significant delays to the signing of
funding deeds, which were intended to be executed within 30 days of the grants
being offered. These delays were ‘inconsistent with the department’s advice
that REDP applications would need to be for projects that were “shovel ready”
and able to commence immediately a grant was announced’.
Clearly, this project was not ‘shovel ready’ at the time the grant was awarded
in May 2010.
The department was not able to provide estimated completion dates for
the other two projects, both of which have faced funding difficulties due to
the withdrawal of joint venture partners.
The Committee accepts that the nature of a grants program involving new
technologies is that the funded projects will be high-risk. However, it is
concerning that many of the funded projects—which were intended to be ‘shovel
ready’—have made such little progress to date. Some three years after the first
grants were announced, none of the projects are generating electricity yet and
several have had funding difficulties.
Program acceleration and economic stimulus
The department’s response to the Committee’s question on whether the
REDP had been successful in stimulating the economy and creating jobs was that
as the REDP was ‘not formally part of the Government’s stimulus package’,
stimulating the economy and creating low carbon jobs for the future were ‘not
part of the REDP’s objectives’.
However, jobs and stimulus were cited as key reasons for the program’s
acceleration when it was announced in December 2008,
and therefore the Committee had expected a more comprehensive response to this
question. The department’s very limited response on this matter was at best
unhelpful, if not disrespectful to Parliament.
The Committee is uncertain what benefit, if any, was obtained by the
government’s decision to accelerate the REDP’s implementation, given the much
longer timeframes involved in actually getting projects underway.
As evidenced in the audit report, the acceleration appears to have negatively
affected both the quality of applications received and the quality of the
department’s administration of the program in its initial stages—particularly
in relation to planning, the management of probity and the process of selecting
projects for funding. Given that the program had originally been delayed to
‘allow time for consultation and decisions on funding guidelines’, and to ‘allow
potential applicants to plan projects’, the negative impacts of the
acceleration should have been foreseen.
Documentation of REDP decisions
The Committee was concerned by the Auditor-General’s findings that the
department had insufficient documentation to evidence key aspects of the
process used by the REC to assess project applications and manage potential
conflicts of interest. These issues are at the core of the ANAO’s findings in
relation to the REDP’s administration.
These findings are disappointing. However, the Committee notes that
there have been no complaints received from unsuccessful applicants about the
REDP process or outcomes, supporting to some extent the department’s claim that
the project selection decisions themselves were sound.
In regards to conflicts of interest, the Committee accepts the
department’s claim that the identified potential conflicts were relatively
minor and were appropriately handled in practice. However, without adequate
documentation of how assessments of their materiality were made and how the
matters were handled during REC meetings, the department is exposed to
potential claims that the process was compromised.
Subsequent improvements to RET practices
The Committee acknowledges the range of significant improvements that
RET has made to the administration and oversight of its programs in the period since
the REDP’s initial implementation.
Taken together, these improvements show that the department has taken
seriously the lessons learned from the REDP and has worked to improve its
processes over time. These improvements give the Committee confidence that the
administrative problems identified in the audit of the REDP would be unlikely
to occur in future grants programs administered by RET.
The Committee strongly supports the Auditor-General’s recommendation for
ongoing improvements to RET’s management of grant programs through additional
guidance being provided to staff in its grants administration manual. The
Committee notes that RET is in the process of implementing the recommendation.
The Committee also acknowledges the finalisation of Key Performance
Indicators for the REDP, which were still being developed at the time of the
audit. While the fact that KPIs were not in place earlier reflects negatively
on the department, it is encouraging to see that efforts have now been made to
select meaningful and measureable KPIs, in line with previous recommendations
of the ANAO.
Support for fast-tracked programs
The problems with the administration of the REDP program identified in
the ANAO audit occurred in the context of RET being a new department taking on
its first major program; coupled with the compression of the program’s
implementation timeframe in circumstances outside the department’s control.
The problems with administration of the program were presumably either
due to capacity problems (i.e. a lack of staff skill or staff numbers) or due
to the compressed timeframes being simply too short to allow all aspects of good
public administration to be followed.
Regarding capacity, the Committee notes that the Australian Public
Service Commission’s good practice guide on Implementing Machinery of
Government Changes emphasises the importance of assistance being provided
to new departments from the departments and agencies that are transferring
functions to them:
Support by portfolio Secretaries could take the form of
loaning experienced staff with expertise in corporate functions, or
arranging/supporting secondments where APS employees from other portfolios are
The Committee heard that RET did not request any assistance from other
agencies and did not receive any offers of additional resources.
Given that a factor in the REDP’s administrative weaknesses was that RET
was still establishing its core functions, as the ANAO and the department both
acknowledged, it is surprising that RET did not request additional support as
it took on its first major program. Moreover, assuming that the REDP’s acceleration
represented an increase in its priority to the Government, the Government
should have made further efforts to ensure that RET was able to effectively deliver
the program whilst also following the Government’s grant administration
Of course, it is not clear whether additional support would have
substantially changed the administrative shortcomings of the program, as the
compressed timelines may simply have been too demanding.
Administering a major program within a condensed timeframe is a big
challenge for even the most well-established departments. Requiring a new
department to do so, when it had not yet developed its basic internal
frameworks for grants administration and program oversight, was an invitation
for problems to occur.
The findings of this audit report provide a lesson for the Australian
Government when making decisions concerning implementation timeframes for large
programs. This lesson is that the government should give more thorough
consideration to the capacity of departments to deliver programs whilst still adhering
to government administration requirements. This should include consideration
of whether additional assistance is needed, especially when a department is
still being established.
Rob Oakeshott MP