Posted 19/09/2016 by Alex St John
The recently passed Budget Savings (Omnibus) Bill 2016 originally included a measure to reduce funding to the Australian Renewable Energy Agency by $1.26 billion between 2017–18 and 2021–22. The move has been controversial, with the renewable energy industry, academics and environmentalists opposing it. Eventually, a compromise was reached between the Government and the Opposition to reduce the budget cut to $500 million. However, the deal has become more complicated, with the Government proposing additional changes to support for renewable energy. This FlagPost explains what has happened.
History
In 2012, the Gillard Government set up the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC) as part of its Clean Energy Futures package.
ARENA was set up under the Australian Renewable Energy Agency Act 2011 with $2.52 billion over 8 years to provide financial support for research, development and demonstration of renewable energy technologies, principally in the form of grants to academic and private sector organisations. Its funding was later reduced to $2.4 billion over 10 years at the time of the carbon price repeal. To date, ARENA has committed to funding of approximately $1.1 billion in 250 projects. ARENA has also developed an extensive knowledge bank to help guide the development of renewable energy in Australia. ARENA replaced the previous Australian Centre for Renewable Energy, and also took over a number of other clean energy grants programs.
Modelled on the United Kingdom’s Green Investment Bank, the CEFC was set up under the Clean Energy Finance Corporation Act 2012 (CEFC Act) with a mandate to provide concessional finance to clean energy, low-emissions energy and energy efficiency programs, taking advantage of the Commonwealth’s ability to borrow money at low cost. The CEFC’s investments are required to provide a commercial return, with target return rates set in the Investment Mandate Direction given by the Government. Under the CEFC Act, the CEFC is to be progressively provided with a total investment portfolio of $10 billion between 2013 and 2017.
The Abbott Government attempted to abolish the CEFC, and later ARENA, in order to realise budget savings. However, the Government agreed not to proceed with these abolitions in order to secure the support of the Palmer United Party for its signature climate policy, the Emissions Reduction Fund.
ARENA and the Clean Energy Innovation Fund
Although the Government agreed not to abolish ARENA, it announced in March 2016 that ARENA’s grant function would be discontinued, to be replaced by a new joint ARENA-CEFC Clean Energy Innovation Fund (CEIF). The CEIF would be provided with $100 million per annum for 10 years, (funded from the CEFC’s investment pool), to make early-stage investments in clean energy technology. These investments would carry a lower average return and higher risk than the general CEFC pool. ARENA would serve as the technical advisor, but final investment decisions would be made by the CEFC. As a result of the discontinuance of grants, the Government proposed to withdraw $1,260.8 million in future funding from ARENA, leaving it with only enough money to cover pre-existing commitments.
Investments vs grants
Early-stage basic or applied research is generally funded through grants, but as a technology progresses towards commercial readiness, an increasing proportion of debt or equity finance can be utilised. Academics argued that many of the research projects funded by ARENA are not sufficiently advanced to be effectively funded by loans and discontinuing grants would therefore threaten renewable energy research. It is also not clear that the knowledge-sharing work done by ARENA would have been able to continue under the new model.
The compromise
After negotiation, the Government and Opposition agreed to reduce the funding cut to ARENA by $800 million, allowing ARENA to continue its grants program at a reduced rate.
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Appropriation to ARENA
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As at 1 January 2016
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Proposed in Omnibus Bill
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After compromise
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2013–2014
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$581,276,000
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$581,276,000
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$581,276,000
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2014–2015
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$194,340,000
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$194,340,000
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$194,340,000
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2015–2016
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$89,991,000
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$89,991,000
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$89,991,000
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2016–2017
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$56,950,000
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$56,950,000
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$56,950,000
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2017–2018
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$499,893,000
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$107,925,000
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$257,925,000
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2018–2019
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$237,000,000
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$67,296,000
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$235,296,000
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2019–2020
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$468,340,000
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$19,704,000
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$254,704,000
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2020–2021
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$135,000,000
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$12,035,000
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$134,035,000
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2021–2022
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$135,000,000
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$7,474,000
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$132,474,000
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Total
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$2,397,790,000
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$1,136,991,000
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$1,936,991,000
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Budget savings
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$1,260,799,000
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$460,799,000
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Budget considerations and changes to the CEIF
The Minister for Finance, Senator Cormann, has stated that the $800 million made available to ARENA for grants will be offset by savings elsewhere in the Bill—namely by changes to the Family Tax Benefit. He also stated that there will be a ‘commensurate adjustment in the CEIF’ to ‘…avoid an unintended increase in overall public resources available to ARENA’. However, he also stated that the overall capital allocation to the CEIF and the CEFC ‘remains at $10 billion as before’. It is not entirely clear, but this appears to mean that the CEIF will only invest $200 million. If so, the CEFC investment mandate will need to be amended accordingly.
Moving money between the CEIF and CEFC (which are effectively the same entity) makes minimal difference to the Budget. Such a transfer has no impact on money that is available to ARENA for grants, and exists in different a different area of government finance—ARENA grants are budget expenditure, whereas investments by the CEFC are financial investments that do not affect the Budget’s underlying cash balance.