The Australian Renewable Energy Agency (“ARENA”) has released its inaugural “General Funding Strategy” and accompanying “Investment Plan” for the next 3 years. These documents set out the investment strategy for the newly established ARENA and provide real opportunities for well-structured renewable energy projects.

ARENA's "General Funding Strategy" and "Investment Plan" can be viewed here. This alert describes the strategy and plan, provides an update on solar projects and invites project developers to workshop their ideas with us.

What is ARENA?

ARENA was formed as part of the Government’s Clean Energy Future package (which included the carbon pricing mechanism). It is an independent Commonwealth authority with a mandate to support innovations that improve the competitiveness of renewable energy technologies and increase the supply of renewable energy in Australia. ARENA inherited $3.2 billion from a range of existing schemes including the Solar Flagships program. ARENA currently has $2.2 billion in uncommitted funds which it will distribute in grants. ARENA is not the $10 billion green bank, which is known as the CEFC (Clean Energy Finance Corporation). The CEFC has just appointed Oliver Yates as its CEO and will be looking to provide $2 billion in finance in 2013/2014.

What is the funding strategy?

ARENA will only provide financial assistance to projects which align with its funding strategy. The current funding strategy is accompanied by an investment plan, both of which apply for the next three financial years. The funding strategy is deliberately broad to allow ARENA the flexibility it needs to provide financial assistance to a broad range of projects over the next three years. The general principles of the funding strategy are:

Click here to view table.

You can access ARENA’s funding at any stage of the project development life-cycle. However, ARENA has indicated that the majority of its funds are expected to be “directed to energy generation projects that are close to commercial viability and where investment will accelerate this outcome”.

Despite this short to medium term position, we expect that some funds will still be available for further studies, research and development and demonstrations as one of ARENA’s goals is to encourage and disseminate information and knowledge which will fuel the renewable energy industry.

Winners from the new funding strategy

The solar photovoltaic projects being developed by the AGL-First Solar consortium in Broken Hill (50MW) and Nyngan (100MW) in NSW are the only large-scale solar projects which have received funding under the new strategy. ARENA left the door ajar for the Moree Solar Farm and the Infigen-Suntech solar photovoltaic proposals, as those parties and ARENA are continuing discussions in respect of these projects.

In terms of other programs, ARENA will continue to fund the $126 million “Emerging Renewables Program”, the $200 million “Southern Cross Renewable Energy Fund” and will bring within its portfolio the research and development projects currently being funded and driven by the Australian Solar Institute (ASI).

We expect regional Australia to be a big winner from the new funding strategy with funding being aimed at delivering renewable energy programs in remote areas, especially where renewables can replace or compete with diesel generation. Greg Bourne, ARENA’s CEO, said that ARENA will look to fund and deliver “renewable systems in regional locations where energy consumption is forecast to increase and where fossil fuel-based generation costs are the greatest.”  You should consider areas with substantial mining and infrastructure projects when choosing the site for your renewable energy project.

Opportunities

The funding strategy has been criticised for lacking detail, the sort of prescriptive detail which we have come to expect of government – such as cherry-picking technology. This reinforces the fact that ARENA, at least for now, is driven by outcomes not inputs or processes (‘nimbleness’ is one of ARENA’s mottos). In our view, the lack of detail in the funding plan should be viewed as an opportunity to approach ARENA with innovative solutions which align with ARENA’s goals. For example, scalable hybrid installations that can be quickly deployed in regional towns or at remote mines to offset diesel consumption could catch ARENA’s attention. The strategy to securing substantial funding from ARENA should be to focus on technology that is commercially viable, that which can be readily deployed and which will be the first test example of similar future project. You should also look to CEFC as a complementary finance option.

There are plenty of opportunities for different renewable energy sources such as solar, geothermal and wave to access support from ARENA and help to off-set the growing energy needs of the mining sector in regional Australia or to complement existing generation. Examples of opportunities include applying for further research and development funding for geothermal generation (including pilot projects), proposing innovative off-grid or near-grid energy generation solutions (especially in regional areas) and developing efficient transportation of renewable energy from remote projects.