Clean energy: Arena's grant funding and the new clean energy innovation fund - Renewables

On 23 March 2016, the Turnbull Government announced the establishment of a $1 billion Clean Energy Innovation Fund (CEIF) to provide debt and equity funding for clean energy projects.

HOW WILL THE CEIF BE ESTABLISHED?

The CEIF will be established from a reallocation of the Clean Energy Finance Corporation's (CEFC) $10 billion allocation and jointly managed by the Australian Renewable Energy Agency (ARENA) and the CEFC. The Government's announced changes on clean energy also signal a refocussing of the mandates of ARENA and the CEFC.

ARENA will continue to manage its existing portfolio of grants and deliver on its $100 million large-scale solar photovoltaics round (for which 22 "high merit projects" have recently been shortlisted). ARENA's focus will also expand beyond renewable energy to encompass a broader spectrum of energy efficiency and low emissions technologies.

Significantly, once the $100 million large-scale photovoltaics solar round is complete, ARENA will move from grant funding to predominantly investing on a debt and equity basis under the CEIF. The Government has stated a clear intention to retain ARENA and expand its mandate.

WHAT ARE THE CURRENT PRIORITIES FOR ARENA GRANT FUNDING?

Currently, ARENA invests in renewables projects by providing grant funding. This funding is focussed on early stage research and development through to pre-commercial deployment activities.

It is also targeted towards advancing renewable energy technologies that fit with ARENA's investment focus areas under its General Funding Strategy and Investment Plan.

The priorities for ARENA investment under its current mandate are:

large scale solar photovoltaics
integrating renewables and grids
renewables for industrial processes
fringe-of-grid and network-constrained areas
off-grid areas

Under its existing funding agreements, ARENA's policy position is that applicants demonstrate funding and co-investment from debt and equity sources that will at least match ARENA grant contributions to a project.

Issues regarding priority of any security interests and tripartite arrangements can arise in relation to the requirements for matched funding and the relationship of ARENA grant funding to other debt funding.

As projects advance through to commercial deployment, ARENA funding has often been complemented (post the pre-commercial deployment phase) by debt financing either from the CEFC or commercial banks.

WHAT IS THE FUTURE FOR ARENA UNDER THE CEIF?

ARENA has stated that the proposed changes under the CEIF will shift its balance from a primarily grant based role to investing more on a debt and equity basis.

While little detail is available at this stage on the refocussed mandates of the agencies, it appears ARENA's ability to continue to provide some grant-based funding to new renewable technologies projects will not be excluded. This is subject to any legislative change to its functions under section 8 of the Australian Renewable Energy Agency Act 2011 (Cth).

As a result of the balance shift from grant-based funding to a debt and equity basis, ARENA's capacity to make grants going forward will be under scrutiny.

Diminishment of ARENA's grant based funding function has already been raised as a particular concern by some commentators. They have noted both the significance of grant funding at the early pre-commercial stage of the innovation chain and the need for retaining an option to use grant-based funding to advance innovation.

There have also been questions raised about the nature of the projects for which any ARENA grant funding would be advanced. For example, will any grant funding activity that ARENA retains be focussed predominantly on knowledge sharing or more speculative innovations? Or will it be restricted to the very early stage of the innovation chain?

KEY TAKEAWAYS TO CONSIDER

The CEIF is due to commence on 1 July 2016. In the meantime, it appears ARENA will continue to accept funding applications. Those innovators who are close to seeking ARENA grant funding should consider getting their applications in now, rather than waiting for the new CEIF.

It is likely some applications will be recommended by ARENA for reallocation to debt or equity funding under the CEIF.

The agencies will liaise to determine where an application can best be dealt with, but until the detail of the CEIF and the refocussed mandates are made public, renewables innovators at the pre-commercial end of the innovation chain can still look to progress their clean energy funding requirements.

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