Investments and other subsidies
Australia’s clean energy sector is currently experiencing ongoing transformation following the change in Federal Government in September 2013 and the recent Federal Budget announcement in May 2014. Of particular importance to the renewable sector are potential changes to the Renewable Energy Target (RET) scheme which is currently under review by an independent expert panel that is due to report back to Government in mid-2014. In addition to the current review of Australia’s RET, presently set at 20 percent by 2020, the Government has reaffirmed its commitment to reviewing its international emissions targets in 2015. This review will focus on the extent to which other nations, including the major economies and Australia’s major trading partners, are taking real and comparable actions to reduce emissions.
In addition to potential RET changes, the Government is preparing legislation to repeal the Carbon Pricing Mechanism including its associated programs and replace it with a Direct Action Plan (DAP). The main support scheme within the DAP is the Emissions Reduction Fund (ERF), which is set to operate alongside existing programs that work to offset Australia’s emissions. If the DAP is passed into legislation, the Government will commit $2.55 billion Australian dollars (AUD) of funding to the ERF. The focus of this program is the reduction of emissions through driving productivity, innovation and investment into projects utilizing clean technologies. Details of this initiative are contained in a White Paper that was released in April 2014 with funding intended to be offered via a reverse auction process that will begin in the second half of 2014 subject to successful legislative passage through the Federal Parliament).
There are also a number of policies, programs and incentives, with key initiatives specifically related to renewable energy that are described below.
Australian Renewable Energy Agency (ARENA)
ARENA is the Australian Renewable Energy Agency, an independent agency established by the Australian Government on 1 July 2012, with two key objectives: to improve the competitiveness of renewable energy technologies, and to increase the supply of renewable energy in Australia. In the recent 2014 Federal Budget it was announced that ARENA will be abolished. This will however be require the Australian Renewable Energy Agency Act 2011 to be repealed, which is subject to a majority vote in Australian Parliament. Until such time as this Act has been repealed, ARENA continues to manage its existing projects and to assess and progress proposals received. The changes to ARENA’s funding will not affect projects that already have a funding agreement in place with ARENA.
By way of background, ARENA is currently tasked with managing AUD3.2 billion of financial assistance for renewable energy projects and initiatives promoting the R&D, demonstration, commercialization and deployment of renewable energy projects. ARENA incorporates and has responsibility for overseeing renewable energy initiatives previously administered separately through a range of bodies including the Australian Centre for Renewable Energy (ACRE), Solar Flagships Program, Australian Solar Institute (ASI), Low Emissions Technology Demonstration Fund, Renewable Energy Demonstration Program, Renewable Energy Venture Capital Fund, Australian Biofuels Research Institute, Geothermal Drilling Program and the Second Generation Biofuels Research and Development Program. ARENA also has accountability for administering unallocated funding.
Listed below are ARENA’s current initiatives which will close if the Australian Renewable Energy Agency Act 2011 is repealed.
Emerging Renewables Program (ERP)
The ERP is focused on supporting renewable energy technology at the development, demonstration and supported commercial stages of the innovation chain. Ultimately the aim is to lower the cost of energy produced by renewable energy technologies to a point where they are better able to compete with traditional fossil-fuel technologies. Funding is available under two categories:
- Projects – Offers funding for renewable energy and enabling technologies and products as they move through the technology innovation chain. The application process is undertaken in two phases, with funding allocations expected to fall within the range of AUD2 million to 30 million.
- Measures – Offers funding for initiatives that involve a renewable energy industry capacity building activity, skills development activity or a preparatory activity for an ARENA Project. The application process is undertaken in one phase and is expected to fund up to AUD3 million, with a maximum funding pool of AUD10 million.
In addition to these two phases ARENA also has a Supporting High value Australian Renewable Energy Knowledge (SHARE) initiative that seeks to build on the store of publicly-available knowledge about renewable energy technologies and approaches that are best suited to Australia. The SHARE initiative can support the direct commissioning research, studies or knowledge products that meet knowledge gaps within the industry or help overcome barriers to its growth in priority areas including understanding renewable energy potential, grid integration and international engagement.
Regional Australia’s Renewables (RAR)
The RAR program aims to demonstrate the viability of renewable energy in regional and remote locations. The initiative has two parts:
- RAR Industry Program (I-RAR) – I-RAR supports a portfolio of renewable energy solutions in regional and remote Australia, focusing on hybrid and integrated systems in off-grid and fringe-of-grid communities.
- Community and Regional Renewable Energy Program (CARRE) – The RAR CARRE offers support for renewable energy systems in grids for small communities and islands, grow supporting technologies, show commercial viability and contribute to knowledge sharing.
Accelerated Step Change Initiative (ASCI)
ASCI supports exceptional, breakthrough projects that are not otherwise eligible under existing ARENA programs. Expressions of interest from Australian and international companies and research institutions will be accepted until 2018. Eligible projects must require an ARENA contribution of $5 million or more, with the overall project cost expected to be more than $20 million.
Projects that are at the research and development (R&D) phase of a renewable energy technology or include a technology that has yet to be proven at the pilot scale are not eligible. Projects can, however, include R&D components where they assist in the demonstration, commercialisation or deployment of a renewable energy technology.
Integrating Renewables in the Grid
ARENA is investigating the introduction of a new initiative that focuses on demonstration projects that address barriers to higher penetration of renewables in distribution networks, at both residential and commercial scale.
Clean Energy Finance Corporation (CEFC)
The CEFC is a commercially oriented fund which is expected to make a positive return on its investment. The future of the CEFC remains uncertain as a second bill to abolish the CEFC was introduced into parliament in March 2014. The CEFC has to date been responsible for investing in firms and projects that utilize renewable energy and clean energy enabling technologies as well as manufacturing businesses that focus on producing the inputs required. To date, the CEFC has to date offered just under $600 million of complementary financing alongside private sector financing for renewable energy and clean energy enabling technologies.
Renewable Energy Venture Capital Fund
The Southern Cross Renewable Energy Fund is a 13-year, AUD200 million venture capital fund, operated by Southern Cross Venture Partners. The fund was established under the Australian government’s AUD100 million Renewable Energy Venture Capital Fund (REVC). The government’s contribution has been matched by an additional AUD100 million contributed by Softbank China Venture Capital.
R&D Tax Incentive
The major mechanism and program for fostering innovation is a tax-based scheme rewarding expenditure on R&D activities. The R&D Tax Incentive scheme is a broad-based program accessible to all industry sectors. In many instances, activities conducted as a part of renewable energy development may be eligible for the R&D tax incentive. Currently the program offers two tiers of incentive based on the turnover of the company in question:
- A 45 percent refundable tax offset (equivalent to a 150 percent deduction) for eligible entities with a grouped turnover of less than AUD20 million per annum.
- A non-refundable 40 percent tax offset (equivalent to 133 percent deduction) for all other eligible entities. Unused non-refundable offset amounts may be able to be carried forward to future income years.
However, following the recent Federal Budget announcement, the rate of the incentive is due to be decreased to 43.5 percent and 38.5 percent respectively. This decrease will be subject to new legislation being passed by parliament.
There are no national based feed-in tariffs. However, a number of state- based initiatives exist for small-scale generation. The Australian Capital Territory (ACT) has a Large Scale Feed- in Tariff Scheme (the Scheme) which provides the ACT government with power to grant feed-in tariff entitlements up to 210 MW of generation capacity.
20 percent reduction by 2020, subject to review.
In addition to the funding initiatives described above, the government also has a number of policy levers and numerous other programs.