Chapter 2
Views on the Bill
2.1
As noted in the previous chapter, the committee received 132 written
submissions. While the majority of submissions opposed the abolition of ARENA,
several argued in support of the Bill or for revising ARENA's existing remit.
The government's arguments in support of the Bill and the various views
expressed
in submissions are outlined in this chapter.
The rationale for abolishing ARENA
2.2
In his second reading speech, the Minister stated that given the
substantial amount of taxpayer funding already committed to renewable energy
projects, and in light of the pressing need to repair the budget, it was
appropriate to close ARENA and return its uncommitted funding to consolidated
revenue.
2.3
The Minister underlined the large amounts of money already provided or
committed by ARENA, and the significant investments being made in the renewable
sector more broadly. Specifically, the Minister noted that ARENA had already
provided or committed over $1 billion in funding to support renewable
energy projects, and this funding had been matched by $1.8 billion in
industry funding:
This is a very significant amount of money in anyone's
language and comes on top of direct and indirect support, which amounts to
literally tens of billions of dollars over the life of the program, that has
occurred through the renewable energy target scheme. As well as that there have
been various other state and territory renewable energy schemes.[1]
2.4
Pointing to these investments, the Minister stressed that contrary to
what some may claim, 'Australia is not walking away from renewable energy.'[2]
2.5
A key consideration for the government, the Minister explained, is that it
is 'facing a budget emergency and savings have to be achieved to return the
budget to surplus'. In this connection, he explained that abolishing ARENA
would deliver
a saving of $1.3 billion in uncommitted ARENA funds to the budget.[3]
2.6
In addition to the closure of ARENA providing a direct saving to the
budget, the Explanatory Memorandum also suggests that the transfer of
responsibility for
the administration of ARENA's commitments, assets and liabilities to the
Department of Industry would 'deliver efficiencies and allow for greater
oversight of this expenditure by the Minister'.[4]
Role of ARENA in
supporting commercial investment in renewable energy
2.7
A large number of submitters argued that ARENA was uniquely placed and
equipped to foster the commercialisation of renewable energy technologies.
In particular, these submitters maintained that there are not enough investors
in Australia willing or able to commit capital to as-yet unproven or
uncommercial renewable energy technologies.
2.8
ARENA itself suggested that it alone performed several important roles
in supporting the commercialisation of renewable energy technologies. These
included reducing project risk to more acceptable levels for would-be investors
in immature renewable energy technologies; funding research and development to
bring renewable energy technologies to the brink of commercialisation; and
overcoming 'early mover premiums'—that is, the 'premiums associated with doing
something the first time which manifest as higher project financing costs,
higher construction costs,
and increased wages bills amongst other factors'. ARENA explained that the:
...effective development of technology from research to
commercialisation is a long, generally multi-decade process. During this
process, there are many times when it is not possible to secure the required
levels of finance from commercial investors. This is widely recognised and is,
in part, due to the lack of depth in risk capital in Australia.[5]
2.9
ARENA also emphasised that it was the only organisation providing
support for renewable energy technologies across the entire innovation chain,
from early stage research through to the brink of commercialisation.[6]
2.10
Many of the submissions received by the committee agreed with ARENA's
characterisation of its role in supporting the development, demonstration and,
ultimately, the commercialisation of emerging renewable energy technologies.[7] For example, the Community and Public Sector Union (CPSU) explained in its
submission that renewable energy projects typically:
...take a long time to reach maturity, especially large
projects, and they rely on the current funding being available in the out
years. ARENA investment overcomes early mover disadvantage including variable
interest rates, higher supply chain costs and big construction contingency
margins, as well as the limited availability of private sector finance to back
research or technology solutions. Investing across the innovation chain has
provided greater funding certainty and assisted in attracting investors to
renewable energy projects in Australia.[8]
2.11
Sustainable Business Australia made a similar point, writing that ARENA
had proven effective in driving private sector investment in the renewable
energy sector:
[I]nnovation, development and effective transition from early
stage research and development to competitive commercial deployment for
renewable energy is naturally a slow and complex process. Only consistent,
large-scale commitments from Government can drive private sector investment,
effective development and competitive deployment in sectors where there is a
significant incumbent advantage.
Stimulating large-scale investment and encouraging financial
flows toward commercially viable low and zero-carbon energy technologies is key
to Australia’s sustainable economic growth, development and success. ARENA
fulfils this critical role. [9]
2.12
SMA Australia suggested that a common problem in the commercialisation
of renewable energy technologies was that while the investment community and
energy markets often recognised the potential for renewable energy to be the
lowest cost energy option in the long term, it was difficult to raise private
investment without first demonstrating the viability of a particular technology.
ARENA helped companies developing renewable energy technology overcome this
barrier, by providing support to demonstrate the viability of technologies and
in turn reduce investment risk.[10] In this sense, ARENA operated as a:
...catalyst for attracting industry and private sector
investment to build a portfolio of renewable energy technologies and
applications that can create options to lower the future energy costs for Australians
across all areas of society. [11]
2.13
In its submission, Curtin University also raised concerns that the
abolition of ARENA would undermine the prospects for the commercialisation of
renewable energy technologies in Australia:
Reduction in early-stage commercialisation and pilot-scale
deployment will result in a reduced capacity to collaborate with companies for
commercial development of technology. The big concern over the repeal of the
ARENA legislation is that ARENA is the only source of pre-commercialisation
demonstration funding in Australia that links businesses with University
research commercialisation. As a consequence of losing ARENA, Australia will be
relegated to purchasing renewable energy products that are invented, developed
and manufactured overseas. We will become price takers instead of price makers.[12]
2.14
The Institute for Sustainable Futures made a similar point. It noted
that ARENA was the only government body in Australia dedicated to supporting
the development, commercialisation and deployment of renewable energy
technologies. Given the importance of this support, the Institute argued:
...the absence of ARENA funding and support at this stage of
the commercialisation pathway would be economically detrimental and result in
Australia being a ‘technology adopter’ from other nations.[13]
2.15
A common theme in submissions was that while emerging renewable energy
technologies had the potential to be commercial in their own right, government
support was needed to bring these technologies to maturity. Recurrent Energy,
for instance, noted that while the cost of solar energy had declined
significantly, it still required the support of bodies like ARENA in the
immediate term in order to become cost-competitive with other sources of
energy:
It is widely recognised that in cases of market failure there
is a justification for government support for research and development and
commercialisation of new technologies. In the power sector, proponents and
financiers operate in a highly regulated environment and tend to be risk averse
and wary of taking on technologies that may prove costlier in the short term.
Further, market barriers to low-emission technologies are also created by
existing energy infrastructure. Utility scale solar PV has unique advantages
when compared against conventional sources. However, these benefits, such as
clean power produced at just the right time, are not adequately valued in the
current market.
With short term incentives, this disadvantage can be
overcome. Emerging renewable technologies benefit from assistance programs,
such as the support provided by ARENA, which greatly assists in overcoming
market access and cost barriers faced when competing with more established
renewable and conventional technologies. In the future, these technologies will
travel down the cost reduction curve experienced by more mature renewable
technologies as the costs of development, financing, interconnection,
construction and operation reduce, a trend proven in energy markets worldwide.
However a short term boost for emerging technologies is essential if cost
competitiveness is to be achieved in the future.[14]
2.16
The Australian PV Institute argued that ARENA was helping to provide the
capital funds that would enable Australia to capture the economic benefit of
its ingenuity in renewable energy technology:
Australia has been a world leader in research and development
of renewable technologies for the past 30 years. However, Australia has lacked
the commercialisation expertise to provide a cradle to grave supply chain, with
many innovations travelling offshore to be commercialised. ARENA is a key part
of changing this paradigm and enabling Australian researchers to commercialise
their innovation and develop a rapidly growing worldwide industry.[15]
2.17
Several companies told the committee that the support of ARENA (and its
predecessor bodies and programs) had been critical in informing their
respective decisions to invest in the Australian renewable energy sector. FRV,
an international developer of large scale solar projects, indicated that it was
the Solar Flagships program—which became part of ARENA—which attracted it to
the Australian market. The company noted that it had invested over $50 million
in its Australian operations, and suggested:
The business case for FRV investing in the Australian
renewable energy sector has been underpinned by ARENA and the RET. Repeal of
ARENA would almost certainly cause international investors in renewable energy
other than wind to reassess the riskiness of investing in [...] Australia in not
only the renewable sector, but across the economy in general.[16]
2.18
Abengoa Solar, an international company whose activities include the
development, design, construction and operation of concentrated solar thermal
power plants, also emphasised the importance of ARENA in its decision to invest
in Australia. It noted, for instance, that with ARENA support it was currently
working with the Commonwealth Scientific and Industrial Research Organisation
(CSIRO)
and other Australian partners on a detailed study of the feasibility of a
20 MW solar thermal project in Western Australia. If the results of the
study are positive,
the intention of Abengoa Solar and its partners is to apply for ARENA funding
to allow the project to the designed, built and put into operation as a
commercial demonstration plant. Ultimately, this project might in turn provide
a guide for the further development and implementation of solar thermal power
plants elsewhere in Australia on a commercial basis:
Clearly ARENA fulfils an important public role in
facilitating research, development and early stage deployment of next
generation renewable energy. Without ARENA’s continued support it is difficult
to foresee how this demonstration project, and others like it, could be
realized, and an opportunity for Australia to extend its already strong R&D
capability in concentrated solar thermal technology into commercial deployment
would be missed.[17]
2.19
Similarly, RayGen, a solar photovoltaic company, wrote that it had
entered into a $60 million sales contract with a Chinese manufacturer that
would not have been possible without the support of the Victorian Government
and ARENA. RayGen explained that it would not have been possible to secure the
$25 to $30 million in capital to commercialise its technology without
government grants to leverage matching private investment:
The point is that without the type of support provided by
ARENA at this critical stage in a product commercialisation, ties to Australia
are likely to become severed, and/or early stage investors may become wary of
investing in the knowledge that the later investment doors have closed.[18]
2.20
Professor Ken Baldwin, Director of the Australian National University
(ANU) Energy Change Institute, argued that in the absence of other support for
renewable energy development, the abolition of ARENA would lead to the creation
of stranded assets. These assets would include 'the intellectual potential of
our researchers and their support facilities and infrastructure'. He noted
further:
Australian taxpayers, universities, research organisations
and innovators have made considerable investments in the future of Australian
energy. It is in our national interests to capitalise on this and reap the
benefits of future gains from this investment. The abolition of ARENA will
destroy these future gains by breaking a crucial link in the innovation chain.[19]
ARENA's role in fostering a stable
investment environment
2.21
In addition to evidence provided by companies suggesting their
respective investment decisions had been informed by ARENA's existence and support,
a range of submitters argued that the abolition of ARENA would create
uncertainty in the renewable energy sector, and thereby compromise investor
confidence. For example, the Sustainable Energy Association of Australia
argued:
The renewable energy industry in Australia has suffered
significant disruption as the result of policy uncertainty and changes over the
last five years. The proposed dismantling of ARENA would be another abrupt
policy shift negatively affecting long-term market stability. Policies and
programs like ARENA and the Renewable Energy Target underpin significant
investment in the sector, worth billions of dollars. Scrapping ARENA would
certainly cause international organisations to reassess the risk of investing
in Australia, both in the renewable sector and across the economy in general.[20]
2.22
The Business Council of Australia (BCA), meanwhile, suggested that while
a reduction in ARENA's funding 'to a more sustainable level is
appropriate...ending its funding altogether would continue the stop/start
approach to policy in an emerging technology sector that requires policy
certainty to invest.'[21]
2.23
First Solar, the world's largest manufacturer of solar photovoltaic
modules, and currently invested in several utility scale solar projects in
Australia (the largest being in Nyngan and Broken Hill, New South Wales, with
First Solar partnered with AGL), argued that the abolition of ARENA would be:
...an inequitable outcome for companies that have invested in
the Australian renewable energy market based on the creation of ARENA and the
existing LRET target. For example, First Solar established a presence in
Australia in mid-2009, and has now invested significant capital in a localised
engineering, procurement and construction team as well as an Australian supply
chain capability. The decision to invest in the Australian market was directly
linked to the nature and longevity of the ARENA programs and LRET target.[22]
2.24
Goldwind Australia, a wind farm business established in 2009 by parent
Chinese company Xinjiang Goldwind Science and Technology and with investments
totalling $400 million, stressed that ARENA helped assure foreign investors
that Australia was a good place to invest in renewable energy:
Australia is a trusted investment destination. A key factor
in foreign investment decisions is consideration of the country’s risk and the
ability to rely on the law of the country. Goldwind as a Chinese investor that
has trusted the Australian investment environment. In the case of ARENA,
Goldwind has undertaken project development activities in order to contribute
to the achievement of ARENA program objectives. The repeal of the ARENA Bill
would heighten sovereign risk concerns regarding investment based on Australian
Government policy initiatives in Australia.[23]
2.25
Similarly, Senvion Australia, the Australian arm of a large
international developer and operator of wind farms in Australia, argued that
ARENA, together with the RET, provided foreign investors with confidence they
needed to invest in Australia:
Even though ARENA does not directly benefit our business, we
believe that moving to a low carbon economy requires a long-term, stable and
comprehensive policy framework that drives investment in mature technologies,
accelerates the uptake of energy efficiency, and helps bring new technologies
onto the market.
In particular, we are concerned that closing the Agency [ARENA]
down will send negative signals to investors in renewable energy—particularly
while the RET is under review and the future of the RET is not clear.[24]
The economic benefits
of Australian innovations in renewable energy
2.26
A key theme in a majority of submissions was that ARENA's work was
delivering or had the potential to deliver tangible economic benefits for
Australia.
As summarised below, various submissions argued that ARENA's work would help
drive long-term improvements in energy affordability; help Australia capitalise
on its existing strengths in the renewable energy sector as the world
increasingly moves toward renewable energy; create new jobs and skills in
renewable energy and supporting industries; and help stimulate new economic
activity in rural, regional
and remote areas.
Securing the benefits of the global
transition to renewable energy
2.27
Associate Professor Evatt Hawkes explained that regardless of the level
of consensus regarding climate change in Australia, there was a move
internationally
to invest in renewable energy research and deployment. With renewable energy
capacity growing at double digit rates, he suggested that 'Australia has a lot
to gain from this trend, but only if we are in the game early and seriously.'
He suggested that renewable energy products could become Australia's main
export in the future, and that Australia was well placed to develop, commercialise
and export lucrative renewable energy technologies and knowledge. He wrote:
Continuing research and development at UNSW and in many other
universities, in CSIRO, and in Australian industry would be derailed by closing
down ARENA. As a result, this research will undoubtedly move overseas and the
Australian economy will suffer—both in terms of lost income but also when
technology developed and manufactured overseas is sold to Australians at a
premium.[25]
2.28
The Combustion Institute, Australia and New Zealand and the Australasian
Fluid Mechanics Society made a similar argument, suggesting that abolishing
ARENA would be a 'major setback' to Australia in the race to commercialise
renewable energy technologies. The Institute concluded that:
...Australia can be a key player in this race, bringing
significant benefits to our economy. The rapid pace of technology development
implies that divesting from this area now would cripple Australia’s long term
prospects of ever competing. As such we submit to the Committee that abolishing
ARENA, and not replacing it with an equivalent organisation, would be a serious
mistake.[26]
2.29
The Melbourne Energy Institute noted a range of reasons for the world
shifting to renewable energy, including energy security, cost and economic
considerations and the need to combat climate change. It suggested that while
Australia had many advantages that left it well placed to benefit from the
global shift towards renewables, there was no guarantee 'that prosperity for
the people of Australia will be an outcome of this energy revolution'. Given
the international competition in the shift to renewable energy, it argued that
Australia would need to 'move quickly'
to ensure it took advantage of its position:
ARENA has been fulfilling a key role in ensuring Australia's
future prosperity at this critical time. ARENA is the only organisation that
has the role of supporting Australian researchers and industry to develop their
ideas into profitable business ventures deployable at home and abroad. ARENA's
work is necessary to ensure Australia has access to low-cost and secure
renewable energy supplies while improving food, water, health, economic
development, climate, and human equity outcomes.
ARENA's work must continue. Otherwise, as the world moves to
its new energy future, Australia will lose the political, economic, social, and
technical standing that it has gained internationally over recent decades.[27]
2.30
Other submissions made the case that ARENA's work was helping to ensure
Australia maintained its competitive advantage in researching, developing and
deploying renewable energy technologies, and was thus well positioned to
capture
the economic benefits of the transition to renewable energy.[28]
As Griffith University
put it:
The Australian Renewable Energy Agency provides a mechanism
by which innovative research into all aspects of renewable energy can be
developed and translated for economic gain and community sustainability. [...]
Continued investment in and support for ARENA will help
secure Australia's position as a national technology leader and create a
competitive advantage underpinning future economic growth in the core
agriculture, mining, construction and tourism sectors, through delivery of
cleaner, cheaper, more reliable electricity to the energy grid and off-grid
regions.[29]
Job creation and skills development
2.31
Many of the submissions received by the committee emphasised the
potential for ARENA-supported projects, and the renewable energy sector more
broadly,
to generate new jobs and an expansion of Australia's skills base. The Clean
Energy Council, Ecoult and Geodynamics all suggested that the potential for job
creation and skills development through ARENA's investments in the renewable
energy sector was particularly pertinent in light of the decline in traditional
employment sectors, such as the automotive and broader manufacturing sectors.[30]
The Clean Energy Council referred to job creating potential of specific
projects supported by ARENA, including the large scale solar projects in Broken
Hill and Nyngan. The local procurement of $66 million worth of equipment through
these projects, it argued, would create:
...new business opportunities for manufacturers, which will be
increasingly important over the next few years as activity in automotive
manufacturing in Australia declines. For example, the Australian auto parts
specialist IXL is branching into a new business with the opening of a new plant
to assemble and deliver the mounting structures for the large-scale solar
plants that are being built by First Solar in Broken Hill and Nyngan on behalf
of AGL Energy. The Geelong-based company is facing the loss of a major strand
of its business with the collapse of the Australian car manufacturing industry.
The new plant in Salisbury South, South Australia will create about 40 local
jobs and would not have been possible without support of ARENA.[31]
2.32
Similarly, Visy argued that ARENA provided support for new manufacturing
jobs in the renewable energy sector, which was particularly important given
broader trends in the Australian economy:
New capabilities in sustainable manufacturing, which include
clean energy as a central component, will enhance Australia’s economic profile,
especially at a time when jobs and business activity are in need of some
redirection from mining to other sectors.[32]
2.33
In its submission, First Solar reported that the utility scale solar
projects in Nyngan and Broken Hill that it was working on in partnership with
AGL, and which represented a total investment of $450 million including
$166.7 million of ARENA funding, were generating:
-
Approximately 450 project construction jobs.
-
Approximately 160+ permanent off-site jobs associated with supply
chain and procurement from 12 different Australian suppliers that span a
geographic footprint across SA, VIC and NSW.
-
Approximately 35 jobs associated with project site support.
-
Approximately $66 million spent on local procurement for both
projects, which represents ~56% of the total procurement spend (excluding the
panel supply).[33]
2.34
The Global Change Institute also pointed to the projects at Nyngan and
Broken Hill as excellent examples of the capacity of ARENA-funded projects
to generate real economic activity and create new jobs and skills:
The AGL-First Solar utility-scale PV plant being built at two
sites in NSW is ground breaking—generating new energy economy jobs, building
knowhow and capacity, and delivering local and national economic benefit. This
project is a case study for our energy future—administered by ARENA for the
national good. The jobs of the future in the energy sector will be dominated by
high technology manufacturing, distributed power and smart grids. No sensible
first world economy can ignore this clear fact.[34]
Remote and
regional communities
2.35
In its submission, ARENA noted that 70 per cent of its funding
had gone to projects in rural and regional Australia, in locations such as
Weipa, Cooper Pedy, Broken Hill, Nyngan, King Island, Jemmalong and Port
Augusta.[35]
2.36
Submissions from Curtin University, Bioenergy Australia and Deakin
University argued that the abolition of ARENA would deny rural and regional
areas the opportunity to develop new industries and jobs as part of a shift to
renewable energy generation.[36]
The New South Wales Government also wrote that there were substantial benefits
to regional communities from ARENA projects, including the aforementioned
ARENA-supported AGL-First Solar utility scale solar projects
at Nyngan and Broken Hill, to which the NSW Government was itself contributing
$64.9 million:
The benefits to regional communities are twofold in the
direct employment created by the sector, as well as the indirect benefits. Much
of the impact of the renewable energy industry in economic terms is by way of
the indirect benefits across a diverse range of skill sets in areas as varied
as manufacturing, installation, research and development and distribution.[37]
2.37
Several submissions also highlighted the importance of ARENA funding in
developing projects to fund the development and deployment of renewable energy
technologies in remote and off-grid locations. In particular, submissions from
the Lord Howe Island Board, Hydro Tasmania, and Laing O'Rourke all reported on
projects they had been involved in to develop off-grid renewable energy
generation and reduce local reliance on expensive diesel generation—all three
submissions suggested that ARENA's support was decisive in their respective
projects proceeding.[38]
2.38
Similarly, CAT Projects, an indigenous-owned engineering company based
in Alice Springs and with experience working on large renewable energy projects
in Australia, argued that the ARENA had proven effective in addressing the
various structural barriers to the deployment of renewables in remote areas:
ARENA, as an Agency, [has] recognised the importance of
incentivising innovation with respect to these barriers, with a specific focus
on not simply 'throwing money' at the issues, [but] rather asking industry,
utilities, and other government agencies to consider how different approaches
to business can materially address the barriers previously identified.[39]
2.39
Repower Port Augusta, a campaign to replace Port Augusta's ageing
coal-fired power stations with concentrated solar thermal plants and wind
stations, argued that the support of ARENA would be critical in helping Port
Augusta make the transition to renewable energy:
This is an issue of critical importance to the creation of
long-term jobs in our community, our community’s health and doing our bit to
act on climate change in a way that ensures coal communities like ours can
transition to clean energy while retaining jobs and reducing carbon emissions.
The Australian Renewable Energy Agency (ARENA) is a critical institution to
making a transition to solar thermal in Port Augusta possible.[40]
Diversifying energy supply and
improving affordability
2.40
Several submissions contended that ARENA's support of the development
and demonstration of renewable energy technologies was helping to drive the
diversification of Australia's energy supply. This diversification, it was
argued,
was necessary in order to improve energy reliability and security and reduce
Australia's dependence on increasingly expensive non-renewable energy sources.[41]
Universities and the research community
2.41
The committee received a large number of submissions from universities,
students, teaching academics and researchers arguing against the abolition of
ARENA.
2.42
As ARENA outlined in its submission, it is the major funding source for
renewable energy technology research in Australia, particularly in areas where
Australia is globally competitive. ARENA also noted that in addition to funding
more than 190 projects, it also funds 83 fellowships and scholarships.[42]
2.43
To highlight the challenges research institutions would face as a result
of the abolition of ARENA, Professor Ken Baldwin, Director of the ANU Energy
Change Institute, referred to the planned collaboration in photovoltaics
research between the U.S. National Renewable Energy Laboratory, ANU and UNSW.
This collaboration was recently announced by US President Barack Obama
following a meeting with Prime Minister Tony Abbott on 12 June 2014. According
to Professor Baldwin,
if the Bill is passed, 'Australia will not be able to live up to its side of
this collaboration'.[43]
2.44
Submissions from various universities, including ANU, Swinburne
University of Technology and the University of Sydney, argued that ARENA's
support was critical in helping their respective universities attract and
retain international students and researchers, deliver high-quality teaching
and research outcomes, and build partnerships with industry and other research
institutions in Australia and overseas.[44]
Similar arguments were made by the Renewable Energy Society (RESOC), the
student representative body of the University of New South Wales' (UNSW) School
of Photovoltaic Energy and Renewable Energy Engineering (SPREE); a group of
SPREE teaching academics; the Solar Photovoltaic and Solar Thermal Groups from
the College of Engineering and Computer Science, ANU; and Dr Murad
Tayebjee,
an ARENA funded post-doctoral fellow.[45]
2.45
The committee also heard from undergraduate and postgraduate students
concerned about the impact the abolition of ARENA might have on the quality of
education they and future students would receive, and on their future career
prospects in Australia. For example, RESOC argued that the abolition of ARENA
would:
...lead to serious financial implications for SPREE with a
definite flow-on effect to students. Establishment and maintenance of
laboratories would become more difficult, research capacity would dwindle and
the ability of the School to support postgraduate students would be seriously
diminished. It is the expectation of RESOC that the abolition of ARENA would
lead to a rapid acceleration of the phenomenon of ‘brain drain’, already the
Achilles’ heel of the Renewable Energy Industry in Australia. Already this
drain is noticeable within the recent graduates of the School, with support
from the Government waning and career prospects overseas attracting graduates
away from domestic industry.[46]
2.46
Undergraduate SPREE students, in a separate submission, argued that
SPREE's reputation for research and teaching excellence was directly correlated
to the support it received from ARENA. Moreover, undergraduate students were
concerned about what the repeal of ARENA would mean for their future careers:
For graduating students across Australia interested in
entering the renewable energy industry, the repeal of ARENA would have
disastrous implications on [sic] our future career paths. The funding of ARENA
is crucial to our short-term employment prospects, as it enables
pre-commercial projects, demonstration projects, and research and development.
Furthermore, we are acutely aware that without ARENA funding, the renewable
energy sector in Australia will suffer, severely harming our long-term career
prospects. This would lead many of us to pursue careers in other fields, and
others to consider careers overseas in countries with a stronger commitment to
the clean energy future towards which the world is moving.[47]
2.47
A number of submissions expressed concern about the effect the abolition
of ARENA would have on postgraduate and early career researchers in renewable
energy fields, including their ability to pursue their careers in Australia.
For example,
a submission made by 49 early career researchers and 97 PhD students from ANU, UNSW
and the University of Queensland working in the area of renewable energy,
expressed 'deep concern' about the impact the abolition of ARENA would have on
Australian teaching and research into renewable energy:
ARENA directly and indirectly funds our current research
positions. Funding earmarked by ARENA for future R&D underlies our future
careers. In the prolonged absence of ARENA funding (or an equivalent agency) a generation
of scientists, engineers and professional staff will be lost either to
Australia or to the renewable energy industry, with severe consequences to
future Australian participation in this enormous growth industry.[48]
2.48
The researchers and PhD students added that repealing ARENA would force
many of them to ultimately leave Australia, 'preventing effective
capitalisation on the $1bn already invested.'[49]
2.49
A number of submissions from research schools focused on photovoltaic
research were particularly concerned that the abolition of ARENA would
undermine the lead Australia had built in solar energy research.[50]
The Australian PV Institute, meanwhile, argued that ARENA's role in fostering
knowledge sharing 'will not be filled by other programs and is a vital requirement
of emerging and innovative technologies and market transformation.'[51]
Combating climate
change
2.50
Several submissions made the case for ARENA's continued existence on the
grounds that its support for renewable energy could help Australia reduce its carbon
emissions and thereby mitigate the threat of climate change. Dr Alan Hawkes,
from Imperial College London, emphasised that for Australia the threat of
climate change was particularly pronounced:
Australia is a country that is particularly vulnerable to
climate change. The development of renewable energy that can compete directly,
without subsidies, on a cost-basis is arguably the most effective direct action
strategy to combat climate change.[52]
2.51
Academics from the School of Mechanical and Manufacturing Engineering
at UNSW argued that the cost of reducing greenhouse gas emissions would only
increase if ARENA was abolished:
Recent announcements in the United States suggest that it is
now taking a serious position on reducing carbon emissions, and there are
strong indications that China will follow suit, pointing to an emerging
international consensus that emissions urgently need to be limited to prevent
damaging climate change. If it is not shut down, ARENA will play an important
role in Australia’s response to meeting future international emissions targets.
In contrast, if ARENA is abolished, it will cripple the development of
Australia’s renewable energy industry, and Australia will be forced to mount a
costly rear-guard action in the future in order to meet these targets.[53]
2.52
The ACT Government argued that the 'overwhelming weight of scientific
evidence indicates that our current patterns of production and consumption,
particularly our burning of non-renewable fossil fuels, are not sustainable.'
Agencies such as ARENA, it suggested, played an essential role in 'developing
Australia's clean energy economy and addressing the challenge of climate
change.'[54]
Impact of placing ARENA
in Department of Industry
2.53
As noted earlier, the Explanatory Memorandum suggests that closing ARENA
as an independent agency and moving management of its existing functions and
commitments into the Department of Industry would deliver efficiencies and
allow for greater oversight of already-committed expenditure by the Minister.[55]
2.54
A number of submitters challenged this reasoning, arguing that ARENA's
independence was in fact central to its transparency and efficiency. In varying
degrees, these submitters also pointed to ARENA's ability to draw on a range of
different skills and expertise, including staff and board members with
research, technical and managerial skills and experience in the academic,
public and private sectors.
2.55
Dr John Wright, who serves as a member of the ARENA Advisory Committee,
wrote in some detail about the process by which applications for ARENA funding
are considered. He described a rigorous, transparent process that ensured 'only
those applications that satisfy ARENA's stringent technical and economic
conditions are recommended to the Board for funding.' A strength of ARENA, he
suggested:
...is its robust assessment and analysis process conducted by a
range of independent experts that look closely at the technical and economic
viability of project applications. An important additional strength is the
close consultation of ARENA staff with project proponents at all stages of the
application process. This cooperative process brings out the best in the
applications, generates project modifications that best suit ARENA requirements
and increases value for money.[56]
2.56
Similarly, SMA Australia, FRV, RayGen, the Sustainable Energy
Association of Australia and the CPSU all argued that ARENA's independent
structure and ability to leverage both public and private sector expertise had
been critical in driving its success to date.[57]
As FRV explained:
ARENA has in large part been successful due to its
independent structure and this ability to blend private and public investment
and expertise, much of which will be lost if the initiative is repealed and
existing projects returned to the Department of Industry.[58]
2.57
Tenax Energy took this point further still, arguing that ARENA's
independence provided a safeguard against the risk of political intervention in
the funding process:
The design of ARENA as an independent government agency
alleviates the risk of possible intervention in the decision making and the
proponent funding process. Additionally, the independence of ARENA decision
making through its Board structure encourages confidence in the administration
of the programs and has ensured that the only avenue for political intervention
in the determination of priorities or the awarding of funds is to demolish the
Agency.[59]
2.58
Mr Alan Pears AM, meanwhile, argued that the Department of Industry was
not well placed to manage the complexity of ARENA's existing funding
commitments:
The suggestion [in the Explanatory Memorandum] that shifting
management of existing ARENA projects into the Department of Industry will
reduce costs is not supported by any evidence, either. ARENA has built an
expert team that understands its target sector and can respond efficiently and
effectively. It also draws upon external expert advice, often at zero or low
cost. Much of the benefit of such capacity for efficient ongoing project
management risks being lost if no new projects are pursued, and if generalist
departmental staff are tasked with management of these complex projects.[60]
2.59
Bioenergy Australia argued that the complex, cross-portfolio nature of
bioenergy, made a stand-alone body like ARENA necessary to the development
of bioenergy technologies:
Bioenergy in particular requires a special purpose agency
such as ARENA to support its development. Bioenergy spans numerous portfolio
areas such as energy, infrastructure, waste management, wild fire mitigation,
water, agriculture, forestry, trade, employment and regional development, and
its assessment and support requires consideration by an agency that is geared
up for such a task, rather than being relegated to within a government
department with a narrower single portfolio responsibility.[61]
2.60
In making the case that ARENA was playing a 'vital role in Australia's
transformation to a cleaner, and less carbon intensive future', Infigen Energy
drew
a comparison between ARENA's independence from government and the placement of
predecessor programs and bodies within government departments:
Infigen Energy considers that ARENA will continue to be more
successful in its current form rather than being incorporated into the
Department of Industry. One of the predecessors of ARENA was the Renewable
Energy Development Program (REDP) which was run by the previous Government’s
Department of Energy. While this program was successful in making announcements
of grant ‘winners’, it was not successful progressing these projects to
financial close and construction. Most of the projects awarded grants by the
REDP were never built amongst these the Ocean Power Technologies project
abandoned this week. On the other hand, ARENA has been much more successful
selecting and progressing development projects to a successful outcome and
construction of new plants including Carnegie Wave Energy’s innovative Perth
wave energy project and AGL’s 155MW solar PV project in NSW.[62]
2.61
The BCA wrote that ARENA had a proven track record in undertaking
effective due diligence in the projects it invested in, and in its subsequent
monitoring and management and the contracts it had entered into:
The BCA supports the government’s imperative to get the
budget back into surplus, but not at the expense of closing an institution that
has commercial expertise, that is not readily available in a government
department and which has been operating effectively, with so much potential
ahead.[63]
Criticism of ARENA's current operations
2.62
The committee received several submissions that were critical of ARENA's
current focus and operations, including submissions from the Australian Chamber
of Commerce and Industry (ACCI) and Gas Energy Australia that supported the
proposed abolition of the agency.
2.63
ACCI argued strongly in favour of the Bill, on the basis that the
investments made by ARENA in 'uncommercial renewable energy projects' imposed a
burden on the taxpayer for no clear economic benefit. Indeed, ACCI argued that
ARENA served to distort the energy market, and further confuse an already
incoherent policy approach to reducing greenhouse gas emissions:
Investment in renewable energy is already supported by both
the Clean Energy Finance Corporation (CEFC) and the Renewable Energy Target
(RET), and prospectively will benefit from abatement opportunities available
under the Emissions Reduction Fund. ACCI believes that there is no economic
justification for layering additional subsidies for the renewable energy sector
on top of those already provided for in terms of financing of projects under
the CEFC, and by artificially creating a market for renewable energy through
the operation of the RET.
Funding for ARENA simply provides one distorting subsidy on
top of a range of others and further complicates the disjointed and incoherent
policy approach to carbon emissions. ACCI believes that Australia’s carbon
abatement policies need to be rationalised and consolidated into a coherent,
integrated policy framework that is designed to achieve lowest cost abatement.
The Emissions Reduction Fund provides a realistic prospect of achieving such an
approach and provided it operates effectively should be the principal mechanism
for limiting carbon emissions across the economy.[64]
2.64
ACCI continued that there was a lack of transparency or accountability
generally regarding the economic returns provided by the projects that ARENA
was investing in:
ARENA has no clear economic justification for the investments
it pursues and there is limited disclosure on returns to projects funded in
their 2012–13 Annual Report. There are no clear benchmarks for success
outlined in ARENA’s annual report and it is not clear to ACCI that the agency
is delivering an adequate return on taxpayer’s funds.[65]
2.65
Moreover, ACCI disputed the need for a funding body devoted specifically
to the research, development and deployment of renewable energy technologies:
There are other vehicles available through the university
sector and private sector research institutions to fund basic research and
development and commercialisation of technologies. There are also a plethora of
industry assistance and research programmes that already exist but are
available more widely than to just the renewable energy sector. There is no
specific market failure that is unique to the renewable energy sector that
justifies its own special financing mechanism.[66]
2.66
Gas Energy Australia argued that while it supported government
initiatives
to develop projects and technologies capable of reducing greenhouse gas
emissions,
it did not support the exclusion of gaseous fuel related projects and
technologies from such initiatives:
Gas Energy Australia considers all technologies should be
allowed to compete objectively on the basis of abatement performance and cost
effectiveness. Government bodies such as ARENA that have been arbitrarily
restricted to developing renewable energy sources are denied the opportunity to
develop other projects and technologies capable of delivering superior
abatement performance at a lower cost.[67]
2.67
Unlike Gas Energy Australia, the Business Council of Australia (BCA)
argued for the continued existence of ARENA, on the basis that there was a good
policy case for government-funded investment in the research, development and
early-stage deployment of energy technologies. However, like Gas Energy
Australia,
the BCA suggested that such investments should be technology-neutral:
The government’s overarching energy and climate change policy
should be open to targeted support for all forms of emerging low-emission
technologies that offer opportunities for least-cost greenhouse gas abatement,
not just isolated support for renewable energy.[68]
2.68
While supporting the continued existence of ARENA under its current
governance structure, the BCA acknowledged the need to reduce ARENA's funding
to a more sustainable level. Specifically, it suggested that ARENA's funding be
reduced to 'an ongoing rolling fund of $100 million per annum and the rest
of the funds be returned as a saving to the government's budget'.[69]
2.69
The Energy Supply Association of Australia (ESAA), meanwhile, argued
that while it supported the continued existence of ARENA, its funding should
only be used to fund research, development and demonstration in renewable
energies, rather than being used to support the deployment of commercial
projects 'which may be commercial in their own right'. ESAA wrote:
In general, if a particular technology type has received
support for a commercial-scale project in one funding round, then demonstration
has been achieved and the same technology should not be eligible for further
funding.[70]
Committee view
2.70
The committee notes that $1 billion of taxpayer funds have already
been committed to nearly 200 renewable energy projects through ARENA, and that
industry has in turn matched this investment by a further $1.8 billion.
This represents a very significant investment in renewable energy projects, and
the committee notes that the government has indicated that it is keen to
observe the outcomes from
the projects that have already received funding or a funding commitment from
ARENA. The committee also welcomes the Minister's advice in his second reading
speech that, following the abolition of ARENA, the government will ensure
projects that have received ARENA funding are well-managed, meeting their
milestones,
and generally contributing to the advancement of the renewable energy sector.
2.71
Giving the need to repair the budget, the committee recognises that
savings have to be returned to the Budget. The Bill, if passed, would go some
way to achieving this, delivering $1.3 billion in savings to the budget.
2.72
The committee notes with interest the point made by Gas Energy Australia
and the Business Council of Australia that ARENA's remit does not allow for
investments in non-renewable technologies, even where such technologies might
deliver greenhouse gas abatement at the least cost. The committee is of the
view that non-renewable energy technologies should not be excluded from
receiving government support, however that support is administered, if in fact
those technologies offer opportunities to deliver low-cost greenhouse gas
abatement.
Recommendation
2.73
The committee recommends that the Bill be passed.
Senator Sean Edwards
Chair
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