Blueprint Institute welcomes the Federal Government’s commitment to refinance ARENA with $1.62 billion in funding over the next 10 years. ARENA has a proud history of driving research and development in clean energy technologies (cleantech). This commitment will help Australia to stay competitive and capitalise on global opportunities in cleantech markets throughout the 2020s and beyond.
Over the past decade, the Federal Government has played an important role in facilitating cleantech, innovation and commercialisation in Australia. The results, outlined below, speak for themselves. This announcement is particularly relevant in the context of the unfolding recession and the economic rationale for investments in long-run productivity.
The current economic crisis has precipitated a step change in public spending on cleantech finance globally. Many countries have adopted large spending on R&D and commercialisation as part of COVID-19 stimulus packages. Since March, Australia’s allies and economic competitors have increased their R&D spending significantly. Lockdowns and record low borrowing rates have encouraged countries to spend ambitiously to position themselves favourably in the future world economy.
- The EU, for example, has committed to investing an additional €17 billion (US$18 billion) in science agencies through to 2030. This increased support of R&D indicates a desire to position the bloc as a producer and owner of clean technologies.
- Separately, Germany has also put aside €9 billion just for green hydrogen R&D and support.
- The UK has also raised its R&D spending to a massive £22 billion a year, doubling R&D expenditure to approximately 0.8% of GDP.
Our potential to export renewable energy and associated technologies is significant — Australia can and should be a world leader in this space. Refinancing ARENA will help Australian cleantech companies to keep apace with those of other nations in terms of renewable technology and expertise. But ARENA is not the whole picture: governments must also consider if there is room for additional public financing of commercialisation through the CEFC, or tax incentives to drive private investment in cleantech.
If Australia falls behind other nations in these domains, this would decrease any economic benefits that renewable expertise and technological breakthroughs offer. It would also negatively impact the competitiveness of future growth opportunities such as hydrogen, advanced manufacturing, and clean metals (e.g. green steel and aluminium), which will depend upon affordable and reliable renewable energy.
As many countries accelerate efforts towards decarbonisation, this also presents a threat to Australian fossil fuel exports, such as coal. The Government has the opportunity to act now to ensure that regional areas that are heavily reliant on fossil fuel industries have the support and funding they need to undergo an orderly transition, diversify into other industries and flourish in the future.
Given the need for recovery spending amidst the COVID-19 pandemic and associated recession, Australia should look to solidify its position as a leader in industries of the future. Unquestionably, many of those industries will be green.
A lack of investment in future industries puts the nation at risk of losing long-term global competitive advantage. This is particularly true for emerging clean industries, which are receiving significant support in foreign nations. For example, in hydrogen, Australia’s recent AUD300m fund is dwarfed by a single USD5b (AUD7.2bn) green hydrogen project in Saudi Arabia; McKinsey and Company has identified Saudi Arabia as one of Australia’s key competitors for green hydrogen supply to Asian markets.
The Australian Renewable Energy Agency (ARENA), along with CSIRO, has been at the forefront of clean energy technology R&D in Australia.
ARENA has a world class reputation for developing cleantech, building upon Australia’s world-beating renewable resources. With a strong track record of demonstrated returns on investment and capacity to mobilise private investment, the Government’s move to refinance ARENA will benefit medium- to long-term prosperity. Since 2012, ARENA has invested $1.59 billion across 528 projects with a total value of $7 billion, and has achieved an average investment leverage of $1:$3.09.
Additional funding for ARENA will accelerate Australia's industry across the entire innovation chain for renewable energy and technologies including research, development, demonstration and deployment.
Case Studies of Successful ARENA Projects
ARENA has a strong track record of successfully using public finance to drive private investment; their investments have led to technological breakthroughs and reduced costs for Australian industry. For example, MSM Milling, with a $2 million investment from ARENA, has demonstrated the viability of using biomass for thermal energy. The project has been a resounding success, with thermal energy costs reduced by 70%.
On a larger and more ambitious scale, ARENA has also helped to bridge the gap between innovators and commerciality in large scale solar energy. In 2019, $90 million in ARENA funding unlocked over $1 billion in private investment in solar technologies. To support grid reliability and security and test the viability of battery firming capacity, ARENA has also supported the building of the world’s largest battery in South Australia. This project has been such a success, with further funding facilitating an expansion of the project.
Looking to the future
Refinancing ARENA is a step in the right direction; however, Australia’s investment in R&D still lags behind other countries. The IEA records energy R&D expenditure in relation to a country's GDP. While Australia has an expenditure of 0.12 per thousand units of GDP, Canada, one of Australia's potential future energy competitors, has an expenditure of 4 times that per unit of GDP (0.48). We rank 19th in the world in renewable R&D spending. According to the Australian Bureau of Statistics, Australia’s Gross Expenditure on total R&D has declined in real terms over the past decade.
Australia could maximise the benefit of our renewable resources by developing, manufacturing and exporting renewable technologies; instead, other nations often benefit from Australian technological advances by manufacturing renewable components and capturing more of their value—this occurred with solar energy.
By expanding the budget of ARENA and solidifying its place as a future leader in cleantech R&D, the Government is laying the foundations to unlock significant amounts of private capital which can help drive productivity, job creation, and economic recovery. But it should also consider how best to drive commercialisation, foster private sector investment in R&D, and develop a cleantech manufacturing base—all will be critical to achieving a prosperous cleantech sector.
In terms of commercialisation and increasing private investment, a key area of focus should be renewed support for the Clean Energy Finance Corporation (CEFC). The CEFC plays a critical supporting role to ARENA by helping bring cleantech products to market. The Innovation Fund, a $200m venture capital style fund within the CEFC, works closely with ARENA to take equity stakes in promising Australian cleantech companies. With portfolio commitments of $70m, the Innovation Fund has been successful in driving $8 of private investment for every $1 of CEFC finance committed—demonstrating strong private investor interest in cleantech.
The Government could consider opportunities to increase funds available to the Innovation Fund to promote more investment in high risk/high reward clean tech products. A general increase in funding for the CEFC, in line with funding to ARENA, would be a logical step to ensure cleantech firms have adequate runway through the next decade.
A note on Carbon Capture, Utilisation and Storage
One element of today’s announcement has not been universally popular, and in particular with advocates for greater action on climate change. The Government has announced plans to change the mandates of both ARENA and the CEFC to more closely reflect the Government’s Technology Roadmap and adopt a more ‘agnostic’ approach to technologies beyond wind and solar, including gas, hydrogen, and carbon capture, utilisation and storage (CCUS).
For those critical of CCUS, it is worthwhile considering recent reports from McKinsey & Company and the International Energy Agency. Both organisations suggest that CCUS will play an important role if we are to limit temperature increases to 1.5 degrees above pre-industrial levels.
The world requires game-changing technologies and breakthroughs if we are to achieve ambitious carbon reduction goals. CCUS is not a panacea; nor is it a license to burn more coal. But it's still a worthy innovation to pursue.
Acknowledgements: Thank you to the various experts who have been consulted on the development of this work. A special mention to Oxford Smith School of Enterprise and the Environment for their expert technical contributions. The views expressed in this article are those of Blueprint Institute alone.