As part of the Australian Government's “Clean Energy Future”, the Government has just now made available $1b to assist businesses to reduce their energy and carbon use. In this alert, we give you the basic details of what’s available, for who, for what activities and how you get it! We also give some insight on the likely “strings that are attached” in the Funding Agreement, which you will need to consider and manage as part of the process.
What’s available and for who?
There are two broad programs available to support investment in energy-efficient capital equipment and low-emissions technologies, processes and products.
For general manufacturing
a. Available only to manufacturing businesses with an annual electricity consumption of ≥ 300 MW hours or 5 TJ of natural gas or have emissions ≥ 0.27 kilotonnes of Co2 or that are directly liable under the carbon pricing mechanism.
b. $800M budgeted over 7 years from 2011-12.
For food and beverage processors and foundry and metal forging manufacturers
a. Available to all businesses, with no energy consumption thresholds.
b. $200M budgeted over 6 years from 2011-12 with $50M for foundry and metal forging and $150M for food processing.
Both programs require co-investment. The Commonwealth has changed their position from the previous $1 grant for $3 investment to a scaled measure to suit smaller businesses and projects:
Manufacturers with turnovers of <$100M requesting funding < $500,000 – you get $1 for every $1 invested
For all other grants < $10M, you get $1 for every $2 invested
For grants >$10M or more, you get $1 for every $3 invested.
Grants are only available to incorporated businesses in Australia, which undertake manufacturing activities in Australia and the minimum grant is $25,000.
For what activities?
Grants are available for investments in energy efficient capital equipment and low pollution technologies, processes and products. Projects must be completed within two years, can include activities at multiple sites within Australia and include:
replacement of existing manufacturing plant, equipment and processes eg upgrading to high efficiency motors and lighting; replacing an existing boiler with a more efficient one;
modifications to existing manufacturing plant, equipment and processes eg installing variable speed drives or advanced process control systems; fitting new insulation for ovens and heaters;
changes to energy sources for the existing or replacement manufacturing plant or processes eg switching from an electric furnace to a gas-fired furnace; installing solar panels, wind turbines or a gas-fired cogeneration system
replacing or modifying existing manufacturing facilities to enable production of new low emissions products eg installing new equipment to establish a production line for energy efficient washing machines
Grants are not available for new production facilities, green-field production sites, or for a facility for a new product which does not replace an existing site.
How do you get it?
Just fill in a form!
Not really. There is a detailed application process which is best explained at Clean Technology Investment Programs. There are also information sessions – see Register for an information session. (Plus we expect that there will be many climate change and energy consultants who will be available to assist you with this process.)
Grants less than $1.5 million will be assessed against weighted merit criteria 1 to 3 and grants of $1.5 million or more will be assessed against weighted merit criteria 1 to 4 as outlined below:
| 1. |
The extent of the reduction in carbon emissions intensity, including through improvements in energy efficiency arising from the proposed project. |
70 |
| 2. |
The capacity and capability of the applicant to undertake the project. |
15 |
| 3. |
The extent to which the project maintains and improves the competitiveness of the applicant’s business. |
15 |
| 4. |
The contribution of the proposed project to a competitive, low carbon, Australian manufacturing industry and the benefits to the broader Australian economy. |
20 |
What strings are attached?
If you are awarded a grant, then you will need to agree a Funding Agreement with the Commonwealth. A sample agreement will be provided and the general terms are said to be non negotiable. However, the schedules, covering project details, milestones, payment schedule, reporting requirements etc, which are specific to your project, will be agreed with you.
The sample Funding Agreement has not been published on the AusIndustry website. From our experience, it is likely to contain many sensible and non controversial terms which protect taxpayers’ money and ensure that the project is conducted as represented. Those provisions will mean that you will not have the usual degree of flexibility with implementing your project and will need Commonwealth approval of any significant changes. You will also need to provide the Commonwealth with confidential information about your project. While the Commonwealth will seek to protect truly confidential information, at least basic details of your project will be public.
In addition to these inherent issues with seeking grant funding, the sample Funding Agreement is also likely to contain some features which will concern applicants.
No fault withdrawal of funds - Funding agreements traditionally reserve the Commonwealth’s rights to reduce or withdraw funding and the Commonwealth will only pay your legally committed costs for full withdrawals. So you may lose your funding during the project and this may change the economics of your project. The structure and consequences of “no fault” termination or reduction should be negotiated.
Low termination thresholds – The Commonwealth has broad powers to suspend/reduce funds and to terminate for multiple defaults which would not normally be regarded as material. These terms create additional project risk and for significant projects we would seek to negotiate them.
Other funding - Variations in other funding sources require Government approval and could lead to the Government suspending, reducing or withdrawing its funding. The interdependencies with other funders will need working through.
No security permitted - The Funding Agreement may prohibit security over assets purchased with the funds, which would limit your ability to use other finance for your project. We raised this issue as part of the consultation process and hopefully it has been fixed as part of the proposed Funding Agreement.
People/subcontractor controls - There are often excessive controls over removal of people and subcontractors and over subcontractor selection and terms.
Extra red tape - Other government policies in relation to construction, anti-discrimination, privacy and OH&S etc are mandated. Those bureaucratic layers combined with extensive reporting and audit obligations will lead to additional project overhead.
Risk free – The Commonwealth will require non fault based indemnities relating to the project, IP and assets.
IP –The licences of the IP created and used during the project demanded by Government vary from mere use of reports to general use for Government purposes. The scope of these licences needs careful consideration.
While the extent of these issues is yet to be determined in the sample Funding Agreement, once it is released we encourage you to be mindful of them. We also encourage you to raise your concerns as part of the application process, seek to negotiate changes to the terms and at least look to manage your risks in the terms of the schedules. We are experienced in Commonwealth Funding Agreements, understand the “Government way” and would be pleased to assist you in this process.