Nick Xenophon has revealed his party will oppose cuts to the Australian Renewable Energy Agency (Arena) and propose amendments to allow the agency to recoup some funds or take equity in projects it invests in.
The compromise comes after sustained Greens opposition and uncertainty within Labor over whether to accept the $1.3bn cut to Arena contained in the government’s omnibus savings bill.
Xenophon told Guardian Australia on Friday he will write to shadow climate change and energy minister, Mark Butler, seeking Labor support for the compromise when parliament returns next week. It follows concern about the cut expressed at Labor’s left caucus in the first sitting week of parliament.
The government plans to cut $1.3bn from Arena, which gives out funding in the form of grants. It has promised to create a separate $1bn fund that will give loans or take an equity stake in emerging clean energy technologies, funded from the Clean Energy Finance Corporation’s existing allocation for borrowing.
On Friday Xenophon announced he and his colleagues would vote against the cut and put up an alternative to save Arena.
The plan is to change Arena’s funding rules to allow it to have grants repaid with interest, if the project funded becomes a commercial success. Alternatively, Arena would be given the option of taking equity in the project and reap returns.
“Under both proposals money would be ploughed back into the fund to replenish it,” Xenophon said in a statement.
“If the Turnbull government is fair dinkum about innovation and agility, this proposed change to the funding mechanism will be a game changer in the innovative renewable energy space.”
Xenophon said ditching the Arena grants fund ignored its role in driving early-stage innovation.
Labor, the Greens and NXT’s three senators are sufficient to block the omnibus savings bill or insist on changes to the Arena cuts, if the government is amenable.
Before the election Labor proposed accepting the $1.3bn cut but to offset it with a $300m increase in funding for renewable energy.
Last week, manager of opposition business, Tony Burke, said those two elements of the policy went together, leaving Labor room to oppose the $1.3bn cut to Arena when it decides its stance on the omnibus bill next week.
Labor is also yet to decide on the $1.4bn cut to the clean energy supplement, which would decrease the benefits of new welfare recipients. It backed the cut before the election, but is signalling it could now oppose it due to its effect on those on already-low welfare payments like the pension and the dole.
On Friday morning the finance minister, Mathias Cormann, called on Labor to back all the measures in the omnibus savings bill which “received bipartisan support during the course of the election campaign”.
Asked on Sky News if the government would accept some measures being broken out of the savings bill to pass the rest of the measures, Cormann repeated that he expected Bill Shorten to “deliver on his word” and pass the lot.
On Thursday the Greens energy and climate spokesman, Adam Bandt, called on Labor to “to listen to energy companies, the CSIRO, university solar researchers and the Australian people who all say Arena’s funding should continue”.
“Australia could be a renewable energy superpower, yet we have a government intent on sending us back to the dark ages by cutting clean energy ... and an opposition who may wave through these cuts,” he said.
• Correction: An earlier version of this article suggested $1.3bn would be cut from Arena’s budget and added to a new renewable energy fund. In fact, the $1bn for the Clean Energy Innovation Fund will come from CEFC’s existing borrowings.
