The Australian Renewable Energy Agency says it is committing up to $40 million to fast-track the first pumped hydro storage project in South Australia, saying the need is growing more urgent as the share of wind and solar surges beyond 50 per cent.

ARENA CEO Darren Miller says the funding will be available for just one of four pumped hydro projects that have approached the agency for funding. The criteria will be capacity of at least 200MW and reaching financial close by June 30 next year.

ARENA says it will work with both the federal Coalition government’s Underwriting New Generation Investment program, which included three South Australia pumped hydro projects in its short list of 12, and the state government’s separate $50 million program to encourage grid storage.

It appears, however, that the ARENA funding will augment the UNGI scheme, which was supposed to have been finalised by the end of June, but that was an impossible promise made on the expectation that the Coalition would lose the May election, and would not have to deliver it.

RenewEconomy understands that consultancy ACIL Allen is currently talking to the short-listed projects as part of a general consultation process before the UNGI scheme moves to the next stage. Exactly how much money, and on what basis, could be allocated has never been disclosed.

ARENA’s Miller says the agency’s funding will help to fast track the development of South Australia’s first pump hydro plant. The four plants had already been assessed favourably under its Advancing Renewables Program, and they were now invited to put forward proposals on how they will reach financial close.

The winner will likely be the one with the lowest funding request. Proposals are due in October, with a decision later this year.

Two of the ARENA shortlisted pumped hydro plants – Sunset Power and Delta Energy’s 242MW/1,835MW Goat Hill project near Port Augusta, and Rise Renewables’ 250MW/2,000MWh Baroota project in which UPC bought a majority stake in this week. – are also in the UNGI shortlist.

The other two projects are EnergyAustralia’s 225MW/1800MWh Cultana sea-water project north of Whyalla and AGL’s Kanmantoo (250MW/2,000MWh) pumped hydro project.

Most of these projects gained some funding from the former Labor state government to conduct pre-feasibility studies. Sanjeev Gupta’s proposals for his steel plant near Whyalla, which is also in the UNGI shortlist, is not included in the ARENA program.

Apart from pumped hydro storage, several large scale battery storage projects have also been announced, along with longer term hydrogen storage, to add to the two batteries that currently operate in the state, Hornsdale and Dalrymple North, and the two that are about to join – Lake Bonney and Lincoln Gap.

The number of large scale wind and solar projects approved by the state government indicates that the state will surge towards its new unofficial target of “net 100 per cent renewables” by 2030,helped along by a new interconnector to NSW.

Miller says large-scale storage such as pumped hydro and grid-scale batteries are needed to supply system strength, energy reliability and inertia to the region, as well as “intra-day” storage of six to eight hours duration.

“With 50 per cent of total energy generation in South Australia coming from variable renewable energy in 2018, and an expectation that this will increase in the next two years, there is an increasing requirement for energy storage to firm and balance the system in that state,” Miller said in a statement.

“As part of this, pumped hydro has an important role to play in Australia’s energy transition..”

Miller said the ARENA “funding envelope” would be designed to ensure the best project proceeds with the least Government support.

ARENA has previously supported a range of pumped hydro feasibility studies including Snowy 2.0, Hydro Tasmania’s Battery of the Nation initiatives that include potential pumped hydro sites, along with Genex’s Kidston Stage 2 pumped hydro facility in Queensland and the proposed expansion of Origin’s Shoalhaven plant by Origin Energy in NSW.