The future of the federal government's $1.5 billion Solar Flagships program is in limbo, after both winning consortia failed to meet Thursday’s deadline for financial close.

As predicted here two weeks ago, neither the $1.2 billion Solar Dawn project, which proposes to build a 250MW solar thermal facility in Queensland, and the $923 million Moree Solar Project, which plans a 150MW solar PV facility in the north of NSW, have been able to strike power purchase agreements, the necessary pre-requisite to get finance from the banks.

Both consortia will now have meetings with officials from the Department of Energy and Resources – at least one as early as today – to discuss the next move. Both will push for extensions, arguing that the state of the market in Australia has made it impossible to strike PPAs.

Losing bidders, including two solar PV projects that already had energy utilities AGL and TruEnergy on board, an effective guarantee of a PPA, are standing ready. The two winners are expected to argue that they have made considerable progress in other areas of their projects, including local development approval, and deserve extra time. They will likely point to the precedents in other grants programs (see below) and the unique nature of the scale and type of these projects.

Still, given the political rhetoric around clean energy and government support programs, the issue threatens to become a potentially difficult one for the government over its choice of consortia and technology, and the sheer scale of the project – most other countries have begun their solar rollouts with much more modest projects.

Resources and Energy Minister Martin Ferguson was asked about the program's status by Climate Spectator on Thursday. He said: “Obviously that’s being handled by my department in association with the Flagships program advisers. If I remember correctly, the process of consultation with the two Flagships selected concludes today. The Department’s responsibility is to assess the outcomes of those negotiations and discussions, and in due course they’ll bring forward a report to me, and on the basis of that report I’ll assess where the program is up to.”

The Moree project is backed by BP Solar, Spanish developer Fotowatio and Australia’s Pacific Hydro, while the Solar Dawn project is supported by French nuclear giant Areva, UK-based Wind Prospect CWP, and CS Energy. Those waiting in the wings include include two ventures between First Solar and TRUenergy and AGL; an Infigen/Suntech venture; and in the solar thermal space, the Solar Flare project including Siemens, Parsons Brinckerhoff and John Holland.

The progress of the Solar Flagships projects is being keenly watched – both in the context of these projects, and for the rollout of large-scale solar in Australia – and it has deep implications for the prospects of a second found of funding in the flagships program, and the structure of the Clean Energy Finance Corporation. Many argue that it underlines the case for ditching the grants-based programs that have been the feature of both the Labor and Howard governments in favour of the sort of mechanisms being considered for the CEFC.

The overwhelming feature of the grants-based program over the last five years has been that plenty of money has been announced, but very little spent, as the Grattan Institute concluded in an in depth report earlier this year.

The other major funding program, the Renewable Energy Development Program, is also behind schedule. The funding deed for the $60 million grant for the Solar Oasis solar thermal project in Whyalla is still to be finalised, nearly 18 months after the project was originally due to begin construction. Government spokespeope say that the deed should be finalised shortly.

Meanwhile, there has been little progress on the OPT wave energy project in Victoria, a controversial choice at the time. A spokesperson for the department said the Victorian Wave Partners project has met its first crucial milestone which was to demonstrate the OPT Power Buoy 150 technology in waters off Scotland earlier this year. The consortium is in regular contact with the Department on the progress of the project.