Queensland Premier Campbell Newman has finally found a mechanism to pull his government’s share of funding of Australia’s largest solar project, the $1.2 billion Solar Dawn solar thermal facility planned for south-west Queensland.

The state government had threatened to can the $75 million funding soon after its election win earlier this year, but could not find a legal out. It finally found one after Solar Dawn failed to obtain a power purchase agreement – either with the government-owned utility Ergon Energy, or with other parties.

Solar Dawn, however, which is led by the French energy giant Areva, is still hopeful the project can go ahead, even though it failed to meet an extension till June 30 to arrange financing (and a PPA) by the Federal Governmnent, which had promised $464 million as part of the Solar Flagships program.

Federal Energy Minister Martin Ferguson has now referred the matter to the newly established Australian Renewable Energy Agency, which assumes responsibility for such grants as of this weekend. However, t is not clear whether the $464 million Solar Flagships grant remains in place, and can be renegotiated, as Solar Dawn hopes, or if the money is thrown back into the $3.2 billion pool to be administered by ARENA and is subject to competing applications from any project developers.

Ferguson expressed disappointment that Queensland had passed up the opportunity to support the project and be a leader in solar thermal development in Australia, and possibly the world.

“These opportunities have to be grabbed, but the Queensland Government seems content to let them slip by,” Ferguson said in a statement.

The Solar Dawn project was to have used compact linear fresnel reflector technology pioneered by Australian-founded company Ausra, and could have transformed Chinchilla and the western Darling Downs into the nation’s mixed-energy capital. Areva is using the technology in a 44MW “solar boost” project currently under construction at the Kogan Creek coal fired power station.

The state energy minister Mark McArdle wrote to Ferguson last week saying that Solar Dawn was unable to obtain a PPA and as a result state funding would be withdrawn. According to the Courier Mail newspaper, he expressed “disappointment” at the outcome and hoped the project would still work with federal backing.

Solar Dawn project director Anthony Wiseman told RenewEconomy in an interview on Monday that he was still hopeful the project could go ahead. He said it was the best placed of any large scale solar thermal project in Australia, had project approvals, and would bring 300 jobs to the state, as well as a $1.5 billion investment and a $68 million research program with the University of Queensland.

“It’s important to understant that we have not ceased work on project,” he said. “We will continue to pursue discussions with the Queensland government, and with ARENA.”

Wiseman said there were no plans at this stage to change the specifications of the project – such as making it smaller – and would not comment on any cost reductions, or how the project will go forward without the $75 million in state government funds.

He said negotiations about a PPA were continuing with Ergon and other parties. It was possible that several smaller agreements, rather than one large off-take agreement, could be concluded.

“We are competing in quite a dynamic energy market here,” he said. “The PPA is very important for the project. We working towards getting a PPA (but) I don’t want to raise expectations to a level where we are over-confident.

“It should not be lost that Solar Dawn is offering something that has never really been seen before.”