Australia's $1.3 billion massive Solar Dawn solar thermal project has been canceled.

The 250-megawatt project in Queensland by a consortium led by Areva Solar was to begin construction next year.

The decision follows an announcement Monday from the Australian Renewable Energy Agency, which approves renewable energy projects in the country, that it wouldn't fund the project.

"After exploring several options to address current market conditions, ARENA is also no longer pursuing development" of Solar Dawn, the agency said in a release announcing its inaugural general funding strategy.

ARENA was set up by the Australian government in July 2011 to fund research, development, deployment and commercialization of renewable energy.

In a statement, Solar Dawn said "although it remains committed to Australia's large-scale concentrated solar power industry" it will no longer be pursuing development of the Solar Dawn facility.

"With ARENA soon to embark on a range of new initiatives, we look forward to sharing our experience and working with ARENA to help build Australia's clean energy future," said consortium spokesman Anthony Wiseman.

Solar Dawn had been dealt a blow in July when the Queensland government recalled its $78 million funding agreement for the project.

Australian Minister for Resources and Energy Martin Ferguson said at the time that by pulling the funding, Queensland was putting in jeopardy a project that represented $1.56 billion in economic investment to regional Queensland, 300 construction and local manufacturing jobs and a $70 million solar research and development program at the University of Queensland.

He said Solar Dawn "offers Queensland the opportunity to be at the forefront of solar thermal technology and home to one of the largest solar power stations in the world."

Solar thermal technology relies on the sun's rays to heat a liquid or gas, turning it into steam, to drive a turbine.

Australia's Clean Energy Council says ARENA's decision is disappointing because Australia doesn't have a large scale solar-thermal project going ahead.

"Our challenge to ARENA would be for them to outline quite quickly what their plans are to have a program that is looking to support those kinds of technologies going forward," Russell Marsh, policy director at the council told the Australian Broadcasting Corp.

ARENA Chairman Greg Bourne told ABC that although solar-thermal is being investigated considerably in Australia, the key factor is "to see whether the breakthroughs can be made, either here in Australia or elsewhere, to bring the costs right down."

Australia's solar photovoltaic sector, on the other hand, has made has made "enormous strides" over the past four or five years and "brought the costs right down," Bourne said.