Malcolm Turnbull will keep two climate funds which Tony Abbott went to the 2013 election pledging to abolish.
The prime minister on Wednesday announced that a $1 billion Clean Energy Innovation Fund would be set up in July, jointly managed by the Clean Energy Finance Corporation and Australian Renewable Energy Agency.
Mr Turnbull said the government would "retain and reinvigorate" the CEFC and ARENA.
"We are promoting innovation and new economic opportunities, enhancing our productivity, protecting our environment and reducing emissions to tackle climate change," Mr Turnbull said in a statement.
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He said projects could include a large-scale solar facility with storage in Port Augusta, South Australia.
"By offering innovative equity and debt products, the Clean Energy Innovation Fund can accelerate the availability of new technologies to transform the energy market, and deliver better value for taxpayers."
ARENA will continue to manage its existing portfolio of grants and the $100 million large-scale solar round, but will be told to focus on energy efficiency and low-emissions technology.
Once the solar round is completed, ARENA will move from a grant-based role to a "debt and equity basis" under the new CEIF.
The $1 billion CEIF will be established from within the CEFC's $10 billion allocation and will make available $100 million a year for 10 years.
Mr Turnbull said the government remained committed to reducing Australia's emissions by 26-28 per cent by 2030.
Environment Minister Greg Hunt said on Monday the government had made "no change in the policy" to axe the CEFC.
However, federal cabinet agreed to the policy at a meeting in Sydney on Tuesday.
Former treasurer Joe Hockey described the CEFC as a "giant $10 billion slush fund".
The legislation to abolish the CEFC has been twice rejected by the Senate and is a double-dissolution trigger.
But Mr Turnbull said on Monday he did not intend to use it as a trigger.
Mr Abbott was forced to keep ARENA in place in exchange for the Palmer United Party's support to bring in the coalition's Direct Action plan.
