Disruption and renewal

On the few occasions when the Coalition would be pressed - or even asked - for policy detail before the last election, the response was that detail would be released "in good time". Our fearless press gallery failed to bristle at this patronising attitude, and explore whether or not there is aught but bluster behind it.

Since the review of the Renewable Energy Target (RET) there has been a lot of talk about how it will kill the renewable energy sector. Political observers have focused on how this is part of Abbott's policy against all things green and any legacy of the former government. "This isn’t logical, it’s emotional", says Tristan Edis, and he's right. There is, however, a longer game which those focused on short-term politics and economics tend to miss.

At the moment, the Australian energy sector is divided. On one hand we have the established players, responsible for 'baseload' or the large and regular supply of electricity, and who generate it by burning coal (and increasingly, gas). On the other we have a number of smaller companies, some based overseas and others based here, seeking to generate electricity through renewable technologies such as solar and wind.

If the government does axe the RET, or (more likely) if it stuffs about and creates such regulatory uncertainty that renewable energy projects become cost-prohibitive and returns become uncertain, those smaller companies will disappear from the Australian market. Investment decisions taken today will not come on line until about 2020 at the earliest. There are a whole lot of targets relating to carbon emissions and degrees of increased temperature which fall due then, and for Australia renewables will play less of a role than many had hoped.

Does this mean that renewable energy will disappear from this country entirely? No it doesn't. Here's what the government hopes will happen, and the basis on which it plans to establish its future credentials in an area which its opponents think it has vacated altogether.

It's true that Australia's coal-fired power stations are legacy systems, held together with increasingly tenuous maintenance. It's true that the unit costs for renewable-generated electricity are dropping, but that they are (note the timestamp on this post please) still higher than the unit costs of generation from the legacy systems. You'd have to bet that the unit costs for renewables will fall below the unit costs for coal and gas, and proponents of renewable energy assume this will be the case.

DickWarb's recommendation that the RET should be axed because it is working too well reminded me of Alfred Deakin's quote that people of certain other races should be excluded from Australia not because they were inferior to white Anglo-Saxons, but the reverse. It caps a career of achievement with a risible punchline. You can imagine Maurice Newman telling him: well I could have told you that.

The NSW government should have invested in renewables. When the ALP were in government and were tearing themselves apart over privatisation, renewables innovation was lost amid the heat of the debate. The unseemly rush to privatise was all the more so in the knowledge that coal-fired power assets could only decrease in value, a fire sale pushed by economic arsonists. Labor must not, and almost certainly will not, return to government in NSW until time and circumstance resolve the issues they can't resolve themselves.

People who run Australian energy companies aren't stupid. They aren't going to cling to coal because they love it. The survival of their companies require them to make provisions for renewables to be the most economical way of generating electricity. What's happened now is that making those provisions has become easier and cheaper for them. It hasn't become easier and cheaper for consumers, and those companies who were innovative in the renewable energy area have been dudded.

Companies that have been innovative in renewables miss out the rewards to which free market theories say they're entitled. Take, for example, this proposal. Who are Silex and ARENA? They've never generated a moment's power for me and I've never paid them a cent. They've given it a good Aussie try, though, but like a lot of businesses they have blown it (and in Mildura, of all places; Mildura will be wiped off the map through bad policy before Whyalla will). The Abbott government has changed the playing field so that Silex/ARENA won't be able to compete with the coal-fired power that has supplied Mildura for decades. As many have noted - a year too late! - $8-10b is being transferred from renewable energy providers to incumbent providers, to no benefit to anyone else (much less the budget bottom line).

Who knows - Silex and ARENA may have done so well that they may eventually have been able to buy out the legacy providers. This is called disruption, it's part of how capitalism works. It's the part of capitalism, however, that the Abbott government most fears and seeks to suppress.

The government's anti-RET position means that current electricity provider(s) will be able to buy the intellectual and other property rights for the proposed solar facility at a fraction of the cost that it would have been worth as a going concern. This means that the incumbency of existing providers will be maintained without them having to do the hard work and take the risk that Silex/ARENA took, while reaping the rewards properly due to Silex/ARENA.

Australia will get renewable energy in good time, when the incumbent electricity generators are good and ready to provide it and not a minute before. There'll be none of your disruption, which causes far-reaching change which the dull-witted and unimaginative control freaks who run this government (and others like them who run financial analysis outfits) neither like nor understand.

The incumbents will close that circle by showing their gratitude to the party currently in government. This isn't corruption in the sense currently playing out before the NSW ICAC, and if there was a Federal ICAC it wouldn't necessarily indict anyone involved in such a cosy arrangement.

This government is picking winners. Libertarians profess to oppose governments that pick winners and change the playing field, but you won't find the IPA or CIS criticising this instance. The IPA sacked Alan Moran, the one-eyed man in an organisation wilfully blind on such issues, for doing the same sorts of thing on social media that Andrew Bolt does in traditional media. By doing so they have also scuppered what remained of their jihad against 18C. Oh well.

The Abbott government, and those who crawl from the wreckage once it is over, will claim that they brought renewable energy to Australia is a way that could be sustained (as if new companies taking the place of old ones was unsustainable). They will regard their malfeasance over Silex/ARENA as part of the chaos apparently caused by Rudd-Gillard, and the stenographers in the press gallery will pass this on without examining it. They are deciding which renewable energy comes to this country and the circumstances under which it will come.

The invocation of Howard and another area of policy entirely is deliberate. The antipathy to innovations in renewable energy is of a piece with other policies. In civilian ICT, we have seen Malcolm Turnbull frame debate and policy so that Telstra and/or NewsCorp will set the pace for innovation. In the United States, ICT is subject to constant disruption and disrupts other industries; Telstra and NewsCorp won't disrupt anyone, including themselves.

The same government that is bungling renewable energy is busy tying up 'free trade' deals with other countries that are further advanced on these technologies than Australia. This government is not asserting the interests of the Australian renewable energy sector but happy to accommodate the interests of others for a minor concession on, say, sugar; the sort of thing that really matters to this government.

The nearest historical parallel of the extent to which this government is stifling the country's future is to imagine the Bruce government after World War I commissioning a whole bunch of horse people to kybosh motor vehicles and aeroplanes - regulations requiring planes taxiing at federal airports to be pulled by horses, that sort of thing. Imagine how Australia's development over the past century would have been stifled had Cobb and Co had lobbied to nobble Qantas, or the national telephone network. Imagine the Bank of New South Wales insisting that other banks could not be as sustainable as it, and grizzling about the Commonwealth Bank like Murdoch does about the ABC. This is what you get from a government which likes the idea of business, but not the messy reality of disruption and keeping your distance from blatant preferment.

Consumers will not get cheaper electricity, neither from the current delay nor from the eventual supply of renewables-generated electricity by sly, non-innovative incumbents. I haven't got my $550 for repeal of the carbon price, and I never will; neither will you. Australia is only open for business to oligopoly players. This kind of thing was foreseeable before last September and you should have been warned about it by the incumbent media organisations (bloated, anti-innovative and mostly doomed organisations) who make up the press gallery - but don't get me started on them.

Disclosure: 1) I am biased against the Abbott government and 2) I own some Infigen shares (less than $550 worth).