42: Australia’s Renewable Energy Reality In 185 Seconds

Australia’s Renewable Energy Reality In 185 Seconds

To understand Australia’s renewable energy situation, you need a mini economics 101 lesson.

In a free economy, investment money is distributed to where enterprises, see potential profits. 

247 years ago, the father of economics, Adam Smith, described this process as an ‘invisible hand’ reaching around, borrowing money, then distributing it amongst producers of goods and services, that our society is willing to pay for.

Australians want renewable energy. And Adam Smiths invisible hand will be the mechanism that gathers the billions of dollars to pay for installing wind turbines, solar collectors, hydro schemes and 10,000 kms of cable to transmit the electricity to your home. Smiths invisible hand, needs to include a profit, to attract investment, and the infrastructure owners also need to make a profit. That’s why companies operate in free markets. The repayment of the money the invisible hand distributes, plus investment profit and operating costs will come from the power bills paid by the consumer.

If a profit isn’t assured, Smith’s Invisible Hand, won’t attract any investment.

That leaves the set up cost of renewables to governments, meaning, the taxpayer foots the bill.

Taxpayer or consumer, it's the same person. You the pay cost either way.

The equipment needed for Australia’s renewable infrastructure predominantly, comes from overseas suppliers, and their order books are full. Many can’t satisfy their own countries demand. So even if we placed orders tomorrow, companies or government, still couldn’t erect the cabling, turbines and solar collectors in time to meet the Federal and State government target dates.

Meanwhile, while private enterprise, all tiers of government and a smorgasbord of private interest groups all argue amongst themselves about who will build our renewable infrastructure, Australia’s coal fired electricity stations are shutting down.

Australia won’t produce enough electricity, before we become 100% of energy is renewable.

We will suffer blackouts unless there is a stop gap energy.

Which appears to be gas.

But we’ll need to explore for more gas to fill that gap.

So, Adam Smiths invisible hand will need to distribute the resources required to find more gas…based on making a profit. But the government, has capped what gas producers can charge for gas. This limits the return on investment for gas investors, explorers and producers…that’s like slapping handcuffs on Smith’s invisible hand which is trying to fund the gas industry.

Adam Smith’s invisible hand has been effectively solving economic problems in free markets for 247 years. The average term in office for an Australian Prime Minister is, 2 years and 8 months. Which of todays politicians will still be in parliament when renewable energy deadlines arrive?

For more on your skyrocketing power bills, please listen to the Burgernomics episode, Power Bills, How renewable energy affects them, with Simon Vardy, Deloitte’s partner for transition in the utilities industry. Simon discusses where your power bill is headed and explains Australia’s massive opportunity to become a global renewable energy powerhouse.

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