The cost of energy is in many cases a significant burden to business (and many households). Unlike his predecessor Peter Costello, who does have an economics background and has often advocated for Australian businesses: that high fuel prices were an increased burden for businesses. Little has been said by the current Treasurer Wayne Swan about how the rising the cost of energy is impacting businesses.
Prior to the shift in manufacturing to developing countries, Australia with her abundance of cheap coal, hence cheaper energy; enjoyed an economic advantage over other western nations: which assisted the development and expansion of manufacturing in this country.
The cost of energy has risen sharply over the last three years and can be expected to at least double (if not triple) over the next five years. Currently, NSW retail energy prices are expected to rise by 15.5% – 18.1% per year. Network charges are expected to contribute about 9% to the above mentioned increases. (1) Similar increases has and will occur in other states.
This estimate appears to be without considering the additional cost from the Federal Government’s Carbon Tax.
If we are to develop or maintain manufacturing in this country, beyond the mining boom, then we will need to ensure abundant and cheap energy to help facilitate this. Planning needs to be undertaken now, to ensure our energy security and enable sufficient supply to curtail steep rises ahead.
As the population grows, and homes are filled with more electronic gadgets and big screen TV’s, the need for additional power generations will also grow. Federal Treasury forecasts that electricity generation will grow from about 200 TWh in 2005 to about 300 TWh in 2018 and rise to over 500 TWh by 2050. (2)
We believe that the Federal Treasury forecast (as per graph on left) for future energy generation is significantly underrated, for the reasons that we will set out below:
Keep in mind: that as the cost of petrol increases, people will increasingly seek alternative methods of transportation such as rail and electric cars.
As technology matures and prices for electric cars decrease: we can begin to see an increased number of electric cars on our roads. This particularly will be so, from people who mainly travel within the metropolitan area. (Though technology is improving the range and speed of electric vehicles.)
Studies undertaken by the Royal Automotive Club (Western Australia) suggest that by 2030, up to a third of our cars will be electric.
‘Compared to petrol/diesel vehicles, electric vehicles produce less CO2 emissions, are cheaper to run, require minimal servicing and are not as noisy. When recharged from renewable electricity, they offer zero emissions driving with no reliance on our finite fossil fuels.’ (3)
The Royal Automobile Club of Western Australia has costed the electricity used by electric cars at 1-2 cents per kilometre. This compares to about 8-9 cents per kilometre for petrol vehicles. (3)
Hence, as the future price for petroleum increases; we believe that the future demand for electricity, as an alternative fuel source for transportation; will greatly exceed the future predictions above. Electricity will become the primary fuel choice as the price of using electricity for transport becomes significantly cheaper than petroleum.
This will require a significant upgrade in our electrical generation and network capacity.
Today, electric passenger vehicles (using a high amperage of around 30 Amps) typically require a re-charging time of around 4 hrs. Using the standard power points found in Australian homes, which is rated at 10 Amps, the charging time is around 7 – 8 hrs.
It could take up to eight hours to recharge a car’s batteries using a standard power point; and this depends on the battery type and size. With a 30 Amp power supply, re-charging could be reduced to about 4 hours. (3)
As battery capacity increases, so is expected the time needed to recharge its batteries also increases; strengthening the case for a high amperage supply will be ideal for practicability sake.
A separate suitable high amperage electrical cabling and outlet would need to be installed from the electrical meter to provide a 30 Amp to supply.
The National Broadband Network (NBN) is said to cost $35.9 billion and take 10 years to complete. (4)
Our electricity network also requires significant investment to meet the current anticipated electricity needs:
‘The core wires-based delivery systems, which have a significant portion of aged assets, also will require major outlays, expected to exceed $30 billion in the next five years and to reach $50-60 billion by 2020, depending on regulatory approvals, including an approximate $7.5 billion roll-out of advanced customer metering systems.’ (5)
Let alone a significant increase caused by the increase in petrol price, which will drive people to use electrical forms of transportation, as outlined above.
If Malcolm Turnbull’s assumptions that 75% of the cost of building the NBN is involved with digging of trenches and laying of cable, is correct?
Then, whilst we are already digging trenches for a broadband/telecommunication network, (NBN): it would not be a significantly greater expense to also lay additional electrical cabling underground, to meet future energy demand and create a new energy network for the future at the same time.
The NBN’s return on investment of 7% and projected uptake of subscribers, is highly questionable.
Incorporating electrical cabling with the NBN rollout will add significant value to above the cost of building the NBN alone.
It would make sense to supplement or replace our aging electricity core wire delivery network to meet our future energy demands and to do so whilst we are building the NBN.
Australia will need to double it’s electrical supply capacity in the next 10-15 years. The NBN is expected to take 10 years to build. To ensure affordable electricity, the Government needs to invest in electricity generation and distribution to meet future demands.
Access to affordable electricity will contribute to maintaining and expanding manufacturing, jobs and prosperity across the rest of the country and give us a competitive advantage, particularly as our dollar recede from the current highs.
Unless we significantly increase our capacity in renewal energy generation, we will not meet any greenhouse gas reduction targets or sufficiently reduce greenhouse gases enough to mitigate their effect. Going by the Treasury model above, it is highly likely; that will be generating greater greenhouse gasses, as demand for electricity significantly increases.
If we are ambitious, we could follow a model developed by ‘Zero Carbon Australia’ and ‘The Melbourne University Energy Research Unit to achieve zero carbon emissions in a ten year timeframe, with an investment of $36 per year. Alternatively, we could aim for an 80% reduction in 15 yrs and boost our agriculture; or something of this magnitude may really be required to abate climate effects.
Part of the proceeds of the Carbon Tax and Mining Tax can be invested into actually building a clean energy future. Co –investment could be sought from interested parties such as superannuation funds, who invest in infrastructure anyway.
It would be worthwhile to invest some of the wealth extracted from Australia’s mineral resources into tangible assets that would benefit Australian’s into the future. Particularly if this helps sustain our economy and lifestyle after the mining boom.
Links:
(1) http://www.trade.nsw.gov.au/energy/customers/questions-electricity-gas-prices
(2) http://www.treasury.gov.au/lowpollutionfuture/report/html/03_Chapter3.asp
(3) http://rac.com.au/About-Us/Community/Environment/Electric-vehicles-FAQs.aspx
(4) http://en.wikipedia.org/wiki/National_Broadband_Network
(5) http://www.rebuildingthenation.com.au/utility/the-balancing-act-%E2%80%93-keeping-energy-affordable-while-reducing-emissions
Picture source: http://www.procommons.org.hk/
