Economy

SON 2017: There is an investment strike in the national electricity market

There is an investment strike in the national electricity market, South Australian Treasurer the Hon. Tom Koutsantonis has told CEDA’s State of the Nation Conference in Canberra.

Speaking as part of a State Treasurers’ panel discussion, Mr Koutsantonis said, “The reason there is an investment strike is the market, whether you believe in climate science or not, has factored carbon into all of its thinking.

“So no investor, no bank, no private equity will build any generation other than renewable energy because the only price signal in the country right now is for renewable energy and that price signal is not in South Australia it is here in Canberra.

“We are fundamentally changing Australia’s strategic structure to having a grid of oversupply to lower prices, to now one of supply on demand as it’s needed which pushes the price up.

“What the market wants is certainty, these investments take 20 to 30 years, you can’t just build a gas-fired generator or a coal-fired generator and get a return on investment in seven years.

“These assets are long lived and until there is a price on carbon or a mechanism to deal with decarbonising to meet our Paris Agreements no one in the business community will invest in anything other any renewable energy. That has now forced us to intervene.

“We are the only country that signed the Paris Climate Agreement that doesn’t have a roadmap to decarbonise. We have a renewable energy target, we’ve set where we want to be by 2030 but we don’t know how to get there.

“We need to act and act quickly. Hopefully the Finkel Review will bring some sense back into this debate.”

Victorian Treasurer the Hon. Tim Pallas agreed with the SA Treasurer on the need for certainty saying it was critical in the energy sector but “so far there was a lot of heat but not a lot of light in the energy debate”.

“Industry are crying out for certainty in this space, what they are not asking for is the bluff and blaster and the alternative facts that seem to underline the debate that is going on at the moment,” he said.

                            

“We need to have a sensible debate about how we make the transition to a low carbon emissions energy society.

“We all agree as a matter of principle that these things have to happen and if we all agree as a matter of principle then perhaps we should at least demonstrate at a political level the leadership to get on and provide the security, the certainty, the investment certainty that industry needs going forward.”

Speaking on good and bad debt and infrastructure investment, Mr Koutsantonis said: “Investing in productive infrastructure is good for the economy and if you need to borrow for it that’s appropriate but I don’t think you can call it good or bad debt, it is all debt.”

Both Treasurers said the Commonwealth Government needed to invest more and work with the states.

“All the states want to co-invest with the Commonwealth on infrastructure whether that is on a 50:50 basis or an 80:20 basis, depending on what infrastructure it is and what we have agreed, but we are not getting that response back and the Commonwealth Government seems to be contracting its infrastructure spend,” Mr Koutsantonis said.

“I would encourage the Commonwealth Government to use its balance sheet to invest in infrastructure.

However, he said “fundamentally we have to accept as a country we don’t have a spending problem we have a revenue problem and the revenue problem is there are some parts of the economy that are dramatically undertaxed and there are some parts that are overtaxed that are getting hit with an unfair burden.”

Mr Pallas said there is an argument around good and bad debt but it gets overplayed.

“About eighteen months ago I think I was the first state treasurer to publicly say we need to have a grown-up debate about debt, before the Damascus conversion of the Commonwealth to the idea of the idea of good and bad debt.  

“We do need to utilise our balance sheet for the purposes of actually providing intergenerational opportunity and the fact that we restrict ourselves from doing that, we massively restrain the effectiveness of our economy.

“If you are not building the infrastructure that will service an economy, that wants to be a nation that actually leads the world in the efficiency of its operations, then you are essentially selling the future short.

“Debt for recurrent expenditure is bad debt but what we should be talking about is utilisation of our balance sheet in order to build the opportunities of the future."

Both Treasurers also called for fixed terms for the Federal Government to remove uncertainty of when elections will be called and better cooperation between the Federal and state governments.

“The problem with the Commonwealth is they are absolutely obsessed with being in charge of driving the bus. Sometimes they are probably not the best delivery agent on these things,” Mr Pallas said.

“Sometimes it is better for the states to take a leadership role. To be honest the Commonwealth don’t have a great record when it comes to infrastructure delivery.

“The states have done pretty well in this space, we’ve mucked up every now and again but we’ve got a generation, in fact we’ve got a century of achievement and experience behind our belts so to be lectured by the Commonwealth on what we should deliver and how we should justify it I think is nothing short of patronising.

“We’ve got to change the way our Federations operates. As a Federation, we could do so much more if we accepted our respective areas of responsibility.”

Both agreed as their states face elections in 2018 the top issues will jobs and cost of living issues.

In addition, Mr Pallas said, “I think the community, electorate is crying out for a recognition, an assessment of if governments did what they said they would do.”

“When you went to the electorate there were all these things you said you would do, how close did you come to hitting the mark…not that we have to pretend we are infallible, but that you gave it a red hot go, that the things of value to us when we sought the votes that propelled us into government were the things we focused on in government.

“And then of course secondly (an assessment of) your achievements, was the plan you put forward actually the one that achieved all the great things you said it would and I think in Victoria we have a pretty good story to tell.”

State of the Nation: catch up here

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