Changes in technology and a shift in mindset of customers always result in stranded assets, writes Garry Bowditch.
A new low-water mark in public policy was etched in the national psyche, when 15 of Australia's most senior energy CEO's were compelled to take a full-page advertisement in this newspaper recently pleading with politicians to avoid "pre-emptively ruling on the [Finkel] recommendations … without taking time to fully digest and provide a considered response".
Clearly the energy CEOs' worse case scenario is now in play.
Uncertainty with policy settings has and will continue to play havoc with investment in energy generation, undermining the ability of the market to ensure reliable and competitive supply. Early optimism of Finkel Review appears misplaced.
The federal government's Snowy 2.0 plan may rekindle the romance of post-war reconstruction, but it will be years in the making with uncertain costs, and even greater uncertainty about benefits. That's because price discovery for electricity will be very different in the future; more energy storage capacity embedded in households and the grid along with incentives to reduce demand in the peak will transform electricity networks.
Changes in technology and a shift in mindset of customers always result in stranded assets; energy and transport will be no exception. But headstrong governments, wedded to big traditional infrastructure, only risk making the transition even more costly and disruptive.
Fortunately for customers, the cost of solar panels and battery storage is falling rapidly; estimates vary but halving prices and doubling performance within five years is commonplace. Higher electricity prices will act as a catalyst for more households to opt out of the grid with DIY energy solutions behind the electricity meter, out of reach of government and regulators.
Government and investors must learn the lesson that good infrastructure should be responsive to changing consumer needs over its long life.
Unfortunately, change is very slow because government and investors prefer the current approach of mobilising projects quickly with contracts that have a fake commitment to the long term. Ensuring certainty of revenue and CPI plus price increases without matching commitments to improve services is failing customers and the community.
Australia's energy may have its problems, but roads continue to be the laggard of infrastructure, untouched by reform and are least prepared for new waves of technology like driverless cars. But this has been the case for decades, technology in cars is well developed to make traffic flow better, but frustrated with an absence of telemetry in roads to communicate traffic flow, intersection blockage and the like.
It is a failure of public policy that PPP toll roads do not require continuous improvement in customer service and report it publicly. So it should be unsurprising to policymakers and investors that the community is reluctant to support new toll roads, when slow peak-hour speeds and uncertain arrival time is a contractual inevitability.
Government must resist being hostage to the mantra "more infrastructure is always better". Taxpayers' money continues to be used as infrastructure confetti – it may create a momentary flourish but any serious observer knows it's time to move on from this wasteful status quo. What the country needs is the era of the infrastructure customer.
This article was originally published on the Australian Financial Review. Read the article here.
Garry Bowditch is Executive Director of the Better Infrastructure Initiative,John Grill Centre for Project Leadership, University of Sydney. He will be one of the panelists at the AFR National Infrastructure Summit taking place at the Sofitel Wentworth Hotel, Sydney, June 28-29.