Elephant in the room? No energy policy

On 13 August 2019, Infrastructure Australia tabled a comprehensive Audit on Australia’s infrastructure across transport, water, energy, telecommunications and social infrastructure[1]. The objective of the Audit is to take a user perspective of Australia’s infrastructure and create discussion around key challenges and opportunities. We believe the Audit is an excellent forum for lively debate around key issues that will have material impacts on Australians. We welcome the Audit and congratulate Infrastructure Australia on bringing this Audit forward and into the public domain for healthy and constructive debate.

Venture Insights is a market-leading commentator on how technology disrupts the world we live in. We believe that technology can be a force for good and that if harnessed well can provide significant benefits to people. We call this the “technology dividend” and have focused on a number of key sector groups including digital media, telecommunications, finance, energy and health.

In this report, we review the energy component of the Audit and provide some of our own views on what is being presented. The Audit was broken into 6 areas (which originated from the Finkel review): (a) Affordability and competitive prices; (b) Secure and reliable and sustainable energy); (c) Planning for our future energy networks; (d) New opportunities for community choice; (e) Delivering energy in remote communities; and (f) Harnessing Australia’s energy advantage. We respond in turn to each of these areas.

[1] https://www.infrastructureaustralia.gov.au/publications/australian-infrastructure-audit-2019

Key takeaways

/ We believe Infrastructure Australia has provided a welcomed and comprehensive ‘user perspective’ on energy infrastructure. The Audit provides 11 challenges yet only 8 opportunities for consideration and invites submissions ahead of its final recommendation due in 2021.

/ We believe that the Audit does not highlight the significant economic opportunity that would arise from having a coherent Government energy policy that accelerates our transition to renewables domestically and allows Australia to take a global role in this process. The lack of Government energy policy is well documented and acts as a disincentive to invest in future energy infrastructure assets.

/ We believe that renewables and demand-side management are the key opportunities to reduce the cost of electricity in Australia. The Audit correctly identifies that affordability of energy is a key issue for household consumers (electricity prices have risen 63% in the past decade[2]), yet it did not identify any opportunities in the section on “Affordability and Competitive Prices”.

/ We believe that distributed electricity (e.g. solar and batteries installed in the homes) is a major opportunity to reduce costs for households over the next 15 years. The Audit correctly identifies that new forms of large-scale storage are increasingly available, including pumped hydroelectric and battery assets that will allow for appropriate new firming capacity and complement variable renewable energy bids and aid the transition to the new electricity mix in the section on “Secure and reliable and sustainable energy”.

/ We believe that a master plan should be put in place by the government to move towards a much more flexible, distributed electricity network, not just focus on bottlenecks around renewables. The Audit correctly identifies Renewable Energy Zones that aims to help direct efficient investments and will be prioritised for connection to the grid in its section on “Planning for our future energy networks”.

/ We agree with Infrastructure Australia that demand response and electric vehicles provide consumer choice that will substantially change the way in which we consume energy. The Audit correctly identifies demand response and electric vehicles as opportunities in its section on “New opportunities for consumers choice”. We also agree that with Infrastructure Australia that the lack of Government (particularly Federal) incentives to accelerate these trends as being a major hurdle for consumers to bridge.

/ We would go further than Infrastructure Australia opportunity and suggest that new local energy supply and storage solutions should entirely replace diesel generation in remote and regional areas. The Audit correctly suggests that new energy supply should complement diesel generation, which we believe is far too unambitious an opportunity in its section on “Delivering energy in remote communities”.

/ Finally, we agree with Infrastructure Australia view to transition heavily to renewables domestically and become a global leader in renewables globally, but believe that exploiting or gas reserves is a ‘yesteryear’ type project that will have a limited long term economic benefit and continues to foster a ‘fossil fuel’ mentality. The Audit identifies in its section on “Harnessing Australia’s energy advantage” we agree with two of them but would ditch the third one on energy policy grounds despite the short-term economics that could be exploited. The effort and resources are better spent on renewables which will be with us for beyond the 15 years’ time horizon if not forever.

[2] The Guardian – Energy https://www.theguardian.com/australia-news/2017/oct/15/australias-household-power-prices-rose-63-in-past-decade-says-watchdog


Infrastructure Australia, charged with the responsibility of driving better infrastructure outcomes for Australia, recently published its second national Audit of Infrastructure. The first audit was conducted four years ago in 2015. The objective of the Audit is to develop “a national evidence base to guide infrastructure decision-making and focus attention on the investments and reforms that will improve both our living standards and national productivity”.

“Infrastructure is fundamental to our quality of life. It connects us to jobs, education and other opportunities. It allows us to travel safely home to our families at the end of each day and enables us to keep in touch with friends near and far. It provides us with the essential services we rely on – from energy, water, and telecommunications, to social infrastructures such as hospitals, schools and parks, and access to goods, such as fresh food, that most Australians could not imagine living without.
Most of our networks work well and support our lives every day in ways we have grown to take for granted. But infrastructure is only as good as the services it delivers to users. When it comes to infrastructure, the community has told us what matters most – access, quality and cost.
Too often, our infrastructure doesn’t meet these needs. Congestion, crowding, rising bills, outages and declining service standards can undermine our confidence in the infrastructure we use. These are clear signals that our infrastructure needs to work harder to support Australia into the future..”

Source: Julieanne Alroe, Chair, Infrastructure Australia, August 2019

The 2019 Audit covers key infrastructure:

  • Transport;

  • Energy;

  • Water;

  • Telecommunications; and

  • Social infrastructure (new in this audit).

The 2019 Audit identifies the major challenges and opportunities facing Australia’s infrastructure over the next 15 years and beyond with the focus being on what matters to users and focusing on outcomes for them. Infrastructure Australia’s hope is that better long term decisions in Infrastructure will enhance user utility and quality of life for Australians.

The process involves submissions to be made

The Audit provides a list of challenges and opportunities and invites interested parties to provide submissions. In 2020, Infrastructure Australia will then provide its final recommendations, which aim to inform the next major round of infrastructure investment in Australia.

The role of the Infrastructure Australia Audit is not to identify solutions, but rather to “have a clear understanding of the problems we are seeking to solve”. To do this the Audit identifies issues, gaps, problems and untapped potential in expressing these as:

  • Challenges: Where a change in how we deliver infrastructure is required to avoid future costs or erosion of our quality of life or productivity.

  • Opportunities: Where infrastructure could unlock future growth and development and improve quality of life or productivity beyond the status quo.

If you are interested in making a submission to Infrastructure Australia as part of the process you should contact Venture Insights, as we can assist with background research and scripting submissions.

Infrastructure Australia’s overall messages (across all infrastructure areas) are that (a) we are moving in the right direction; (b) that low-density areas and lower socioeconomic groups are being let down overall; and (c) that prices are growing in real terms (of which energy is the main culprit)

Infrastructure Australia’s key messages are that technology is changing everything and that we need to move more quickly to keep up with our fast-growing cities. The key messages are summarised as follows:

Figure 1. Outcomes and impacts on the Infrastructure Australia Audit

Outcomes for users

Access: Access to choice in infrastructure services has improved since the 2015 Audit, largely due to new technology. While access to choice is strongest in fast-growing cities, it is weaker in other areas, and for people from lower socio-economic and diverse backgrounds.

Quality: The quality of infrastructure services is high for most Australians in urban areas; however, population growth is impacting some services. Low-density areas, emerging industries and lower socio-economic groups’ needs are not met.

Cost: Average household infrastructure costs have grown in real terms but decreased as a proportion of household incomes. However, these costs disproportionally impact low-income households.

Impacts on Communities

Fast-growing cities: Infrastructure in our four largest cities is failing to keep pace with rapid population growth, particularly on the urban fringe.

Smaller cities and regional centres: These areas are growing as service hubs for their neighbouring regions, including supporting growth as satellites of fast-growing cities.

Small towns, rural communities and remote areas: The quality of infrastructure services for people living in remote communities does not meet the standards Australians expect.

Developing regions and northern Australia: Infrastructure can catalyse quality of life and productivity by improving connectivity and efficiency.

Source: “An Assessment of Australia’s Future Infrastructure Needs”, The Australian Infrastructure Audit 2019, June 2019

The Audit highlights that energy costs are impacting our global competitiveness and a major contributor to greenhouse gas emissions

From an energy perspective the Audit highlights three important factors;

  • Australia is falling behind and losing its competitiveness. Australia’s national productivity and global competitiveness rely on efficient infrastructure networks; however, we are falling behind international competitors. Australia currently ranks 18th in the world for ease of doing business, having dropped over the past decade from 9th;

  • Infrastructure is the most significant contributor to Australia’s greenhouse gas emissions; however, progress to reduce emissions is inconsistent and policy directions remain uncertain. For example, while electricity emissions have decreased by around 3% since 2015, emissions in the transport sector have increased by almost 9%; and

  • Policy uncertainty and poor coordination has affected investment in the energy sector and delayed an effective response to rising energy prices, impacting energy reliability and increasing community anxiety regarding climate change. Over the past decade, the unit price of electricity has risen in real terms by 56%,16 while retail gas for households has risen by 45% over the same period.

The state of the energy sector: household users are both dissatisfied with rising prices and frustrated with the leaderless and uncoordinated approach taken by governments to tackle climate change

In respect of Energy, the Audit concludes that many users, unfortunately, are dissatisfied, summarised as follow.

“For many years, Australia has held a comparative advantage in energy costs, as well as an abundance of natural energy assets. This has propelled our economy, supporting improvements in the productivity of our businesses and helping us to compete in global markets. There are indications that this advantage is slipping, but Australia can overcome current challenges and spur a new wave of growth off the back of our energy resources and industry capability.
Much of Australia’s energy infrastructure is fixed, costly and long-lived. Its markets are highly complex and sensitive to change. These characteristics are adding to the challenges of a sector that is undergoing a transformation, adapting to new generation sources and consumer preferences. This energy transformation is occurring against a backdrop of climate change and ongoing policy uncertainty, with inadequate coordination across Australia’s governments on how best to manage changes. The result has meant a poor deal for many users, with bills rising rapidly over recent years and most users expressing dissatisfaction with the affordability of their energy services.”

Source: “An Assessment of Australia’s Future Infrastructure Needs”, The Australian Infrastructure Audit 2019, June 2019

Uncertainty of renewable policy is the biggest inhibitor of efficient deployment of investments

The extended period of policy uncertainty for the energy industry has created an inefficient deployment of investment in the financial markets. Investors favour climate-aligned portfolios. Investors have been and are concerned that they will continue to bear the climate change’s physical risks (i.e. the direct impact on asset values) and transition risks (i.e. flow-on effects from public policy responses).

“Investors were actively looking for opportunities to support climate solutions and embed climate change into the management of portfolios”

Source: Emma Herd, chief executive of the Investor Group on Climate Change, “Renewables policy uncertainty spooks investors”, The Australian, 20 August 2019

ASIC attempted to increase the transparency of economic impact on climate change risk by enforcing climate-change disclosure to a selected list of companies. Similarly, Reserves Bank duty governor Guy Debelle, has highlighted the importance of consistency and informative disclosure that is helpful for decision-making.[3]

“Existing and potential investors, creditors, insurers and customers are all increasingly demanding more specific information about a corporate entity’s exposure to, and management of, climate-related risks”

Source: Australian Accounting Standards Board (AASB), “Even regulators now fact in climate risks”, The Australian, 20 August 2019

[3] The Australian, “Even regulators now fact in climate risks”, 20 August 2019

Even prudential regulator, APRA, has provided guidance on managing the financial risk of climate change.[4] However, there has been no federal policy so far. The fear of uncertainty in renewable policy in Australia will drive investors to look for opportunities offshore.

Challenges and opportunities

Venture Insights believes that our infrastructure opportunities far outweigh the challenges in the medium to long term. Challenges are short term and highly costly to those that own legacy generation assets and coal reserves

The Audit identified both challenges and opportunities in several areas:

  • Affordable and competitive prices;

  • Secure, reliable and sustainable energy;

  • Transitioning to Australia’s future energy fuel mix;

  • Planning our future energy networks;

  • New opportunities for consumer choice;

  • Delivering energy in remote communities; and

  • Harnessing Australia’s energy advantage.

Affordable and competitive prices

We were surprised that Infrastructure Australia did not see major opportunities to improve affordability and reduce energy costs via increased capacity in renewables and storage, particularly over the 15-year period. We would also consider whether the market would become more competitive if retailers and generators were bifurcated such that retailers did not have the incentive to oversell ‘electricity and fossil fuels’.

Figure 2. Challenges and opportunities in the energy market - affordable and competitive prices


Transparent and affordable electricity prices are essential to reducing pressure on household budgets, particularly for lower-income households. A continued rise in energy bills will place an added burden on many households and may reinforce inequality. Ongoing complexity of bills will add to user costs and frustrations.

Regaining energy price competitiveness is important for lower business costs and improving the productivity of Australian firms. Australia risks becoming uncompetitive in some energy-intensive industries due to rising energy costs.


No opportunities identified

Source: “An Assessment of Australia’s Future Infrastructure Needs”, The Australian Infrastructure Audit 2019, June 2019

Venture Insights believes that renewables and demand-side management are the key opportunities to reduce the cost of electricity in Australia. The Audit correctly identifies that affordability of energy is a key issue for household consumers (electricity prices have risen 63% in the past decade[5]), yet it did not identify any opportunities in the section on “Affordability and Competitive Prices”.

Secure, reliable and sustainable energy

We believe there is a role for distributed electricity (rooftop solar and batteries) beyond large scale projects which was identified in the report.

[4] APRA https://www.apra.gov.au/media-centre/media-releases/apra-step-scrutiny-climate-risks-after-releasing-survey-results

[5] The Guardian – Energy https://www.theguardian.com/australia-news/2017/oct/15/australias-household-power-prices-rose-63-in-past-decade-says-watchdog

Figure 3. Challenges and opportunities in the energy market - secure and reliable and sustainable energy


Balancing reliability and affordability in line with users’ willingness to pay will be an ongoing challenge in energy systems with rapidly transforming wholesale and network characteristics. Failure to get the balance right will result in higher costs for users due to inefficient investments, or poorer reliability for users.

Governments, regulators, operators and service providers need to manage growing risks to Australia’s energy systems and fuel sources, including risks from climate change, cyberattack or disruptions to the fuel supply. Failure to effec