Australia’s power infrastructure debacle

Not only did we spend too much over the past decade creating excessive network capacity, but the system we have is already outdated.

The billions we pumped into electricity networks over the last decade or so is one of the most serious infrastructure mistakes that Australia has ever made. 

We all know that we created too much network capacity, and in normal circumstances that would have rectified itself over time. But it is now apparent that our power companies and authorities have installed the wrong network systems and large amounts of electricity networking may need to be redone at a huge cost. 

I made this point in my recent conversations with Dr Roland Busch of Siemens. Although Dr Busch did not make such a statement, as he described the power infrastructure of the future, it was clear that modern power systems will require a far more decentralised arrangement with power coming into the grid from many different sources. We will use buildings, both commercial and residential, to store power, particularly power that comes from wind and solar. 

What Australian electricity authorities did was to lock in the way they had always generated and distributed power. Power executives -- both private and government -- did not look at what was happening in other parts of the world and Australia will pay the price. 

And of course we have already paid a large penalty because the regulators boosted power prices to provide a return on the ill-judged infrastructure investment. The combination of these high charges and the carbon tax was a disaster. 

When we set about the task of changing the networks -- and we will have to do it -- so that we can take advantage of the new technologies, it will be an interesting question as to whether the power companies and authorities will be penalised for their previous mistakes.

In my view the business of infrastructure is being far too centrally planned and does not take account of communities. Communities would have told the power authorities that we are going to generate more power in households. 

One of the most important recommendations of the ADC Infrastructure Summit earlier this year was that we need to recognise that with self-managed funds now controlling a third of the superannuation market, a far more diverse capital raising system for infrastructure needs to be introduced. (A new way to fund rail, roads and hospitals, March 17).

In Victoria, the current Coalition government foolishly ignored the ADC infrastructure report and raised capital for its proposed East West Melbourne road link on the old centralised institutional basis. Had the capital been raised instead by issuing similar securities to a vast number of retirees, it would have provided the community support required to remove the East West Link as an election issue.

It was a fundamental mistake which other governments looking for community support for infrastructure projects need to learn from. 

The ability of the owners of big buildings to use their concrete as electricity storage as envisaged by Dr Busch opens a whole new vista for energy sources like solar and wind that depend on climate. 

What Australia, and many other countries have done, is to simply plonk the solar and wind power generation onto the existing systems. But climate sourced power usually needs extra capacity to cater for times when wind and solar can’t generate sufficient power.

If we used the latest technology we could use our buildings to store the power as heat. It is all part of the potential that exists to use power much more efficiently and that way achieve carbon reductions.

I am writing five pieces inspired by the G20. This is the fourth, see below for the first three:

The looming age of low-cost global energy, November 20

Costello’s chance to set the investment record straight, November 19.

The dairy industry must not waste the FTA opportunity, November 18.