The key ingredient in Australia’s energy future is investment.
Whether we are looking at domestic energy needs or the important contribution of energy exports to the national economy, the level of investment is the make-or-break issue.
Whether we are concerned about keeping the lights on, creating new jobs, building the economy or reaping rewards for Australia’s mineral wealth through taxation, securing what we want depends absolutely on attracting sufficient investment.
On both government and independent analysis, Australia will need about threequarters of a trillion dollars of investment in energy and mining developments for domestic and export purposes over the next 20-25 years.
That’s seventy-five followed by ten zeroes.
It is ten million times more than the average value of a large family home in, say, the affluent outer suburbs of Sydney.
It’s a lot of money – and it has to be raised from people, mostly located overseas, who have opportunities to send it elsewhere around the world in to many activities, not just energy.
As large as this figure may seem, it is only a relatively small part of a much bigger, global picture
The need for governments in Australia to focus on the I-word has been explained well in a submission management consultants KPMG have made to the federal energy white paper process.
The consultants quote Infrastructure Partnerships Australia and the Business Council as estimating that this country currently faces an infrastructure deficit requiring investment of $450 billion to $700 billion (in today’s dollar values) to rectify.
KPMG’s focus in the submission is on the domestic scene but it applies equally to export-oriented energy investment.
The consultants warn: “The investment environment is uncertain and potentially problematic in important respects.”
KPMG comment that there seems to be an assumption in the draft energy white paper that the investment to secure Australia’s many and varied energy needs will automatically materialise as and when needed.
The reality, they say, is that decisions about investment are complex and subject to considerable uncertainty. They cannot be taken for granted.
It will be a serious oversight for policymakers and the community to under-estimate the difficulty of funding the necessary level of investment to realise our energy-related ambitions.
KPMG call on the federal government, in finalising the energy white paper, to recognise the globally competitive nature of capital markets and the need to establish an attractive investment environment in Australia.
They point out that we are competing in a global environment where, just for electricity projects, investors will need to find $US17 trillion between now and 2035.
KPMG say it is questionable whether the world’s capital markets will be able to fund this – and $US21 trillion more for non-electricity energy projects – in the time frame envisaged – and they remind the writers of the energy white paper that Australian projects will also be competing for their share of available intellectual capital and other scarce human resources.
The attractiveness of these projects, they point out, are threatened today by rising input costs, regulatory uncertaintities, complex approval processes and skills shortages compounded by restrictive labour arrangements.
Governments and the community tend to be star-struck by Australia’s physical resources: a huge amount of mineral wealth and geographic proximity to the 21st century’s major markets in Asia.
But, KPMG point out, the litany of negative factors may negate our advantages and “leave huge potential gains on the table for others to claim.”
As they say, if Australia is unable to rise to its investment challenge, our trading partners will pursue other supply relationships for the resources on which they depend while, at home, we struggle to ensure domestic energy security.