The Energy Policy Debate: The Future of Energy Is… Competition

It never ceases to amaze me just how divisive energy policy is in Australia.

For years now the debates over fossil fuels and renewables have raged. With many pros and cons being raised for both sides.

It is evidently clear at this point that there is no “best” solution.

Energy policy is a grey area that requires flexibility and an open mind. Taking into account not just one aspect of the debate, but a broader understanding of everything at stake.

If there was a simple and easy fix, then there wouldn’t be a need for debate at all.

Sadly, that is not the case.

Instead we’re left with the circus that now dominates the energy discussion. A serious matter that is often overshadowed by the misinformation and misgivings of those who engage in it.

I swear that I’ve never seen people argue so passionately about a topic that they clearly don’t know all that much about, than when it comes to energy markets.

This is what I told readers of Australian Small-Cap Investigator in late August. An observation that may be obvious for some or damningly false in the eyes of others.

No matter what stance you take though, I’ll bet you have an opinion.

Because love it or loathe it, the debate over energy policy in Australia isn’t going away anytime soon. Scott Morrison has all but guaranteed that with his latest energy policy ‘challenge’.

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1,000 megawatts or bust

If you haven’t already heard, Scott Morrison has delivered the energy industry an ultimatum.

Telling the private sector to step up or step out if they can’t meet his demands.

See, by 2023 the Liddell coal plant will close for good. In order to cover the energy that would have been supplied by this plant, ScoMo wants new infrastructure. Issuing a challenge to the energy industry to provide a solution by April 2021, or he will build a state-run gas generator himself.

That’s on top of potential plans to support new gas fields and pipelines as well. Investment and infrastructure that is designed to ensure Sydney and Melbourne get the power they need.

Or, as the PM put it:

‘[To] deliver more Australian gas where it is needed at an internationally competitive price,

A simple objective on paper, but a far more complex one to pull off.

But, more importantly, it’s an audacious move from our PM. One that has already sent the media into a squabbling frenzy.

You can find plenty of articles once again arguing over this matter. Haplessly trying to decide whether it will end in disaster or become the saving grace for cheaper power.

Again, that shouldn’t come as much of a surprise.

For the local gas industry though, it is very welcome news. Signalling Morrison’s commitment to embracing gas over other energy sources. Whether it be coal, renewables, or otherwise.

So, does that mean gas is the energy source of the future?

Maybe. Maybe not.

Like my quote from the beginning states: there is no ‘best’ solution. At least, not yet.

But there may be a way to find one.

A destructive prerogative

See, when it comes to economic ideology it is hard to dismiss the basics.

No matter how complex, how irrational, or how bizarre modern economics may get; the basics almost always hold true. And when it comes to the basics, one of my favourite notions is that of ‘creative destruction’.

Essentially, creative destruction is a force for innovation. A key part of capitalism that sees the old make way for the new. Or as the man behind this idea (Joseph Schumpeter) put it nearly 80 years ago:

‘[Creative destruction is a] process of industrial mutation that continuously revolutionizes the economic structure from within, incessantly destroying the old one, incessantly creating a new one.

It is a force that ensures constant progress. One of the key drivers not just of economic growth, but societal growth.

And when it comes to our energy sector, it has been sorely lacking.

Energy policy and investment has (arguably) been stagnant for decades now. With many businesses in the sector unable or unwilling to find a new way forward.

You can argue that renewables have made great strides recently (and they certainly have); but it is still not enough. That’s why we’re stuck in this position.

Our old grid — like the Liddell plant — has reached its usefulness.

Australia needs to decide on a new way forward for our energy needs. And right now, that decision is largely between gas and renewables.

As much as you may disagree with me, both have their pros and cons. Which is why, picking one over the other isn’t going to be easy.

So, rather than pick, why not compete.

After all, that is precisely what creative destruction is all about. Finding a new way forward through a dismantling of the old. And, I think that is exactly what ScoMo’s challenge can be seen as.

Indeed, we’ve already seen Mike Cannon-Brookes publicly state that he is willing to build a battery to solve the PM’s challenge. That is, if ScoMo is willing to hear him out.

And given the success Cannon-Brookes’ first battery enjoyed in South Australia, I can’t see any reason to ignore him.

We should let competition decide. Putting both gas and renewables to the ultimate test.

Because god knows people aren’t going to agree on paper.

For investors though, it is something that you cannot afford to ignore. Win or lose, picking between gas or green could have huge ramifications.

You can read Monday’s Money Morning to learn all about that.

Here’s hoping our government and energy providers will do the same. Because whatever our energy future ends up looking like, a little competition (and creative destruction) could go a long way.


Ryan Clarkson-Ledward Signature

Ryan Clarkson-Ledward,
Editor, Money Morning

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Ryan Clarkson-Ledward is an Editor at Money Morning.

Ryan holds degrees in both communication and international business. He helps bring Money Morning readers the latest market updates, both locally and abroad. Ryan tackles all the issues investors need to know about that the mainstream media neglects.

Ryan is also the Editor of Australian Small-Cap Investigator, a stock tipping newsletter that hunts down promising small-cap stocks by dissecting the latest events affecting the world.

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