Renewable energy has power to generate opportunities

Age
Wednesday 8/11/2006, Page: 12

Victoria needs to move quickly on energy alternatives, writes Evan Thornley.

THOMAS Watson, the founder of IBM, said in 1943: "I think the world market for computers is maybe five." Visionary as he was, Watson turns out to have been a little conservative. But he certainly did better than The Australian Financial Review, which in 1997 announced with world-weary scepticism that "the internet is the CB radio of the '90s". It was just wrong.

And so it is for conservative politicians who are having a devil of a time getting their head around the possibilities for renewable energy. Prime Minister John Howard says we'll never get there without nuclear power. Victorian Opposition Leader Ted Baillieu promises to tear up the Victorian Renewable Energy Target scheme because he claims it is "too expensive".

In stark contrast, the Stern review, led by Sir Nicholas Stern, a former chief economist of the World Bank, reviewed the literature and came to the opposite conclusion. We can't afford not to move to more renewables - and fast.

Why? Firstly, when you look at the full cost of energy sources, some renewables are already cheaper. Secondly, the costs of doing nothing are horrendous. And thirdly, we might actually reignite our manufacturing sector by leading the world in smart renewables technology.

When you look at the full cost of any energy source, there are three elements - the capital cost of the equipment, the operating costs of fuel and staff, and the cost of cleaning up the mess once you've finished. Those who argue that renewable sources are "too expensive" base their entire argument on today's capital costs for the equipment, since both the fuel costs and the clean-up costs are close to zero.

But the history of technology and manufacturing tells us capital costs in any new technology decline dramatically once mass adoption occurs. Why? Firstly, economies of scale mean unit costs reduce once design and tooling costs are spread over large volumes.

Secondly, anyone making anything learns as they go about it. With each new version we simplify, make it more efficiently, solve production bottlenecks, find cheaper materials, our suppliers learn more, and so it goes. That's how cars went from a luxury for the few to commonplace. It was the same with computers. It can be the same with wind turbines and solar cells.

Stem makes the same observation: "Experience shows that the costs of technologies fall with scale and experience." That is why he argues that "particularly in electricity generation. .. policies to support the market for early stage technologies will be crucial". That's why the Bracks Government's VRET is an essential building block for change and why the Liberals' "promise" to tear it up looks reckless. The closer you look at fossil fuels and nuclear, the more expensive they become.

As Stern is now showing, the cost of cleaning up the mess you make turns out to be large indeed. In rough terms it is somewhere between five and 20 times cheaper to take action now to reduce emissions than to cope later with the cost of not doing so.

Similarly, I don't know if Howard asked his accountants to look at the net present value (the cost in today's dollars of things that happen in the future) of guarding plutonium waste from terrorists for the next 500,000 years or more, but I suspect it's a big number.

Finally, this debate is not just about minimising the economic and social downsides of climate change, it's also about capturing the opportunities. When Stern talks of the world investing $US500 billion ($A647 billion) now or having to spend 20 times that later, that $US500 billion is a massive business opportunity. And, as is often the case, "first movers" will have greatest opportunity to capture that opportunity.

There's no reason why Silicon Valley had to be in Silicon Valley and not New York, London or Frankfurt. But it did start there and, having done so, it's hard for anyone to catch up.

And so it is with renewable energy technology at the early stage of its development. Victorians can not only become large customers for this technology and save ourselves a bundle in the medium term, if we become large suppliers, we might even make a bundle. Given the high design and technology-intensive nature of the renewable energy business, it presents a bright opportunity for us to make a virtue of necessity and see if we can build a new high-value, manufacturing export industry.

The targets are expected to produce $2 billion of investment and 2200 jobs. By creating a strong market, the VRET allows companies to compete, and for those who succeed, the potential to open up global markets.

There are always risks in doing something new. But sometimes the risks of doing nothing are bigger. In 1962, Decca Records rejected a four Liverpool musicians - "we don't like their sound ... and guitar music is on the way out anyway". The cost of not taking the risk was the Beatles going elsewhere.

Baillieu thinks we "can't afford" to pursue the renewable energy target. He's got it wrong, but fortunately voters have a clear choice - the Bracks Government knows we can't afford not to.

Evan Thomley was co-founder of technology company LookSmart and is a Labor candidate for the Southern Metropolitan Region.