Daniel Mulino (Fraser, Australian Labor Party) Share this | Hansard source

I am pleased to rise today to speak in favour of the second reading amendment to this bill put by the member for McMahon. The Offshore Electricity Infrastructure Bill 2021 is a bill that is begrudgingly and reluctantly brought to this place by this government, a government that isn't really committed to action on climate change and isn't taking real action on climate change.

What we have seen announced over the course of the last week or so is an approach by this government, a slide deck surrounding a commitment to net zero by 2050, that doesn't set out a plan with enough detail, with enough meat on the bones, to actually achieve anywhere near what it should. The government claim that their approach is technology driven. The way that members of the government speak in this place, it's almost as though they are repeating time and time again phrases that have come out of focus groups. It's almost like we are hearing phrases and incantations that we're likely to hear all the way through to the election, rather than anything with any kind of content behind it.

When they say that its technologically driven, though, what it really lacks is any kind of detail when it comes to actually leading to that technology being developed, being adopted or being scaled. If we look at the slide deck that the government have developed, it is those three elements that are so critical. When you look at the waterfall diagram, which sets out how the government plan to achieve 100 per cent net abatement by 2050, it's a combination of new technology being developed, of that technology being adopted and put into practice and of that technology being scaled. The problem is that all of those three steps are going to require significant spending by the government and significant long-term investment by the government and by private sector entities. When it comes to direct spending by the government, the plan, the slide deck, that the government have developed again is extremely short on detail and almost nothing in the forward estimates in the next four years is new in the 129 slides in that deck. So all of the additional spending by the government that they expect us to believe will lead to this technological revolution is really to be taken on trust.

But what I want to focus on today is the massive investment that will be needed—investment that will be so critical to major infrastructure projects such as offshore wind farms but also that will be so critical to solar, to transmission, to storage and to so many other elements of the electricity grid. And I argue that the government are doing nowhere near enough to lead to the investment being put in place at the scale that is necessary for the kinds of technology that they themselves say in their own plan is going to be needed to achieve the short, medium and long-term targets that they have set out.

Government members keep coming into this place with these slogans like 'It's time for government to get out the way,' and 'We don't want to legislate a solution.' I might note that it is somewhat ironic that we are currently debating a piece of legislation being brought forward by the very government that keep telling us day in and day out that legislation is inappropriate. All of this flies in the face of the fact that the electricity market that we are trying to move towards a low-emission future is actually a creature of regulation. The National Electricity Market, which has been such an incredibly important microeconomic reform for this country over recent decades, was in fact a bipartisan creation across the Hawke, Keating and Howard governments. It was something that was created through massive microeconomic reforms going from the 1980s through to the early, middle and late 1990s. It was something that used to be a bipartisan reform, effective regulation, that led to a very effective, well-regulated national electricity market. Now, instead, we have lost that bipartisanship in this place and what we see are these resorts to hollow slogans.

What we have at the moment is an incredible opportunity and an incredible need. We have a need for massive abatement not just here but also around the world. Coupled with that, we see incredible technological innovation. We also have a financial system which is experiencing a glut of savings in Australia—though superannuation and other means—and globally, and an incredibly sustained period of low interest rates. We also have an incredible abundance of natural renewable resources in Australia, both solar and wind, as has been pointed out by earlier speakers. So all of these combined—the need for abatement, the technological innovation, the financial circumstances and the incredible natural resources that we are endowed with—create this aligning of the stars. Everything is lined up.

What we don't have is this government setting up the appropriate regulatory conditions that provide the right setting for people with capital to invest in projects. I don't want to go through a corporate finance lecture, but I think it is important to step through the very basics of what it is that is in the mind of an investor of large amounts of funds in long-lasting projects when they make a decision as to whether to invest or not. I would argue that the key components of that decision are: firstly, the discounted cash flow of that project, which is really the income that you expect to receive over the long-term; secondly, the rate of return of that project, which is really the discounted cash flow relative to the amount of investment that you think you have to put into the project; and, thirdly, the risk associated with the project. What I'm going to argue is that it's the combination of all of these three that is optimised by the right regulatory environment, and it is the government's inaction and inertia which is holding back investment which should be ready to go—investments that could be justified on the basis of their expected future incomes and their risk and the investment that they require. But investments that aren't getting over the line because of the unnecessary and highly inappropriate regulatory uncertainty.

Let's look first at this notion of discounted cash flow, which is actually just a fancy way of saying what is a project's expected future earnings. And it's necessary to discount those expected earnings back to current dollars in order to make a sensible comparison between those future earnings and what it is you've got to put upfront. As I said before, we are experiencing an incredible opportunity. We have interest rates at a level that is at a multiple-century low. So, we have a glut of global savings, we have huge amounts of capital looking for projects to invest in and we have incredibly low interest rates, so, when it comes to the discounted cash flow component of a decision being made by an entity with large amounts of funds to invest, you don't get better times than we have right now.

Let's look at the other component of what an investor might be thinking about, which is the risk component. There are a number of elements of risk with large projects. One is construction risk. Fortunately, when it comes to renewables projects, whether it be an offshore wind farm or a solar farm, generally the construction risk is relatively manageable—not zero, but generally relatively manageable—and certainly much lower than for many other kinds of infrastructure like rail tunnels or road tunnels through brown field sites or very large cities. So construction risk is quite manageable. Where we find significant risk is regulatory risk. Again, I go back to the notion that it's entirely inappropriate in the context of electricity markets to say that the right approach to facilitate investment is to say: 'Stand back. Get out of the way.' It's a completely absurd way to describe the last 30 years of regulatory reform when it comes to the electricity market.

The 1980s and the 1990s were all about bringing Australia into line with world's best practice when it came to national electricity regulation. It was all about setting up an environment in which long-term investors in transmission networks had the confidence that they were going to receive an appropriate rate of return. It was all about setting up the rules of the market so that generators were bidding in in such a way that they were confident that over the life term of the generation asset that they would get a reasonable rate of return. It was only with those appropriate regulatory settings that private sector entities and indeed public sector entities, but particularly private sector entities, would make the appropriate investments. And that's exactly the situation we find ourselves in now. So rather than stepping back, rather than saying we need less legislation, rather than saying government should get out of the way and certainly rather than continued inertia, what we need at the moment is to modernise the National Electricity Market further.

This is something unfortunately the state government have been having to take the lead on. We look at things like renewable energy zones and other areas of the National Electricity Market that require significant reform, such as the way in which storage is treated. That is something which is going to be absolutely critical if we are going to both encourage investment in large-scale renewable generation and achieve stability in the grid. But those opposite have no interest in that. They have no interest in the hard work of connecting the huge amount of money that is waiting to be invested in renewable projects and actually getting them to occur. What that requires is the hard work and the detailed work of improving our regulatory structures, rather than the uncertainty of a government that doesn't appear to be at all—and isn't in reality—committed to real action on climate change and isn't committed to the hard work of ongoing reform.

Let's look at some of the uncertainty that investors face. What are the market dynamics going to be in the future? As more and more renewable generation comes online, that leads to a degree of uncertainty for investors in terms of what the structure of generation is going to be. What are the bidding strategies of different generators going to be? The market dynamics of the future generation pool are very complex and uncertain, particularly when trying to imagine how that's going to be in 20 years time. Indeed, the overarching structure of the electricity market is something that long-term investors would be very concerned about, and that's one reason why the very belated commitment of this government to net zero, when so many other governments around the world committed to it years ago, is so problematic. So there are all of these issues that would be preying on the minds of long-term investors.

Let's look at different types of assets, to get a sense of what the challenges are in electricity. We've seen over recent years the prices of toll roads and ports go through the roof, and these are, understandably, very attractive assets because the reliability of future flows of income is very steady. But, when it comes to electricity markets, there is considerably more complexity and considerably more uncertainty, and that's why it's so incumbent on government to be continuously improved the regulatory structure so as to be doing all that it can to facilitate investment flows. It's not enough to put, in a slide deck, 'We are going to assume that 40 per cent of future abatement is going to be achieved by a technology road map,' when you have no realistic, no concrete, no detailed steps as to how you're actually going to link big investors, serious international investors, serious Australian investors with very long term perspectives, to risky investments, and facilitate those investments occurring in practice?

That was the kind of bipartisan reform that occurred in the eighties and nineties, and it's tragic that it's failing to occur, as we speak, because this government is all about hollow mantras and not about serious reform. That's why we're seeing, for example, the amount of investment in renewable energy projects dropping from 51 projects worth $10.7 billion in 2018 to 29 projects worth $4.5 billion in 2019. So it's not enough to say in some slide deck, 'Technology's going to get us there,' because scaling things up and actually adopting technology is going to require improving and updating and modernising our regulatory framework.

I want to simply add the next layer, which is that of course it's not just about the jobs in construction and ongoing jobs in all of these renewable projects; it's about the many other jobs that they will create and facilitate in the rest of the economy. My electorate of Fraser has some of the most sophisticated advanced manufacturers in Australia—firms like Bell Environmental, who are producing cutting-edge emergency response vehicles for civilian and military clients. Of course, Victoria is home to a considerable aluminium smelter, which is extremely energy hungry. It is these firms, which employ tens of thousands of people around Australia, that are going to require not just cheap energy but reliable energy. It's firms like these that are going to rely upon ongoing investment in major renewables projects. It's firms like these that are going to rely upon the National Electricity Market being modernised, not being avoided, not being treated like some kind of rhetorical joke.

That's why the Albanese government is doing the serious work. That's why we have the rewiring the nation policy, which is going to invest $20 billion into transmission, which is going to be critically important to underpinning these major offshore wind projects, going into the future. We need serious reform in this place, not hollow mantras.

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