The Energy Future: A cross-sectoral perspective

Publication Date
03 May 2018

Good morning everyone.

We are really pleased to partner with IPA today to bring you this latest event in our Major Reform Series.

The aim of this series is to bring some of the leaders in infrastructure together to talk about how we can genuinely move the dial on the key opportunities for reform identified in our 15-year Australian Infrastructure Plan.

As we've heard throughout this morning's presentations, the energy sector is transforming at an unprecedented rate.

Technologies changes in across demand and supply, coupled with a rapidly growing population, globalisation and increased scrutiny of market models brings all kinds of challenges and opportunities—all of which you are intimately familiar with.

But what's less clear is how changes in the energy sector will impact—and be impacted by changes in other infrastructure sectors. In particular, the transport sector which is also undergoing a significant transformation.  

The advent of electrification, automation and mobility-as-a-service could bring the largest transformation the transport sector has seen since the shift from steam to diesel locomotives, or even going back to the move from horse and cart.

These changes in transport could have substantial and lasting effects for how we use energy, and how it could be most efficiently supplied.

Increasingly, there is a convergence between energy and transport as technologies such as electric vehicles and digital market places impact how people travel, and how and when they use electricity.

These new technologies have the potential to transform our road networks, reduce congestion, boost productivity and lower bills.

Managed well, these transformations could bring huge benefits for infrastructure users and the Australian economy.

But amid these rapid changes in technology and consumer behaviour, there are significant interlinkages between the transport and energy sectors that governments and industry must be attuned to.

We are at a tipping point where disruptions to the energy and transport markets are now either commercially viable, or on the cusp of viability.

That makes this the perfect time to talk about how we must harness these changes to provide better, more affordable infrastructure services to users.

The cross-sectoral policy challenge

Infrastructure Australia is unique in that our mandate looks across all infrastructure sectors—energy, transport, water and telecommunications—as well as social infrastructure.

What we see is some great work which tackles the challenges and opportunities of change within each infrastructure sector, but rarely do the relevant policy makers look at the relationships between changes across sectors, and across the economy as a whole.

This is a fundamental challenge, and the crux of what I want to talk to you about today.

Changing infrastructure markets should not be seen as energy challenges, or transport challenges in their own right.

Australians need joined up solutions to our infrastructure needs. It's no use ‘fixing’ one sector if that only leads to problems or inefficiencies elsewhere.

This will have implications far beyond the immediate impacts on each sector, and raises questions about the role governments and industry will play in providing access to secure, reliable and affordable energy services into the future.

For example, what does the future hold if our vehicle's fuel is sourced from our rooftop? How will wide-scale use of electric vehicles impact the grid?

And how will new technologies in transport and energy impact our commitments to reduce our emissions?

We must also think about potential impacts on government revenue and the delivery of quality infrastructure services.

And consider too, what we can do to protect and mitigate any negative impacts such as rising congestion or potentially exacerbating growing inequality between those who can access new technologies and those who cannot.

Changing consumer behaviour

One of the key trends across energy and transport is the growing expectation of consumers.

Both energy and transport sectors have historically relied on large, expensive supply networks. Service offerings for most have in many ways been ‘one size fits all’—and this has largely worked well.

But new technologies are changing that relationship between infrastructure providers and users.

Across energy and transport, new technologies and market models mean consumers have greater access to cheaper, more efficient and manageable services.

Together with increased investment in renewable energy, the shift towards empowering technologies that enable consumers to manage their own electricity usage and costs is having a huge impact across the entire supply chain.

At the same time, the transport sector faces immediate and long-term challenges from several maturing technologies that are changing consumer behaviour.

An array of new transport methods and fuels are becoming more and more accessible—for instance, EVs, AVs and new platforms for ride sharing, encompassing cars, bikes, buses and peer-to-peer models.

Some of these may very well revolutionise the way we move around our cities and regions—particularly those that facilitate the shift away from private vehicle ownership towards shared, demand-driven transport services.

One thing that is clear is that across both industries, traditional business models are being disrupted by new technologies, new ideas and new connectedness.

Change is on the horizon

Much of the transport and energy infrastructure that has served Australia well in the past faces new, untested challenges.

However, it is fair to say that the rate of disruption and change in these sectors has been far greater than governments have anticipated.

In the past, we've seen new technologies gradually incorporated into society while being carefully monitored and regulated.

But with the breakneck speed of innovation, this is no longer the case.

Australian governments cannot afford to sit on their hands. Our national productivity, the resilience of our infrastructure across multiple sectors and indeed their future revenue streams, largely depend on how we respond to these challenges.

Road funding

The increase in electrical vehicle uptake and the impact this has on our future ability to fund and maintain our road networks is a useful example.

Currently funding to build and maintain our road infrastructure is sourced from a mix of fuel excise and vehicle registration charges.

Fuel excise will not apply to the use of electric vehicles, therefore, in coming years the increased uptake of electric vehicles will see a substantial reduction in revenue.

Without doubt, electric vehicles can bring big benefits for society—especially when energy is from renewable sources.

There is a strong public policy case for governments supporting those who choose to invest in EVs. Governments can and should play an active role in making the most of the rollout of an electric vehicle fleet.

But the potential benefits of EVs shouldn't come at the expense of the efficiency of transport networks, and the loss in productivity this would bring. With the right policies, these outcomes don't have to work at cross purposes.

That is why governments need a joined up approach to electric vehicle policy, alongside a transition to a user-pays road network.

This should be a primary consideration of the independent study into road market reform, which the Federal Government has committed to undertake—along with ensuring equity in regional and rural areas,

This was a key recommendation from the Australian Infrastructure Plan and it is important that it gets underway soon.

Otherwise we run the risk of a serious road funding shortfall, meaning our future cities will be characterised by congestion and constraint.

A proactive approach

This is exactly what governments should avoid, and why it's vital to take a proactive approach in managing disruptive technologies in the energy and transport sectors.

An awareness of the upcoming changes, and the likelihood of these changes, will be crucial to formulating a pathway to translate change into beneficial outcomes.

That's why in coming months, Infrastructure Australia will be releasing a new paper in our Reform Series that considers in greater detail the emerging challenges in transport and energy.

It will include new scenario modelling that will shed some light on how best to manage the growth of new technologies and harness the benefits of convergence across the energy and transport sectors to deliver the best outcomes for users.

The modelling will highlight some of the potentially positive and negative outcomes for users and taxpayers across a range of scenarios—focusing in particular on the government interventions and regulations that are in the best interest of consumers.

Concluding remarks

Developing an understanding of how the transport and energy sectors will impact on each other is critical to meet our future infrastructure challenges.

Where there are interlinkages between the transport and energy sectors, these need to be identified, planned for and managed.

Ultimately this is a challenge for governments. Policy makers will need to oversee the changing mix of industry incentives and community needs across infrastructure sectors. But public policy can only do so much on its own.

To make the transformation of our energy and transport markets work best for Australia, policy makers will need the advice, cooperation and trust of infrastructure investors and operators across both sectors.

Governments need industry's help to anticipate changes and ensure policy and regulatory settings make the most of the opportunities these bring.

This will help ensure that we have the right settings in place and that investment is targeted to where it provides the greatest value.

What we're asking industry to do then is engage with some of the challenges I've outlined today and tell us what you need from government to support this change.

Infrastructure Australia would really value your input so please get in touch via our website or the email address on the screen.

We look forward to sharing our research paper with you all in coming months and making further contributions on this important area of infrastructure reform.

Thank you.