Brought down on the side of ‘creative’ people – Caveat Emptor – the budget

The Government has not yet explained some Budget proposals in detail. Caveat Emptor: a principle in commerce: without a warranty the buyer takes the risk. The excitement is the budget will allow small business to get a tax advantage for spending, and being creative. The carrot is to encourage you to be a start-up. The beware warning is because; generally the announcements made, as part of the Budget will have to pass as legislation before they take effect. Therefore, Budget proposals should not be taken as fact yet, even if a starting date is proposed.

It is right to get excited, it is a policy turnaround with promise. A promise you will be rewarded for being creative. Now comes another issue: While it helps start-up, being creative just does not cut it at all when it comes to describing what you do (why you are a desirable product). You see a well thought out plan is more than a document; it is the display of your method to success.

As a small business owner you realize the measure of your worth is how you can innovate and compete. There is even a separate government program designed for that purpose. The necessary step is you must have a plan that is focused on an idea and method. If you think about this you realize a politician emphasizing ‘creative’ might be silly. Our PM has repeated wailed the word on the media as describing the primary need for being successful and rewarded by the budget.

What is wrong with the word ‘creative’ you ask? The word ‘creative’ may mean “deceptive in presenting financial information”. The dictionary tells us so, and it seems a poor choice of word to be used in the Budget meant to build confidence.

Maybe the Treasurer is doing a better job of showing an understanding of language – of the budgets intended purpose, and I quote: “If small business people are investing in innovation and job creation, we should be celebrating. That’s fantastic and that’s how you grow an economy.” Then we take notice the PM was reluctant to use the word ‘innovation’ in his address; he preferred to embellish ‘creative’.

Continuing with the Treasurer’s words: “We focused on continuing with our economic plan which is built on last year’s budget, is built on a number of decisions we have made since we came to government.

We are continuing with that economic plan”.

The above comments while confusing are at least reflective of a change to the mindset, or at least, a thought – Start-ups will save us?

Where did that idea come from? A recent start-up economy study undertaken by PwC and commissioned by Google Australia forecasts high-growth technology companies could contribute four per cent of gross domestic product (or $109 billion) and add 540,000 jobs by 2033 from a base of about 0.2 per cent of GDP today.

However, they also warn of market failure and the reason why it is likely.

Then comes the worrying bit of all this enthusiasm. According to a World Economic Forum report, “Australia’s start-up ecosystem is already lagging behind those of many other developed nations due to a lack of emphasis on entrepreneurship education, limited engagement with universities and poor cultural support for entrepreneurs.”

Back to more worry: Treasury makes no forecasts beyond 2016-17. After that, it only makes a technical assumption that all will be well over the following five years. In other words the assumption we will able to achieve nirvana. To this point we read one media report even said :It’s what Happy Joe’s Fairy Godmother might deliver for him, if he had one. It’s not what you would want to base our economic policy settings on.”

To recap earlier in the blog. The risk of being creative is the creator may be seen as deceptive in presenting financial information. The risk of presenting innovation is that might be seen as coincident and opposed to the purpose for the statement.  The case for the cost benefit for the policy would have to ask and answer: Is this idea creative or innovative. It cannot be both otherwise you might be opening for a consensus. Consensus has a habit of finding a rule against the ideals. If you have had policy training, you might be saying – bloody ‘creative’ budget got me going. If we play semantics with the wording, and the PM can spin this morning as encouraging ‘creative’ small – to mean what he did not intend? Did he intend to omit to say innovative small business to be encourage, the day after the budget?

We tested that thought, and to paraphrase some of the responses:

  • We need local employment opportunity to go along with the incentive, something we often see social planners forget about.
  • We to be producers too, not just service providers.
  • We see a different economic reason altogether, the incentive increases our reliance on imports. We have had our manufacturing sector stripped of its ability to compete.
  • Startups are not just IT companies. Real innovators make things, not just create.
  • They don’t get the supply demand balance!
  • Does anyone have a spare $200million laying around, we have a outstanding start-up ready to go. But we have no government support! That got our attention. It is real and the problem policy does not want to know.

Think again if you think they got. Than listen to this game of semantics, on ABC TV: Interviewer Leigh Sales (LS) and Interviewee Joe Hockey (JH) –

LS – The Government’s spending as a percentage of GDP is 25.9 per cent. That is the same as the previous Labor Government (was) spending at the height of the global financial crisis.

JH – Not true. They got to 26 per cent.

LS – You’re at 25.9 per cent?

Another commentator of the semantics, said:

Maybe Australians are thought they don’t know when their legs are being pulled!

Now the dust has started to settle on the hype of the budget. There is a realisation that the accelerated depreciation schedule that was announced for those nice to have tools of trade (sometimes called big boys toys) is not gifts. The scheme is designed to offset your tax liability when you earn enough money to pay for them. The issue them is one of equity. A positive of this is that the plumber or electrician is now fully aware that a market is supply and demand. Albeit the new measure makes them aware they do need to make enough money to pay for the toys. The story continues as we received a plumbing quote a week before the accelerated depreciation for small business was announced – it was $1,700. A few days after the announcement – it was changed to $2,400. Why, the reply to pay for items I need to buy? Why, do you need to buy them? Because I realised I had to earn more money to have a liability to pay tax and that tax is what I can claim from what I buy? And, we were to be a willing to pay for that purpose? Yes. We did not find that equitable – so we put off our purchase.

So the problem is ‘start-up’ are not stand-ups or creative types on how to make money. A genuine start-up is backed by a method that will create money and not just redirect money from old to new etc. We think – nay – still confused!

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Yield expectation – NSW Poles and Wires – for sale.

Ok, the NSW poles and wires lease sale is now into the detail phase. Well actually that detail is reported to be already decided. What are not known are what will be said to the public, and that should be not too far away from being known. In fact the Premier has not wasted any time in encouraging ‘mums and dads’ investors to take out shares. As with all investments the price must be attractive to encourage you to buy. But there is another side of the coin. The institutional buyer must know the price to the user is higher enough to guarantee a return before they buy into the infrastructure. How is that done?

In the case of the energy utilities: It is the federal body, the Australian Energy Regulator (AER). It happens that the AER, and very shortly after the NSW Election where the mandate has been won to sell off the 99 year lease of the ‘Poles and Wires’ to highest bidder, will be setting the price for the future with an interim decision by April 2015 or very near to that date. That decision would determine network prices for the next five years.

So if you think about that you can see that the NSW Premier is technically right – no price movements will be because of the ‘sale’. You might also see why the oversea of the ‘sale’, the former ACCC chair, can say prices will not be greater than the regulator (AER as it turns out) determines. You could find it argued you will pay more, but it is not the sale process that increased the prices. That may be a slight of hand from the politics, but it is still a fact.

Then to put a balance on what an investment might be expected to return, we have a story – Is the search for yield becoming unsustainable?

By business reporter Stephen Letts, 30 March 2015. “The rotation out of investing in high-yield dividend companies into ‘growth’-focused enterprises is gaining momentum. The past month has been particularly striking. One of the key engines of the yield story – the utilities sector – has gone into reverse, falling on average 1.5 per cent this month after a solid 12 months of outperformance.

At the same time, investors exiting the yield play are piling into information technology and industrial stocks hoping for more exciting returns.”

Co2land org now considers: Is the NSW Government too late in getting the float of the poles and wires to market. We use the story above again to quote: “Manufactured yield is not sustainable.” Also quoted is: “Goldman Sachs says the low risk approach is to avoid companies that have been “manufacturing yield” by relying on debt, assets sales and underinvestment in their businesses. Interestingly many of the companies with the largest “cash shortfalls” are the utilities that have been at the forefront for the search for yield. Leading the pack is the power utility and network operator, AusNet Services. Goldman Sachs has found AusNet Services experienced at a $2.2 billion cash shortfall over the past five years, which represents about 62 per cent of its average market capitalisation over the period.

Duet and APA – who are in the same line of business – have shortfalls of $1.1 billion and $650 million respectively.”

Therefore we see an ominous gathering of indicators that suggest the NSW float might not be the good it is promoted as being.

We think the ‘real’ issue will be the pressure to reduce the price by the user. The providers for a ‘demand response’ should also be persuasive to avoid prices rising by virtue they can determine the demand needs for energy. Why the later because, they have the power to defer capital investment needs assuming the network growth need dictate investment in the failings of the system.

The ‘elephant in the room’ is there too! It is of course the remodeling of the energy networks business model and the rise of cheaper embedded energy networks with renewable energy sources.

Tis interesting times!

Gas Prices – irrelevant statements

Are you having trouble making fracking sense of the gas price? Don’t understand that if we triple our gas production we pay more for energy! Simple answer is it is a case of people on the far queue. The queue being the mantle of ‘world price’, and dismantle of price protection for domestic consumption. In this instance we mean Australian industry and households described as domestic.

It was bemusing to hear the new NSW Energy Minister (in case you did not hear – new premier and new cabinet after the shock resignation of the old, but same party, Mid April 2014) say we need to find more gas to keep prices down after the regulator said we approve 17% increase for gas from 1 July 2014. Bemused because our price is now set at what the world is prepared to pay to keep their industries productive. Therefore the more we produce the more economical it is to export the gas in economies of scale – simple is it not?

Then the Australian Broadcasting Commission (ABC) reported via Stephanie Smail : “The mooted gas price hike in New South Wales has created tensions with Queensland about the future of the coal seam gas industry. The NSW Government wants more information about overseas buyers from Queensland’s fast-growing market. The Queensland Government says that’s not an issue”.

Co2Land org is not so sure, that it is not an issue. The issue is how do we have faith that government is still relevant and capable of making decisions that are patriotic. But wait I hear you say we need to be aware of world trade and economic cooperation (AKA, Economic Participating Agreements, Free Trade etc). But something gets lost in all that: Governments tend to add fees and charges to balance their own end. So even if you agree on the level playing field for border entries (AKA Tariffs), the distribution price can be distorted by subsidies, fee and other charges.

This leads to the next matter. Why do we not have a social protection price for our own gas? We did, but it was not privatised then. So who wins? As we said increasingly, government is making itself irrelevant.

But let us, Co2Land org, propose a new angle for social inclusion and we could engage in for Direct Action (being the new Energy Reduction Fund white paper is released by the Federal Government) on this issue: 1. Do not engage in reverse auctions with no detail yet. 2. Crowd funding future developments. That is correct we the people fund the projects to the tune we expect prices to rise, and then from the interest we charge we pay off the increases when they come. Oh no! A terrible thought, we could tell the Treasurer the idea come from overseas and he will buy it. Imagine it now: We will save you, we are responsible managers etc. Overseas experience says etc. They are doing it as it is proven?

Unfortunately, it is all too true – we do follow others, and despite all the measures not working overseas we are being told to have faith. Again a case of people on the far queue.

Fair Go – going going, if I were a charity

If I were able to classify myself as a charity. Think of the ‘free trade’ deals I could do? I might even avoid being sued for helping Australians! Actually it is not funny, many of the employer groups are considering or are reported as lobbying to be considered as a charity. Where is this talk heading? The conversation is getting down to the watering down of the disclosure laws and how are killing off manufacturing in Australia and creating a service industry based on bankable power that favours overseas interests.

The United States of America has learn’t a lesson from this sort of folly. Today they are putting considerable effort in rebuilding their manufacturing sector, and small business has a big part to play in this role because they are the innovators, the engine that is faster to adapt and foster the happiness factor just by doing.

Tristan – you are spot on where you say “The biggest killer of manufacturing jobs is the free trade agreement”. He was actually talking about the current government when they signed a free trade agreement (FTA) with Thailand in 2005 and South Korea in Dec 2013. Then he goes on to say “The government’s own fact sheet acknowledged that domestic manufacturing would be detrimentally affected by the FTAs? Australia finalises free trade agreement with South Korea?” Then quoting the Guardian, 5 Dec 2013: “A fact sheet provided by the government acknowledges some sectors could face increased competition from imports of South Korean products and services, such as motor vehicles and parts, steel products and textiles, clothing and footwear.”

Tristan then raises the issue we should all worry about: “All the FTAs the Liberals have signed also include the contentious clause allowing foreign corporations to sue Australia over legislation that is good for Australians but which detrimentally affects foreign corporations’ profitability.”

Yesterday, 7 April 2014, it was announced that Australia has now signed a FTA with Japan, and claimed is the benefits that come with it including jobs, businesses benefiting and banks smirking with glee. However, if you consider foreign corporations can now sue Australia if we affect they profitability, and that many of the companies that exist in Australia are overseas owned, our Government has made itself irrelevant!

Our Government cannot deliver on any promise to help mainstream Australians and small business innovation is being strangled – the fair go has gone. But what about the promise to create jobs – we currently have 840,000 jobless Australians on Newstart since September 2013 and it is the highest level for 15 years. Promised is to create 1 million jobs in 5 years.
The catch in this statement: The jobs were never promised to go to Australians, nor was it said the people would be well paid, nor ‘real jobs’ because many of the programs would count welfare recipients as employed.

As some further evidence also consider the Federal Government Agency, Austrade has argued for the lowering of tourism wages and a relaxation of 457 visa restrictions to allow guest workers to fill the tourism jobs. Reports on the Mining industry suggests the same there too. Manufacturing, well that is being killed off, and skill sets wasted. The answer get jobs in house renovations that will save you! The question is now will the service industry be enough to bring our great nation forward? Well look back to the USA, they are now desperate to rebuild their manufacturing industry, it is the powerhouse of being a world leader, and the heroes for the USA are the small business innovators and determination to succeed at the satisfaction of something tangible.

That is it – the problem is we think virtual, we need tangible. Oh no, some politician is going to borrow that phrase for their purpose. Quick build an Abbott proof fence.

Australia – so little support for idea leaders

It started with one line: Without a culture that makes big, bold bets on new ideas, its difficult to see how Australia can move from being an idea cemetery to an idea launcher -Source Ben McNeil.

All this came from a story in the Australian 28 August 2013. The story called “Big Ideas Buried in Innovation Graveyard”. It touched a nerve because as is the case of so much excellent ideas we generate in Australia, there is so little support for the commercialisation of the ideas. But, wait there is more! – We do not care about the innovation.  What you say, don’t care.  It is true – think about this line: Commercialisation Australia doesn’t support the company but the Commercialisation of the technology. Where does this leave the innovator? Up the creek without a paddle – your ideas can be superb, you business case well founded: But the graveyard – the valley of death for your invention is that place you go to because you cannot find support in our country, the country an with excellence for invention and a fail for innovation efficiency. In short we force our good ideas offshore if we want success as a company. The idea leaders cannot be rewarded for helping our industry to be part of our country.

If you doubt this, then this is what Ian Chubb, Australian Chief Scientist, said in the 28 August article: “Australia ranks 107th out of 141 nations in innovation efficiency”

In a ‘real’ world example: You ask please help me protect my IP, I need help because I have a lot of interest in my product after considerable R&D. What I do not have is the confidence of my buyers to outlay the dollars to place an order. When I place an application for help to move on my trade secrets, I am then faced with a number of questions that directly relate to my IP. Then the ridiculous come to light – the question: Why don’t you fund your own IP Protection? The answer creates a circular argument along the lines of a song from Harry Bellefonte some years ago: There is a hole in my bucket and it goes on rhyme well fix it to the point where to fix it requires the bucket to carry water – but there is a hole in my bucket. Unfortunately that pretty well sums up the Australia attitude of support for our ideas.

If it were to change would the Small man with big ideas be treated better?   Actually, in another perverse twist it is a tendency of this country to promote institutions with generous awards of cash and incentives. We can only suspect that is because it is a highly visible way to make big numbers look ‘real’ big deals. The short-term photo opportunity is seen a tick in the outcome box, yet often proves a less than optimum result.

The risk of failure will still be a major problem for the small innovator, even if they have the big bold new ideas that could drive our nation into prosperity and diversity of our GDP collection points. Because your ideas could not be protected while you seek markets, you fail you cannot protect your secrets – your ideas are ‘stolen’ and you will not attract investment.

CO2Land org noted that recently the Prime Minister announced the think small concept – what did he really mean?

RET designs – Abbotititis or Rudasinus.

Do you have Abbotititis or Rudasinus. Bored with the election being in your face yet not meaning a thing.  Then there is ‘real’ again – It just means it will be reviewed and in the mean time your asset is at risk of being stranded because of the ‘Election’. You are told any decisions will need to be taken with a view of caretaker convention and then we will wait until the ‘dust settles’ and the view of the incoming Government is known.  Can you understand the frustration? Promises are being made yet we are told they are real until after the election!

Now lets look at the promised policy positions:

The Coalition talks of ‘real’ abatement in terms of energy efficiency. The flagstone is the Direct Action Plan. This plan will or may impact your business. We say this because the White Paper consultative process that the Coalition will initiate will only be known should they win office. Yes the ‘real’ is it will be a consultative process expressed as the opportunity for your business to provide input into the design of this ‘potential’ new policy framework. In more simple terms it means the details are not yet developed. However, the Renewable Energy Target (RET) has a commitment from the Coalition to retain a 5% to 25% reduction of emissions by 2020 compared with 2000 levels, but will review this commitment in 2015 (then other statements say 2014). That said they intend to wind back many of the provisions of the Clean Energy Future Plan including abolishing the carbon price and disbanding the Clean Energy Finance Corporation, the Climate Change Authority, the Climate Commission and the Energy Security Fund. Then we should note the Coalition intends to expand the existing Emissions Reduction Fund to introduce a buyback, and also plans to expand the Carbon Farming Initiative to achieve emissions reductions in the absence of an explicit carbon price – but the reductions must be ‘real’ against baselines ‘to be advised’.

It is most likely the Coalition’s plans to meet emissions commitments will be more disruptive to electricity supply industries and their downstream industries than labor’s.

Labor (why is it called Labor?) – Reported is among other things, this name makes it easier to distinguish references to the Party from the labour movement in general. Source(s): http://www.alp.org.au/australian-labor/l…

Maybe that is ‘unreal’!

 

Labor has two major policies for abatement changes. Continuing of the Clean Energy Future Plan, and the review of the Renewable Energy Target (RET).  The current RET compels large energy users to invest in renewable energy. This is to the benefit of industries such as wind and, up to an including hydro-electricity. The RET purpose is to introduce more capacity into electricity markets and push down wholesale electricity prices. Therefore the RET is challenging for fossil fuel electricity generators, and the changes will affect them directly and the upstream industries, including oil and gas extraction, brown coal mining and black coal mining, indirectly.

 

That said, Labor is committed to a 5% to 25% reduction of emissions by 2020 compared with 2000 levels, and an 80% reduction on 2000 levels by 2050. Labor has also taken the position and made an announcement of an early transition from the carbon tax to an emissions trading scheme in July 2014, bringing it forward from the previous announcement of 2015. Under the scheme the carbon dioxide equivalent would have a floating price linked to the prices of the EU’s emissions trading scheme. Under this policy, the price per tonne for carbon dioxide is likely to be discounted. The impact uncertainty is what will be the effect on the industry assistance packages included within the Clean Energy Future Plan.

Co2Land org said Labor supports the current 20% RET. This still holds true, as the responsible Department (name too long to mention) and advised work on the review of RET is suspended until further notice, and Labor has made a commitment to not review the target until 2016.

Labor’s changes to the Clean Energy Future Plan will create new winners and losers across energy-intensive industries. Labor’s changes maintain a pricing mechanism as a strategy to reduce carbon dioxide equivalent emissions.

 

Co2Land org has noted IBISWorld’s August 2013 Report has a more detailed outline of the positions taken by the Labor and Coalition parties on major issues impacting Australian industry including workplace reform, energy, resources, broadband network, transport infrastructure, manufacturing and education. They write:

“The 2013 Federal Government election will be dominated by concerns about the economy. The end of the mining investment boom and the continued decline of the manufacturing sector have set a pessimistic tone among Australian businesses.

The Labor Government has taken a ‘glass half full’ approach, pointing out Australia’s strong economic position relative to other advanced economies and successful economic guidance during the global financial crisis.

In contrast, the Coalition points out a widening Federal Budget deficit, a declining economic growth rate, low business confidence and a weak economic performance relative to neighbouring countries.

The winner of the election will have to balance the government’s role to provide fiscal stimulus and counter-cyclical spending with budget responsibility and a plan to reduce government debt.

The Productivity Commission has estimated that there are $12 billion worth of cost-cutting and efficiency savings available to the Federal Government.

The Coalition has backed away from providing a date for a return to surplus, but asserts it will be sooner than a Labor surplus.

Labor forecasts a return to budget surplus in 2016-17, driven by savings made during 2015-16 and 2016-17 when the economy is expected to be in a healthier state than it is presently.”

 

Wait a minute, recently the coalition did say they aim to save $31B – now we are confused – will the ‘real’ number please stand?

Please note: No Green was hurt in this discussion.

Product design, standards and innovation

Product design is something that is no longer ‘just a good idea’. Creating a sustainable product is also an important trigger for your product design.  But then it gets boring – you start to take stock of the standards and think – we are trapped!

The backdrop is the lower slopes of Mount Kosciuszko (arguably the highest mountain in Australia), and it is winter. Looking into a log fire and being thankful we were warm and safe it was discussed that a better design and innovation are difficult to commercialise. The desire, the plans and even the Research and Development phase is proven. The issue at hand is the ‘bankable’, the intellectual protection and the confidence needed for the buyer of the new product. The buyer quickly becomes the focus. Then you divide it into whether the domestic market is different to the international market, and that leads to what standards might affect your design.

This means you either consider the process of manufacture as a pure design or as a managed procedure or both. Examples being:

The ISO 9000 series – It has a purpose of being a quality management system and China is issued the greater number of certificate holders in the world. Then comes the reasons for not adopting this standard and this would include the risks and uncertainty of not knowing if there are direct relationships to improved quality, and what kind and how many resources will be needed. Then there is how much certification will cost, the increased bureaucratic processes and risk of poor company image if the certification process fails.

The ISO 14000 and ISO 9000 series is similar in that both are concerned with the process of how a product is produced. However, it is worth noting neither is concerned with the product itself.

Importantly for this ‘fire side’ discussion ISO 14000 standards main aim is to assist companies in continually improving their environmental performance, whilst complying with any applicable legislation.

What is the better way to go? Why do it at all when you want to establish your reputation on product performance? Simple answer if you want to sell it on mass and to certain markets it is important that you focus on at least one standard. The decision required is whether to do it as a quality of process management or as a management focus on environmental performance and applicable evolving legal compliance and reporting duties.

If you have followed carbon management and the principles you will have understood the trends and the effects of the product needs to promote through Life cycle Assessment, the product footprinting, and governance requirements. In Europe in particular PAS 2050 cannot be ignored. If that is where you market is heading you might be even more interested to know ISO/TS 14067 is the story of today.

Product footprinting is standard ISO/TS14067 (ISO = International Organization for Standardization, TS = Technical Specification. The full name of the standard is: ISO/TS 14067 – Greenhouse gases – Carbon footprint of products – Requirements and guidelines for quantification and communication.

The genus: Built on ISO14040 and 14044. And originally they were known as LCA standards. LCA originated around 1997 and replaced around 2006. Academically and professionally, these are very well understood and in use.

The fit: It uses the existing terminology, concepts and ideas from 14044 and builds from this and what you learnt before will be understood today. It is comparable to the Greenhouse Gas (GHG) Protocol and PAS 2050 and is related to many industry and government agency specific guidelines.

What is different:

Expanding from the original LCA to ISO/TS 14067 brings in the requirements for providing, quoted is

http://www.2degreesnetwork.com/groups/supply-chain/resources/four-reasons-why-you-should-get-know-isots-14067-product-footprinting/?goback=%2Egde_83858_member_263437238

 “principles, requirements and guidelines for the quantification and communication of the carbon footprint of products (CFPs).” Four types of communication are identified:

  • CFP external communication report
  • CFP performance tracking report
  • CFP label
  • CFP declaration

 

Of particular interest is that a performance tracking report …allows for the comparison of CFP results of one specific product of the same organization over time with respect to its original or previous CFP”.

The consensus: PAS 2050 was declared, ISO/TS14067 was built with international consensus representing about 50 countries through 12 working group meetings.

The importance of data:

A lot of data has already been collected for comparing product and categories are created that align with most products ‘norm’ for carbon footprinting. In short you can research if you don’t have enough data to start and the specification defines that the “best quality data available” should be used. Where site-specific data cannot be practicably collected, verified process data should be used. How good is that? A bit different to the ‘you shall’ or the sky falls in sort of thinking.

 

To conclude and quote Supply Chain: We should look at the standard as “

  • Something old = Built on the accepted ISO 14044 standard
  • Something new = Extends the scope of requirements for the communication of LCAs – which may be the next logical step for your current LCA work
  • Something borrowed = Utilises existing Product Category Rules concept that you may already be complying with
  • Something blue = Utilises process data that you may already have”.

 

In context to the original opening ‘discussion’ yes it makes sense that if you want to future proof you product or you want to move to markets where adopting EU stewardship rules, you have to consider it part of your plan to participate.  Just maybe that way you could break the ‘Business as Usual’ cycle and or hindrance to innovation.

 

Energy Utilities changing Models – A Battery of Choice

As one would normally do, chat about renewables and impacts on the utilities business model while relaxing with friends. It was a case of too much uncertainty over how the consumer would be treated because of change. Central to the discussion was that a provider to the electrical distribution system could threaten the current regulatory and centralized generation models of ‘essential services’.

What does this mean?  The business as usual model is failing where supply centric economics demanded you build additional load capacity and transport the capacity to the place of need. This model also meant the assets, including the customer, was owned by the utility. If you think of it this way, Governments tend to discourage demand side solutions. Demand Management was tended to be more of a series of incentive programs for utilities to duplicate infrastructure to transport to the demand source.

So, what happened to change the balance? The obvious: Technologies improved, carbon became issues for society and clean energy and renewables were being shown as a better way to address the logistics of meeting demand where it was needed. As a result some of the conventional infrastructure was at risk of being a stranded asset and the need to build conventional infrastructure required incentives from Government to reduce the financial risk. For example, the Demand Side Incentive scheme (DIS) formulated at about 2004 is dramatically underspent but is comforting for utilities in being a facility to reduce the financial risk.

If we note the changes in the needs of society as a driver for change: Governments and their policies encouraged that traditional public ownership be phased out to pass the needs to private investment. Government was happy for this ‘fix’ as they see it as the asset is sold for a value and ongoing regulated charges and fees and taxes are being paid to treasury, and that is a public benefit. The perfect storm in Australia is this action is also one of the drivers for electricity tariff increases in Australia. Recently the state of Queensland announced a 21% increase to its general tariff.  A source, CO2Land identifies as SF said: “Therefore those consumers with solar PV are subsidising those consumers that don’t have solar PV”.

From that last statement we can assume government policy (Federal and State) is very much the catalyst that resulted in the model change. Whether the change was necessary was more of a political move in this instance. It followed that technology and innovation evolved and the model change was inevitable. If you follow the beliefs of the 5th Column existing, this was done by infiltration of the policy areas by a particular group. It follows, in contemporary Australia, Government policy is more reactive than before, and since the 1970’s the rule of law was modeled as to be reactive to the needs of the dominate influence. Below is an explanation of this view as posted by CO@Land.org on 3 April 2013. Where:

Co2Land org now asks: If we consider the four primary schools of thought in general jurisprudence :

  •   Natural law is the idea that there are rational objective limits to the power of legislative rulers.
  •  Legal positivism, by contrast to natural law, holds that there is no necessary connection between law and morality and that the force of law comes from some basic social facts although positivists differ on what those facts are.
  •  Legal realism is a third theory of jurisprudence which argues that the real world practice of law is what determines what law is; the law has the force that it does because of what legislators, judges, and executives do with it. Similar approaches have been developed in many different ways in sociology of law.
  • Critical legal studies is a younger theory of jurisprudence that has developed since the 1970s which is primarily a negative thesis that the law is largely contradictory and can be best analyzed as an expression of the policy goals of the dominant social group.

If you think of the debate of tariff increases. Then you should consider it may have been ‘an expression of the policy goals of the dominant social group’, as critical to that issue. We should then think about the set of claims that the “Renewable Energy Targets” (RET’s) had undesirable consequences, and how governments (Federal and State) now realise that the larger than expected number of early adopters who signed up for the long term contracts are now having a negative impact on state & federal budgets, and this is one of the dominate drivers for electricity tariff increases in Australia. For those needing an introduction to the scheme, the RET’s are a federal government initiative commencing during year 2001, and from those bills and legislation various states and territories introduced those targets as various incentive schemes for customers to invest in solar PV with generous feed in tariffs. This incentive had the effect of distorting the demand supply balance, and the popularity embarrassed and alarmed treasury. If we use SF as the source again; “Queensland Govt initially offered 44cents per kWh this has now been reduced to 8cents. That said the response from the customer was rapid with Australia now having 2500MW of solar PV with and average capacity of 3.5kW.”

CO2Land org chose to give an example of Queensland for convenience, as this states geography and population patterns influence the custom that those consumers with a service, are asked to provide subsidies to those that do not.  In the case of electricity you could argue the subsidy required is determined by the length of the extension cords needed. You might understand why that state found it Initially appealing that solar PV was a localized delivery point. However, managing the asset is a different matter.

We are seeing similar issues being evident from around the world – business as usual is failing as the utility model. The danger is stranded assets and less control being possible. A story titled The Clean, Simple Solar and Storage Solution to US Utility Business Model Woes .

http://www.renewableenergyworld.com/rea/blog/post/2013/07/the-clean-simple-solar-and-storage-solution-to-us-utility-business-model-woes?cmpid=SolarNL-Thursday-July4-2013&goback=%2Egde_67258_member_256399748

Tells of an interview with former United States Secretary of Energy Stephen Chu on utility business models.  While the gist of what he said wasn’t new to me, the clean and elegant way he laid out what he sees as the future of utilities and solar power is worth sharing.

Similar to how in the past telephone companies – he specifically named AT&T – used to own the entire telephone system from the overhead telephone lines up to and including the phone in your house, Chu feels that utilities ought to own solar panels and energy storage systems that they put on their customers’ roofs and in their garages. He said if utilities could outfit homeowners with solar panels and a 5-kW battery system, they could continue selling that customer power just as they do now. The utility would own the system, maintain the system and the customer would have no out-of-pocket expenses for it other than continuing to buy power at the same rate or at perhaps an even lower rate.

 In the three-minute interview, Chu didn’t explain another huge reason that utilities should consider this option: distributed generation used in this way counteracts the need to build additional generation as the load capacity needs increase.  And lastly and most important, the utility gets to keep its customer.

Utilities should probably get clear on their approach soon. When it’s just a quarter or a half of one percent of a utility’s customers that have their own PV and are selling their solar power to the grid at the retail rate, the utility doesn’t care. But energy storage and PV panel costs are dropping, and once that percentage of utility customers’  that are zeroing out their bill goes to 5, 10 or 15 percent then “it’s a big deal” said Chu.

Chu said he told utilities that PV and energy storage is going to come and they should “form a new business model” NOW so that what today is a potential revenue loss, could become an area of growth for them in the future.  Plus, he said this model would eventually lead to a more stable grid for us all. “

CO2Land org is finding it difficult to solely blame the RET Scheme as the problem. The evidence is the splitting of the RET’s scheme into a ‘small scale’ offering for predominately solar PV is the problem. It is appropriate to say any change to the utility models would and did have a cause and effect disruption on the industry, and cause and effect type of disruption suggests any intervention will introduce more shocks in the industry, and we can expect that ideologies will continue to influence the Governments policy advisors who are without a full understanding the implications. It also follows that a large dependence on small scale or residential solar PV services implies a need for significant workforce skills shifts to cater for the growth and scope of the model change for utilities to take control of the assets at a domestic level to be to be effective. That is a significant cost driver, and it is reasonable to ask why should the utility be the provider of choice for these services where it would serve to drive up prices?

In defence of RET’s large scale systems, it follows that large systems do not directly affect the utilities mechanism to preserve the current regulatory model, but they shift the balance so that the model needs to be reviewed of the purpose and objectives in the delivery of the product. It follows that centralised generation models are what utilities do very well, and large scale transportation and distribution are well established capabilities of the industry. Expanding that capability to large commercial rooftops and installations might be a good idea. However, it too is not without the need for change. Albeit less dramatic than small scale.

CO2Land org is not proposing we should concentrate on picking winners for the model change.  However, ‘the battery concept’ leads to deeper thinking. The demand initiative needs to be expanded and a battery concept is not just a means of storage of an electron! It can mean tools and equipment that is readily available to balance the total load needs, and not just peak demand requirements. We know solar’s great weakness is peak availability profile and traditional batteries concepts take up rare earth minerals to manufacture. Are they already defunct? A far more sensible battery concept is something that can utilise what we have already consumed and discarded to be returned to there natural elements while producing energy and balancing the supply needs.  If you prefer think of it as a provider it can be an insurance tool for a supply imbalance, So can what they do be a source of energy rationing and balancing that fits neatly into the traditional delivery mechanism.

One such battery concept is the waste to energy gasifiers and their products including pyrolysis retorts. These can easily be written into the current infrastructure and be part of any new regulatory mix – even provide a result for policy without implications – it is not creating anything new – just making something old new again!

For the future, CO2Land org can see a lot more independent renewable sources becoming the norm, and utilities will be using energy exchanges to sell power to customers. This differs from ownership of customers in that bidding could be managed power purchasing agreement with give and take provisions in the price. What regulators will have to deal with is that nationwide and globally installing microgrids for Businesses and Communities will need to fit into economic as well as technical delivery models. A real power of choice if you prefer to think that way.

Falling Short – F.I.T. in renewable power

A desire to improve the competitiveness of Renewable Energy in Australia’s power mix is problematic and it is not necessarily technical limitations that hamper the project or is it financial limitations despite bank risk concerns. Especially if the later is supported by the Government bringing forward $160 million in Clean Technology Investment Program (CTIP) funding to 2014-15 to increase manufacturing investment and boost productivity and competitiveness – The budgets key message that CTIP program demand is strong and growing, and there is no change to the funding commitment.  It also is possible the coalition could maintain the $1 billion commitment to the investment programs, albeit it may be called something else for branding purposes.

Co2Land org argues it is not sufficient to be experience in, or have an understanding of the challenges in the design or deployment of renewable energy solutions. That is referring to only the infrastructure, energy output, utility area of responsibility, power capability, transmission and distribution capacity, or even storage technology as the solution set.

The more dangerous issue is the means that an uncooperative energy utility can muster a political wedge and creates sufficient doubt of the effectiveness of the program that will lead to a fall-out with the community. Recently in Australia Co2Land org has been given information that a bitter war is engaged between parties over such a Queensland power line duplication proposal and it all seems so unnecessary. As an observation there is room for both sides to move on this one. However, the agenda may be more complex and looking further afield Canada has some lessons we could learn from over the growth of renewables and why utilities might be so sensitive to the growth of such. It could be our problems in Australia are similar to the following as the Pike Research report that says energy is becoming increasingly democratized and the role of utilities is changing, from producing power and supply markets to purchasing it from distributed sources. We also know in Queensland the State Government has a large ownership stake in generation and supply – albeit they are not alone from the other states and it all gets down to variation of the model as opposed to opposition of the models of operation. Regardless each has ample opportunity to hamper success of ‘buy local’ feed-in into the grid system as the rules stand.

Looking further to the problems of Canada and the utopian belief that all would embrace the new world, it is reported by www.energymanagertoday.com, on 21 May 2013:

“Ontario has fallen short of its goal of creating 50,000 jobs and 5 gigawatts of renewable energy power with its ‘buy local’ feed-in tariff program, despite gathering early momentum by generating 31,000 jobs and turning one in 7 farmers into energy producers, says a report by the Institute of Local Self-Reliance.

Hydro One, the province’s largest utility, has been a major roadblock to progress says ILSR report author John Farrell, since it set a limit of sourcing just 7 percent of its energy from distributed renewable sources, compared with 15 percent for most US utilities. In US states where the cost of power is high, like Hawaii and California, utilities have upped the limits even further, at 25 and 50 percent respectively.

Farrell says Hydro One did not prepare to accommodate the boom in distributed power from the FIT program and missed deadlines to link up to new sources of power. As a result, despite overwhelming demand for FIT and contracts being signed for most of the 5 gigawatts, only 10 percent of the projects are producing electricity now.

Because of the demand for FIT, Ontario will actually be able to shut down all its coal-fired plants next year, and meet most of its 2030 renewable energy goals 12 years early – but its notable success has come at a price, since unprepared utilities were not able to bring the contracted energy on line.

The slow development led to political backlash that nearly toppled the ruling Liberal Party in the 2011 elections. It did lose its majority, which Farrell says jeopardized support for FIT. The Great Recession also stymied progress.

Since then, Ontario has reviewed the FIT program and revised its rules last year, doubling its focus on local ownership and participation. Farrell believes the move, which he says should have been adopted two years ago, will reduce political angst and local opposition and increase return on investments.

Farrell suggests that the Ontario Power Authority needs to streamline its process for developing renewable power with existing contracts and push utilities to get better at determining grid capacity. It should also review whether utility-scale mega projects make sense, given the difficulties in getting it to market. With these changes, “the FIT program may still live up to much of its early promise” he says.”

Sometimes you have ask – why do we ignore the obvious in Power Play? I answer is it is the nature of things to only see our side as a team play, and there is no I in team. ‘I’ referring to the society as a collective, and it has no advantage to be a collective outcome.

 

Confident with no confidence – QLD style CID

Asking a cursory ‘Trust you are having a good and Happy Easter up in Queensland’. The reply was a shocker: “We are stuffed, I suppose the next thing we will get is a letter in the mail, stating we have to walk off our property so they can push every thing over for Ergon and the mines – Love Sharron”.  What was referred to is an alleged flawed process for the duplication of the 63 klm long 110kV power line from Warwick to Stanthorpe in Queensland, and the mounting speculation a public announcement has been held back from that process.

Ergon Energy is sponsoring the Community Infrastructure Designation (CID) process, under the Section 200 of the Sustainable Planning Act 2009 (SPA). The SPA details the process required for CID, providing an emphasis on ensuring that adequate environmental assessment and public consultation occurs prior to Queensland Government approval.

But it is suspected Ergon Energy has not been fully consultative with landowners and the community on the proposed corridor and cracks are appearing in the approval tactics under the Queensland Government’s CID process. According to the ‘grape vine’ what is held back is announcing mining is coming to Warwick, which is backing off Cherribar Resort owned by Chinese investors (a Resort set up to supply 400 homes for dignified living of people of Chinese origin), and the facilities includes the operating of their own airstrip. The timeframe is said to be in about 18 months, and soon after Cecil Plains coal seam gas and open cut mining has started.

CO2Land org then felt compelled to research this story further and then noted the Southern Free Times has been running stories on the progress of the proposal by Ergon Energy to build an additional power line to supply the Stanthorpe area. A quick check indicated this means 3 supply lines to cater for the area. (Stanthorpe – translated as old English meaning ‘tin town’ – is a town situated in south east Queensland, Australia. The town lies on the New England Highway near the New South Wales border 223 km from Brisbane via Warwick, 56 km north of Tenterfield and 811 m above sea level. The area surrounding the town is known as the Granite Belt. At the 2011 census, Stanthorpe had a population of 5,385.)

According to the local government council, the population of the Southern Downs Region has increased over the past 5 years at an annual average rate of 1.4%.  They say this rate is above the national average for inland regions not affected by the current resources boom. They also say the population increase has been brought about partly by the “tree change” phenomenon, and partly by the affordability of high quality housing – currently averaging 40% less than Brisbane prices. That said it would be hard for Ergon Energy to argue population growth numbers justifying such a large expenditure on an underutilized power line – at a community expense, certainly not justified for at least another 10 years without a resources boom planned!

However, the headline of Southern Free Times of 28 March 2013 read “Stanthorpe needs Power Reliability Says Springborg” – the opening paragraph included “The State Member said he remains confident in the decision making process of a Stanthorpe Power Line Community Reference Group, despite rifts in the group and a loss of community support”. Looking deeper into the story we find 6 of the 11 member CRG have resigned!    This sounds a bit odd – the State Member (also the Qld Gov Minister of Health) ‘remains confident’ and the CRG has no confidence in the CID process? So what is really going on here?

On reading the entire story it is noted a number of good points are raised in the Southern Free Times and the expected well scripted responses come from Ergon Energy.  But what was not covered were some big burning matters such as: Fair compensation for the loss of use or abandoning the use of your homes and property to make way for a duplication of the 110kV power line (it seem Qld in cutting the red tape for approvals also avoids the option of owners selling land affected at market price, or even accept a fair rent for the use of the land). Next, the line will be redundant unless significant growth for the need for power increases above the expected planned growth scenario. This is something the regulators must test for who benefits and whether the abandoning of the need in the lifetime of the line will result in undue costs to the community. Especially if the ‘grape vine’ is correct as to the actual need for such a large duplication.

The big issue in all this is not even remotely covered. That is the case for smearing the costs with the community when it may be a benefit for say a new mine or foreign investment interests, and that user might pull out of the area before the economic life of the line is reached.  We can think of numerous examples where this happens and one ripper is Cobar in NSW – the lines were put in and the mine shut down leaving the community to pay the costs. Costs that we now know could be avoided.

What evidence is there that financial and lifestyle costs could be avoided? The answer is actually in the responses from Ergon Energy to the Southern Free Times. A absolute major give away and indicator of the real agenda  – Ergon did not say that all alternatives had been evaluated, they said proposals to met expected demand for alternatives had not been included in time. They also said two lines currently serve the area including an 110kV and a 33kV line. They argued the 33kV line can only supply half of the current peak load. Extrapolate that to peak loads and the capacity of the current 110kv line is fine and allows for load growth of the predicted 18% over the next ten years. It also means demand response measures, if taken, will cater for peak load without new infrastructure. It also means a duplicate 110kV power line will at best be utilized 5% of the time – if you research the Power of Choice submissions with AEMO you will find similar analysis.

Also noted in Springborg’s response is he said new infrastructure was required and without detail other than a general statement the community is entitled to reliable power. Maybe the CRG should ask a few more questions, like:

  1. Why do you need more than what is stated as the need in growth scenarios (reference to published planning and forecasts from other than Ergon)?
  2. Why do you think technology will not provide solutions at a least cost other than conventional distribution of power? and,
  3. If a new industry development other than what is required by a community in growth were introduced would that industry pay a fair and reasonable rent for the infrastructure?
  4. Would a fair and reasonable rent be returned to the community?

Of course these questions are very likely to elicit more the well scripted replies to the questions, but then you could just ask them again only at a different level. For instance, if the state said the means is more important than the ends, it should be tested thoroughly.

Co2Land org now asks: If we consider the four primary schools of thought in general jurisprudence :

  •   Natural law is the idea that there are rational objective limits to the power of legislative rulers.
  •  Legal positivism, by contrast to natural law, holds that there is no necessary connection between law and morality and that the force of law comes from some basic social facts although positivists differ on what those facts are.
  •  Legal realism is a third theory of jurisprudence which argues that the real world practice of law is what determines what law is; the law has the force that it does because of what legislators, judges, and executives do with it. Similar approaches have been developed in many different ways in sociology of law.
  • Critical legal studies is a younger theory of jurisprudence that has developed since the 1970s which is primarily a negative thesis that the law is largely contradictory and can be best analyzed as an expression of the policy goals of the dominant social group.

Has the Queensland Government and Ergon (a government entity) set the theme of better practice or has the quest for the means of the market overtaken good policy for the ends to look after the community?  If the means is more important can we say the community consultation businesses that influence, is only in the interest of making a market other than setting up community representative groups with limited knowledge of the true agenda? Therefore are these groups only to give comfort to the Minister of state that all is well on a certain issue?