What South Australia and Abu Dhabi Have in Common
February 23, 2007

South Australia has the chance to be a world renewable energy leader. All it need do is grasp the opportunity.

In 2006, Stanford University climatologist Stephen Schneider served as South Australia’s “Adelaide Thinker in Residence.” During his tenure, he advised the state on climate change policies. Dr. Schneider recommended South Australia create renewable energy “power parks.”  Under this concept, power lines and various bits of municipal infrastructure in places like Leigh Creek could be repurposed to renewable energy as the Leigh Creek coal mine winds down mining operations. With huge amounts of solar and geothermal resources in the northern region of the state, power parks are a concept whose time has come.

Just look at Abu Dhabi.

Even though awash in oil, the desert emirate is creating a  “special economic zone” to promote renewable energy technologies. In terms of encouraging renewable energy technologies and bringing them to cost competitiveness, ideas like power parks provide an ideal opportunity for markets to pick winners.

In the 18th Century, economist Adam Smith theorised that countries should specialise in the production of what they have in greater relative abundance than their trading partners. Australia has coal, natural gas and uranium. But so do lots of other countries.

What Australia has that other countries don’t have is hugely power direct normal radiation, which is unimpeded sunlight falling on arid regions. Outback Australia, the southwestern United States and North Africa are the only three regions in the world that have this resource in such massive abundance that, properly exploited, such sunlight could power the world. If Adam Smith were alive, he’d tell Australia to focus on harvesting this solar energy because Australia has a greater advantage in this than in other factor endowments such as fossil fuels compared to its trading partners.

The second major influence is the "learning curve." Everyone knows a child gets better rapidly each time he or she rides a bicycle, and very quickly becomes proficient. This is precisely what’s happening with renewables such as solar. Innovation is building experience, experience is lowering costs, and lower costs are sparking takeup. These combined factors are causing renewables to fall in price blindingly fast – particularly when measured against aging technologies like coal that are run by sluggish industries long reliant on government protection from market forces. 

The third concept involves allowing the market to pick the winner. This concept is so simple it barely needs explaining. Power parks do this. By giving alternative energy companies a level-playing field for competition, the most efficient technology will win by default.

Unfortunately, Australia’s federal policy is completely backward in this regard. That’s because the primary aim has been to secure the future of the coal and fossil fuel industries, not pick the best technology. This can be seen by the structure of the Low Emission Technology Demonstration Fund, in which the government gives out money to favored players so they can artificially win. Politicised interference like this in the normal functioning of markets is known in economic theory as picking winners.

To get real winners, Australia should listen to people like Dr. Stephen Schneider, and it should look carefully at the example being set by Abu Dhabi.