Financing Investment in Energy Sustainability for the ACT

The primary requirement for the  ACT to achieve sustainability is sustainability in Energy. With abundant cheap sustainable energy it is possible to address other problems through the application of energy whether it be the provision of water, food, shelter, transport or clean air. To that end the primary focus for any sustainable future should be on the ACT producing renewable sustainable energy and increasing  energy efficiency

In this document energy sustainable means that the citizens of the ACT will produce all the energy they require without contributing to the level of green house gases in the atmosphere. To achieve this goal within ten years will require the investment of about one billion dollars per year for the next ten years.

The issue is how to achieve this level of investment.

There are two ways of achieving this goal. One way is to put a price on green house gas emissions so making investment in renewables and saving energy more attractive and the other is to reduce the finance cost of investment in renewable energy production.

The financial cost of investment in renewable energy is three or more times that of energy obtained from burning coal. As renewable energy does not have a fuel cost, its biggest operating cost is interest.  Eliminating the cost of interest can half the cost of generating power from renewable sources.

In practise the interest demanded by investors is determined more by lack of supply than by the risk of investment. To eliminate the risk cost of money, banks should be allowed to obtain interest free credit from the Australian Treasury or the RBA for self-financing public infrastructure on condition that the risk of the credit created not being cancelled is fully insured by non banks. In this way the cost of money becomes the cost of the insurance.  The cost of the insurance then becomes the risk of the sustainable energy producers not being self-financing from future sales.  The risk of revenues being insufficient to make the project self-financing is best guaranteed by those who consume the power.   It is this risk that the ACT government could contract to accept on behalf of all ACT rate payers.  The risk of operating failure in production should be taken by the manufacturers of the renewable energy technology.  So the residual risk of the project should be trivial and in turn make the cost of finance trivial.

This approach to investment of paying for the investment from the income generated by the investment changes the importance of time in the finance equations because there are no fixed interest charges. It becomes more important to build systems that will last rather than systems that return income quickly. This will bias development to long term returns rather than to short term returns. In other words we will build systems to last and continue to earn income rather building systems to give a quick but short return on investment.