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Monday, September 26, 2016

Electricity pricing opportunities

Policy makers received another jolt when the short term cost of electricity in South Australia leapt from a year-long average of about $60 per megawatt-hour to $9,000 per megawatt-hour.

This market fluctuation is nothing new. Demand for electricity is expected to vary a lot from time to time. Policy makers have chosen settings to promote investment in both generating capacity and distribution grids to be able to quickly respond with extra supply.

The policy problem is quite visible in the need to provide adequate transport infrastructure for peak periods while accepting that there will be times the infrastructure will not be required...

Freeway showing peak period traffic flow
Freeway showing peak period traffic flow

Freeway empty on weekends
Freeway empty on weekends
 Electricity price spikes have occurred during summer heat waves when there has been little reliance on renewable energy sources and fossil fuel generating plant has been operating without any incidents that limited capacity.
NSW electricity price spikes, January and February 2011
NSW electricity price spikes, January and February 2011
These occasional electricity price spikes are what the usual policy settings rely upon to encourage investment in capacity that will be idle most of the time. For instance, early in 2011 AGL proposed building a $1.5 billion power plant it foreshadowed would be "switched off for months on end."
"AGL project manager Neil Cooke said the planned $1.5 billion gas turbine power station would only operate between 200 and 400 hours a year during periods of peak demand and could be switched off for months on end."
(Article in Canberra Times, May 7, 2011 - page 15)

An intention to transition electricity generation to lower-emission technology does not materially alter this policy problem: whether it is a $1.5 billion power plant that is intended to be switched off "for months on end" or a $1.5 billion battery storage facility in its place.

Replacing freeways with mass transit would face the identical issues of peak demand far exceeding the capacity required on weekends.

With electricity generation and distribution there are some options to improve flexibility that might reduce the amount to be invested in equipment that is intended to be switched off "for months on end".

The development of robotics in automated manufacturing is increasing the flexibility to help reduce investment in electricity supply...

The principle can be seen in agriculture where crops are naturally adapted to be opportunistic consumers of sunlight and rainfall.

Automated factories and refineries that operate when electricity supply is at normal prices and switch off when the price begins to climb could be a more economic solution.

$1.5 billion invested on manufacturing  plant that is intended to be idled for short periods may be better for the economy than $1.5 billion invested in electricity capacity that will be kept idle for all but short periods.

This has implications for policy settings that for now are designed to promote investment in excess electricity generating and distribution capacity.

Thursday, August 18, 2016

Some innovations need system integrators and coordination

Much innovation occurs by incremental improvements in technology. Jet engines gradually replaced piston engines in the aircraft industry. Cathode ray tube television sets have been replaced by flat screen televisions.

Other innovations are not so easily made by incremental adoption. A vehicle manufacture developing the first model able to be fueled by unleaded petrol would have difficulty finding a customer if no petrol station sold unleaded petrol. A petrol station proprietor would be unlikely to stock unleaded petrol when no customers drove vehicles needing unleaded petrol and no oil refinery made unleaded petrol....

Innovations are often disruptive and the benefits come with adverse effects ...

Many innovations only work when they are part of a collection of co-ordinated changes that are adopted across a number of industry participants.

The components needed to make some innovations work may exist in other fields. Industry participants and product developers can benefit from the skills of  system integrators to locate components for a viable design made up from a collection of products that will work well together.
An example of a wandering albatross GPS track
An example of a wandering albatross GPS track

The technology capabilities of The Royal Society for the Protection of Birds, "Tracking seabirds to inform conservation of the marine environment" suggests a way to overcome the quite real concern of the Federal Government that electric cars will hit its bottom line by driving a fall in fuel excise revenue.
Advances in the miniaturisation and mass-production of low-cost, lightweight, high-precision GPS tags, enables tracking the detailed movements of large numbers of seabirds, including some of the smaller species.

"The Turnbull Government is preparing to drive a new debate over how roads are funded in Australia, with the revenue collected from fuel excise expected to shrink in coming years. Right now motorists pay almost 40 cents a litre in tax, delivering close to a $11 billion dollars a year to the Treasury." (@ABCNews, 16 August 2016)

The existing fuel excise that funds roads is raised in proportion to the amount of fuel motorists buy. Motorists who drive only during off-peak times on regional roads pay at the same rate as motorists driving on expressways in cities during peak periods. A replacement technology that can measure the time, distance and location of trips may be sold on the basis that it is more equitable than the existing fuel levy that contributes to road funding.

Mass production of batteries for electric vehicles will drive a significant reduction in their manufacturing cost.

There is an opportunity to combine this predictable reduction in the cost of lithium-ion battery energy storage with the continuing decline in the price of solar photovoltaic (solar PV) systems.

The two technologies don't immediately work well together when people typically drive to work early in the morning and return home late in the day. Any solar energy generated at their home during the day cannot be conveniently used to recharge their electric vehicle.

An option to improve the overall performance and cost-effectiveness of these technologies has been developed ....

This technology makes an electric vehicle's battery pack an interchangeable unit: "6 Reasons Tesla's Battery Swapping Could Take It To a Better Place."

Having an electric vehicle battery at home being recharged during the day allows energy in the battery to be partly discharged at times when spikes in the energy demand exceeds the output of the solar PV system, such as an air-conditioning turning on for 20 - 30 minutes late in the afternoon to cool the home before the residents begin returning from school and work. 

Another approach

Vanadium flow batteries can be charged and discharged almost indefinitely with little loss in capacity. They weigh more than lithium-ion batteries holding the same amount of energy so they are more suited for fixed energy storage than for powering vehicles.

Instead of using an interchangeable lithium-ion pack to store solar energy during the day and swapping it with a discharged lithium-ion battery pack in a car, a vanadium flow battery could be charged with solar energy during the day and the stored energy could recharge a car's lithium-ion battery pack overnight.

Wednesday, August 17, 2016

Dairy industry hit by mysterious crisis

Dairy Australia collects production and sales information for the industry.

Dairy Australia's information shows no surprising change in production or in demand.

Among the noteworthy changes are:
  • A 21.4 % annual increase in the volume of milk exports.  There was a corresponding increase of 19.7 % in the value of these exports from last year (July 2014 -  June 2015) to this year (July 2015 - June 2016).  
  • A 63.4 % annual increase in the value of whole milk powder exports.  This increased value was obtained with just a 2.4 % increase in the volume of these exports from last year (July 2014 -  June 2015) to this year (July 2015 - June 2016). 

Milk production (millions of litres)

Production fell slightly in 2015/16. A collapse in price can't be explained by an increasing supply.

Dairy Export Report - June 2016

Exports increased in volume and in value...

Monday, July 4, 2016

The Panama Papers in the ICIJ database - a sample of information available

Offshore Leaks Database

The International Consortium of Investigative Journalists is a global network of more than 190 investigative journalists in more than 65 countries who collaborate on in-depth investigative stories.

The ICIJ database contains information on almost 320,000 offshore entities that are part of the Panama Papers and the Offshore Leaks investigations. The data covers nearly 40 years up to the end of 2015 and links to people and companies in more than 200 countries and territories.

Note this ICIJ database disclaimer from which the information below was extracted:


There are legitimate uses for offshore companies and trusts. We do not intend to suggest or imply that any persons, companies or other entities included in the ICIJ Offshore Leaks Database have broken the law or otherwise acted improperly. Many people and entities have the same or similar names. We suggest you confirm the identities of any individuals or entities located in the database based on addresses or other identifiable information.

Panama Papers - Search results on Firepower ENTITY
Panama Papers - Search results on Firepower ENTITY

If you search the ICIJ database with a string like:
John Smith
it will return lists every of object containing "John" or "Smith" as well as "John Smith".

Entering the search as follows produces what may be intended:
John AND Smith
results  in every object containing names such as "John Smith", "Mr John Smith", "Smith John" and even "John Robert Smith", but none that contain only "John" or "Smith". It also returns both uppercase and lowercase values.

The ICIJ Offshore Leaks Database search page is at

The table below is a very small extract from the ICIJ database to introduce the type of information to explore. It is an opportunity to put a toe in the wading pool before diving in the deep end of the pool.

Wednesday, June 22, 2016

The Liberal Party "Jobs and Growth" Plan according to Treasury

Appearing on the Q & A program on ABCTV on 21 June 2016, PM Malcolm Turnbull gave the answer below to this question -

JAQUELINE: Mr Turnbull, your jobs and growth mantra is based on the trickle-down economics theory. Your former employer Goldman Sachs and many other trusted sources have raised serious concerns about this tax cuts and confirmed that a significant proportion of the windfall will benefit overseas investors, shareholders and not trickle down at all. Over 10 years the plan will cost the Australian taxpayer in the vicinity of $50 billion. Why should ordinary Australians support cuts to our services to give companies a tax cut that according to so many experts probably won't create jobs or contribute to growth significantly and elsewhere has been shown to increase inequality in society?
Malcolm Turnbull with Terry Jones on Q and A

Malcolm Turnbull: Well Jaqueline thank you. Firstly let me say that cutting company tax does not increase inequality in society. There has been a long trend towards reducing company tax right around the world. The biggest cutter of company tax in our lifetimes is in fact Paul Keating, who cut company tax twice and he cut it because he knew that if you reduced company tax, if you reduced business tax, you increase the return on investment. If you increased the return on investment, you get more investment. If you get more investment, you get more employment and you get more growth. That's why the Treasury found last year that for every dollar cut in company tax, you got $4 of benefit of growth into the economy, into GDP of which between two-thirds and three quarters went to labour, went to workers
Treasury produced a report on 3 May this year "Analysis of the long term effects of a company tax cut" that models the two options for funding the planned company tax cut.

While Malcolm Turnbull said "Firstly let me say that cutting company tax does not increase inequality in society", the Treasury modelling of his "jobs and growth" plan says the exact opposite -


In this section a reduction in company tax rate from 30 to 25 per cent is financed by an increase in the average rate of personal income tax.

Theory and key assumptions

The personal income tax system includes the taxation of both labour and capital income. It is difficult to incorporate progressivity in a model with a single representative household, so the modelling reported here assumes a single effective tax rate (hereafter average personal income tax) that is applied to labour income and capital income after franking credits. Progressivity potentially raises the excess burden of a tax, which implies the modelled average personal income tax increase may understate the welfare cost of raising revenue via the actual personal income tax system. As noted in Section 3, the perfect capital market and fixed domestic saving rate assumptions imply the capital income component of the personal income is largely invariant to changes in personal tax rates.  Therefore, the distortionary part of the modelled personal income tax is effectively the labour income tax component.


In this section a reduction in the company tax rate from 30 to 25 per cent is financed by a cut to government spending.

Theory and key assumptions

Government spending is assumed not to affect directly the welfare of households. In the previous two scenarios real government spending was held constant so adding it to the household utility function would not have made any difference to the welfare calculations reported there. In the current scenario, the implicit assumption is that all government spending that is cut is wasteful. While this is a common modelling assumption it ignores the fact that: government spending provides goods and services [Medicare bulk-billing for instance] that would otherwise not be provided by the market sector; households derive direct utility from government spending; and infrastructure spending can improve market sector productivity. This suggests the model will overstate the benefits of this funding alternative. This scenario is expected to yield significantly higher welfare gains than the previous two scenarios because an additional assumed distortion is removed from the economy.
The way to fund its company tax cut that the Coalition selected, as shown in its 2016/17 Budget Overview
The Coalition Plan - Higher and Higher Personal Income Taxes
The Coalition Plan - Higher and Higher Personal Income Taxes

Monday, June 20, 2016

Taxpayer dollars create state-owned bank to build coal-fired power stations

The Coalition Government has used taxpayer funds to create a state-owned bank that is to finance new coal-fired power plants in developing countries.

This will help to increase demand for coal for new mines for decades.

Media Release by Treasurer Joe Hockey, 24 June 2015

Australia to join the Asian Infrastructure Investment Bank

"Joining the AIIB presents Australia with great opportunities to work with our neighbours and largest trading partner to drive economic growth and jobs [or JOBS and GROWTH].
Australia will contribute around A$930 million as paid-in capital to the AIIB over five years and will be the sixth largest shareholder."

Sunday, June 19, 2016

LNP 'fix' for a revenue problem it says doesn't exist

Scott Morrison delivered his first and perhaps final budget as Australian Treasurer in the last days of the Abbott/Turnbull Government.
  • The 2016-17 Budget was presented by the Treasurer, Scott Morrison in the House of Representatives on Tuesday, 3 May 2016.
  • The 44th Parliament was dissolved a few days later on Monday, 9 May 2016 at the request of PM Malcolm Turnbull.
Australian Treasurer, Scott Morrison
Australian Treasurer, Scott Morrison

Scott Morrison consistently says the Government doesn't have a revenue problem.
"Mr Morrison rejected suggestions there was a problem with money coming in, saying revenue as a share of the economy would be higher than the long-run average next financial year." (SBS News, 8 April 2016)
The budget summary in his budget does in fact show revenue as a share of the economy being higher than the long-run average next financial year.

The same summary however shows tax revenue as a share of the economy being higher than the long-run average not just next financial year but in every following financial year. The share actually increases in every financial year to 2019-20, remaining well above the long-run average.

Australian Government Tax Revenue as a percent of GDP