Energy = Economy

What can secure the future of small rural towns in Western Australia's agricultural regions? It’s a question that has been bothering Wheatbelt residents, farmers, government, community and economic development professionals for years.

The region’s main economic driver is from agricultural commodities and these commodities are affected by the volatility of global weather patterns and global economic tumult. Therefore, the future of the current economic driver in the Wheatbelt is largely beyond the control of the people in the region.

So a catch 22 has developed. The current unpredictable economic driver needs to be replaced or enhanced by a more predictable one. Yet, because the current economic driver is volatile, investing in small towns like Living Communities' pilot town, Goomalling can be seen as risky and therefore investors become hard to attract.

But to find the answer, we may have to disregard the economic textbooks because the fundamental assumptions made in mainstream economic models may be flawed.

Here’s why.

In the 1950s an economist named Robert Solow won the Nobel Peace Prize for arguing that for every 1% of increased labour productivity 0.7% showed up as economic growth in GDP and for every 1% increase in capital investment, 0.3% showed up as growth in GDP.

Despite his Nobel, Solow's model couldn’t account for was the enormous discrepancy between the growth it predicted and actual growth in the real world. It seemed there was much more growth occurring in the real world and so the ‘residual’ of nearly 75% of the total growth couldn’t be sufficiently explained by economists.

Now in the 21^st century, natural scientists have actually worked out what was missing in Solow’s equations. The difference between Solow’s growth and real world growth can be explained by energy. And the cheaper the energy, the better. In fact, one scientist, Professor Robyn Ayres of Carnegie-Mellon University in the United States worked out that a 1% increase in energy actually accounted for 0.7% of economic growth, not labour as Solow had assumed.

So what does that tell us then, if it is cheap energy that makes a more substantial contribution than labour and capital to economic growth.

Could the missing economic driver of the Wheatbelt actually be cheap energy? Cheaper energy, combined with a pre-existing rail network would attract industry to the region and in doing so, would give the Wheatbelt a competitive advantage over other regions.

For example, it’s one thing to have a corporation install 270MW of energy in a wheat field near your town that employs 5-10 people, plus a one off economic benefit during construction. The energy generated from this solution is fed into the grid to the usual centralised retailer who essentially sells it back to the town. In other words, nothing much changes in the long run. There is no competitive advantage for the town derived from having such a facility close by. You cannot use it to attract further business investment. The energy created is owned by outsiders and shipped out for others to use.

However, it is a completely different thing to have 10MW or less of energy owned, in part, by local people who can use the energy produced as leverage to attract longer-term economic benefits.

The community solution could attract further investment by being in control of the pricing of its own energy. It is easy then to see how this would create greater long-term wealth and employment opportunities for the entire community than would the corporate solution.

A corporate energy utility has a business model designed to make a profit and return it to the investors. A community owned energy utility’s business model could be designed to keep prices low for locally owned industry and residents. It could also generate revenue from power sold into the grid.

So the primary purpose of a community energy co-op would be to maintain economic competitiveness for the entire community. It would return benefits to the investors (the community) largely by providing lower priced energy that, as we have seen from the research, will develop the economy.

Such thinking is at the heart of a submission to the Wheatbelt Development Commission’s Wheatbelt Regional Strategy Directions Paper, from Zuraw Investment’s, Leon Surawski.

Mr Surawski’s submission details how Wheatbelt communities can become energy exporters through a distributed network of renewable energy power plants.

A community owned energy model is far superior to a corporate owned model for the Wheatbelt. Community leaders need to understand the benefits of local versus corporate ownership if their towns are to truly benefit from a distributed energy network and if the Wheatbelt is to build a new economic driver.