The electricity and urban water sectors have been characterised by:
■ slow or stable productivity growth in the late 1970s to early 1980s;
■ a period of rapid productivity growth through to the late 1990s; and
■ a significant fall in productivity since that time.
Improvements in electricity sector productivity in the 1980s and early to mid-1990s reflected, in part, growing utilisation of capacity installed during the 1970s. Subsequently, there were major capital investments in both generating and network capacity during the late 1990s and first decade of this century. This investment had the effect of lowering average capacity utilisation and thus lowering productivity in the sector.
Other factors have also been identified as possibly contributing to the decline in electricity sector productivity. These include a shift towards what were higher cost generating sources, e.g. gas-fired power and renewables, and policy changes such as increased use of underground power lines.
Although the investments made in the 1970s and early 1980s were followed by a period of increasing productivity in the electricity sector, it is unclear whether the same cyclical increase in productivity will follow the investments of the last decade. Several factors are relevant.
As noted in section 7.2, the demand for electricity has been falling in the last few years. Peak period demand has also fallen. Projections by the Australian Energy Market Operator (AEMO) suggest demand will remain comparatively low for around a decade.
Moreover, there is broad recognition that regulatory arrangements encouraged over-investment in network infrastructure over the last decade. Changes have been made in the regulatory environment to address the causes of over-investment, however two observations are worth making:
■ past investment still needs to be paid for, and will therefore continue to have impacts on sector productivity; and
■ it is too early to state confidently whether the recent regulatory changes will have the desired effect of encouraging more focused investment decisions in network infrastructure.42
Consistent and reliable data in the gas sector is more limited than in the electricity sector. The available data suggests that productivity in the gas distribution and retail sector has improved fairly consistently since the mid-1970s, although this conclusion should be treated with some caution. As in the electricity sector, a more recent fall in sector productivity probably reflects the level of capital investment over recent years.43
Two broad factors relevant to productivity in the urban water sector stand out. Firstly, per capita water consumption has fallen following the millennium drought of the early 2000s, with demand management measures a contributing factor. As a result, measured output is lower for a given level of capital and labour inputs.
The second factor, investment in major supply augmentation in response to the drought, has longer term implications for the sector's productivity. Overall, sector input costs will not need to rise for some time. While this would ordinarily improve productivity in the sector, to the extent that the consumption of water remains low compared to historic levels, the measurement of productivity in the sector will be affected. However, as noted earlier, Australia's cities are expected to grow rapidly. The growth in demand associated with that population growth will raise sector productivity.
Analysis by the Bureau of Infrastructure, Transport and Regional Economics (BITRE) found that productivity in the road freight sector increased significantly between 1971 and 2007, primarily as a result of the introduction of six-axle articulated trucks and later B-doubles. BITRE attributed the growth in productivity to the fact that loads on six-axle articulated trucks loads were typically 30 per cent higher than on the five-axle articulated trucks they replaced and that, in turn, average loads on B doubles were around 50 per cent higher again.
BITRE expects that subsequent increases in vehicle payloads using larger vehicles such as B-triples and AB-triples are expected to be more modest than those achieved following the introduction of six axle articulated trucks and B-doubles. BITRE concludes:
… in the absence of further productivity enhancing reforms future heavy vehicle productivity growth is likely to be relatively low. Even with increased uptake of high productivity vehicles under PBS [Performance Based Standards] and the Intelligent Access Program (IAP), future heavy vehicle productivity growth is likely to be much lower than recent experience.44
Views on the productivity of the telecommunications sector, and the broader economic benefits of telecommunications are positive. In general, the sector is viewed as being highly productive, with the volume of data and other telecommunications services growing dramatically, and unit rates of supply having dropped appreciably.
However, there are other views. In line with the concept of diminishing returns, comparatively recent data suggests that information and communications technology (ICT) is not providing an ongoing contribution to developed country productivity growth. The data indicates that in most OECD countries, the contribution of ICT capital to GDP growth rose between 1985-1994 and 1995-2001 but fell subsequently. Australia appears to be an outlier in this regard: the contribution of ICT capital services to Australian GDP growth increased during the 2000s.45
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42. The Australian Energy Regulator's draft decision in November 2014 on the revenues of NSW and ACT energy businesses was the first under the new National Energy Rules and National Gas Rule.
43. Topp, V. and Kulys, T. (2012), p. 121
44. Bureau of Infrastructure, Transport and Regional Economics (2011), p. xix
45. Carmody, C. (2013). The author argues that the experience of other countries suggests any continuation of this growth over the last decade in Australia cannot be assured.