Energy Insiders Transcript: Mike Cannon-Brookes on the green energy future

Giles Parkinson  00:04

Hello, and welcome to this latest episode of the Energy Insiders podcast. My name is Giles Parkinson. I’m the editor of Renew Economy. And joining me as usual is David Leitch from ITK. David, I trust you are well?

 

David Leitch  00:41

I’m well, and we’ve got a very special guest today, and a very timely thing when we’re all very focused on the environment and climate change, I guess.

 

Giles Parkinson  00:52

Yes, and government policy, of course. And look, it’s my pleasure to welcome Mike Cannon-Brooks, to our podcast. Mike, thank you very much for joining us.

 

Mike Cannon-Brookes  01:00

Thank you guys for having me, longtime listener, first time caller.

 

Giles Parkinson  01:05

Great to know that you’re listening. And thank you very much.

 

David Leitch  01:07

Fantastic to hear you say that. I sometimes suspect they only listen to the episode they’re actually on. But I’m sure you’re not that person. So anyway.

 

Mike Cannon-Brookes  01:16

Oh, no.

 

Giles Parkinson  01:16

It’s been a big day for you.

 

Mike Cannon-Brookes  01:18

It has. Look it’s been it’s been an interesting day. I am never never sure what’s gonna go on in a given week.

 

Giles Parkinson  01:25

Yeah, you started off with the quarterly earnings report. And then you went one on one with the acting prime minister. And now with us. With Barnaby! Look, I’m not too sure whether he was listening very closely or on receive. And that seems to be the big problem for Australia at the moment. We’ve heard the update of their policy position, it’s not really a new policy. It’s barely even a new target. What was your reaction to this? And particularly because you’re one of the people that’s looking to invest in this green energy future?

 

Mike Cannon-Brookes  02:01

Look, I think, how would I phrase my reaction? Sadly, expected? I mean I didn’t have very high expectations but I would say it certainly fell short even of those expectations, right? My assumption was there was something new or something underneath there. Besides a, how did they phrase it? I think “a commitment to net zero” that won’t be legislated and no policies, no modeling, nothing that I can make sense of how this is going to happen.

 

Giles Parkinson  02:36

One of the things that struck me was there’s actually a recognition in their plan that some of these green technologies are going to be driving this transition. There’s recognition in the latest emissions estimates that New South Wales is going to make this extraordinary transition from being a coal dominated grid to 84% renewables by 2030. There’s talk of having ultra low cost solar, at less than $15 a megawatt hour. It seems that to least some people in government, the penny has dropped. We are in this transition, the future lies in green energy technologies. Yet, if that is not enough to cause a change in policy, then what will?

 

Mike Cannon-Brookes  03:17

Well, look I mean, as always, there’s some shadiness in the numbers, let’s say. If you look at the latest emissions and the numbers that they repeated and put out again, with what I call “the pamphlet”, they remove the fuel sources. So we can no longer see what they are actually modeling in terms of the different sources of fuels going into the electricity grid. But there is certainly, if you look at the outcomes, the answers, I think a clear acknowledgement that we’re going to have a massively renewable grid by 2030 and by 2035. And that’s a good thing, right there. There’s no doubt that that modeling, you guys have been saying for years, right? It’s going to happen. And the question is, at least now it’s in the modeling, it has been shown it’s going to happen. The question is, what does that mean? And how much are we sort of proactively leaning into that? But there’s, again, no detail about the set of steps and actions that are going to manage that transition, right. It’s almost impossible to ignore that it’s going to happen, especially in the energy sector. But we don’t have the detail to plan around. Which has always been our problem in Australia, I would say, right. It’s having stable policy, having clear milestones and targets and plans, enables everybody to invest capital against those opportunities, and to plan for those transitions. And again, we don’t have more stability to bet on as a business.

 

Giles Parkinson  04:47

What does that mean then? What do you expect from Glasgow? Scott Morrison’s taken off. He’s got an entourage of about 20 or even 30 people I think, including Angus Taylor’s mob, they’re going to present themselves. There’s basically no change. They’re still talking this rubbish that we’ve heard for 30 odd years to a group of people who very well know the history of Australia, who know all about the Australia clause, who can see through the bollocks about the 20% emissions reduction over the last 20 years. What are your fears about Glasgow? What are your fears for how Australia is viewed? About the movement of capital? Yes, it’s a pretty big question actually. You can answer it how you like.

 

Mike Cannon-Brookes  05:31

Look, I think my expectation is, as you said, the international community knows where Australia stands. They know where we historically stood. If you look at Angus Taylor’s press release from this morning, he’s going over there to show the safe and reliable investing community for gas or something in Australia. Trying to promote Australian gas investments seemed like….. there should be some interesting chats I would imagine in some rooms in Glasgow, if that’s the goal. But look, we’ve taken an inch forward, we have at least a commitment for 2050. I think the goal is to get that and turn it into some actual plans per sector of the economy. You know, what are we doing in transport? What are we doing in manufacturing? What are we doing in mining and minerals? What are we assuming in terms of the fossil fuel transitions, both as a consumer and as an exporter. We need to start putting some of that down on paper so that we canmove things. And obviously, we would love to have legislated targets. We’d love to have increased 2030 aspirations. I actually think that the bigger news was the BCAs’ about face, let’s call it. And, you know, very serious model and very serious, it’s good for the Australian economy to have a 46 to 50% target for 2030. That’s a much bigger change in the environment we have in Australia, I think, the conversational environment that is, not the physical environment, than, this 2050, and we’re going to get to 2050 one way or the other,

 

David Leitch  07:09

You know, Mike, you’ve got a very successful business, obviously. And part of it seems to be about having a very stable management team and employees that, broadly, everyone buys into the same vision more or less. It seems to me that when it comes to the energy transition, you know, like in New South Wales, the way Matt Keen’s presenting it, the executives, that is the bureaucracy, the department buys into the plan very strongly, you can see that quite easily. And he’s been able to get buy in from most of the stakeholders. When I look at it federally, the only concrete outcome that’s come through is the appointment of someone that hates climate change, hates renewable energy, and makes no secret of it to his credit, he’s been appointed to cabinet. So it seems to me we can’t possibly have any real progress until we get people in the government that actually believe in the whole idea to the point of, you have to appoint executives like ministers that are going to give appropriate direction do you think?

 

Mike Cannon-Brookes  08:20

I think you do. I think you have to have, again, yes, the current pamphlet has been panned by every single international media outlet, right. The New York Times, Financial Times, BBC, CNN, as lacking in detail, which it clearly is. I think, what you need to have is you need to have some climate, some science, some economic research group/ groups, understanding and backing your plan. So until we see any modeling, right, I found the irony of the chat with Barnaby earlier where on one side he’s, you know, arguing for the people in the regions, and on the other side, he’s lording McKinsey’s modeling, quite a big change from one to the other there. We’ll have to see when that modeling is released, right? Because otherwise, we can only infer from effectively a set of answers that we’ve been given what their assumptions are going into this. And any of these models in the long term, I always tell people, it’s the assumptions that are the most important, right? How much carbon are we putting in per hectare? What is going to happen with methane? What is going to happen in terms of vehicle transitions and transportation, like what year are we assuming what penetration of electric vehicles. All of this sort of stuff without the detail? We can’t believe how we’re going to get there. Right? We won’t get it exactly correct in that model, but it has to have surely enough detail to explain, not just the energy sector, but transportation, manufacturing, all of the other bits and pieces that go into the Australian economy, and we just don’t have that. And then, you know, you guys talk a lot about technology change and everything else on here and it’s always fascinating to learn about the implementation. I mean, we had the syncons just appear in the grid, which is really fascinating. A big change, right? That’s not a new technology, right. But far from it, in fact. But it’s a deployment of existing technology in clever ways. I don’t understand the word technology that just keeps being repeated through this. And I think I should understand what the technology is, but I just don’t get it.

 

David Leitch  10:26

Yeah, you know, technology, not taxes. I prefer the policy, not bullshit. But that’s why I say I like the New South Wales plan. It’s got clear goals that everyone can identify with and move forward.  And, you know, there is a plan, for instance, in the energy sector, well at least the electricity sector, there’s the integrated system plan that clearly shows for instance, if you look at the step change scenario that no new gas generation is required to essentially decarbonize the electricity system pretty fully, and meet the reliability standard and keep the price there. I mean, that modeling has been done by a dedicated team that works on it essentially continuously and gets buy in from stakeholders, like that is to say, experts on particular things like technology costs. Whereas, you know, as an investor, I mean, in some ways, the government plan kind of looks like a venture capital kind of thing, backing all these startups, so far, are only going to pay off in the far distance.

 

Mike Cannon-Brookes  11:38

Well, but it doesn’t, though. So firstly, How are we going to get rid of this 80%? Let’s put aside the magical 20% we’ve achieved so far. So there’s 80% left. The way I read the plan is the technology investment roadmap is going to get 40% of that. But without any actual detail about how. Global technology trends are going to get 15%, and further technology breakthroughs are going to get another 15%. If you can explain the difference between these three to me, then you’re a smarter man than I am at understanding what exactly is going on. What’s the difference between a global technology trend and a further technology breakthrough? That’s not in the technology investment roadmap. It’s magic words. The problem with thinking about it as a VC problem is we don’t have time. Our economy is going to need to decarbonize, start in the next decade even to keep pace with the world. If we want to take advantage of the opportunities we have, we have to do it ahead of other countries. And that cannot be some sort of venture capital investment. There’s a lot of technologies that are going to need to be there, right? I described it once, it’s a little bit like a retailer who decides they’re going to compete against Amazon by investing in making their own computer chips and competing with Intel. I’m like, I don’t think that’s going to solve the problem for you. Nor do you have the expertise to go do that. You know, when we talk about ultra low cost solar, it’s one of the things in the technology investment roadmap, I’ll be the first to tell you we need ultra low cost solar, I’m confused as to how a billion or $2 from the Australian government is going to change the global price of solar deployment. I just don’t understand that the leap in thinking from one to the next, if that makes sense.

 

David Leitch  13:23

Yeah, it does. I’ll hand back to Giles in a second. But you know, I guess what I would say is there’s plenty of technologies that can assist in the transition right now with the appropriate policy. There’s plenty of wind and solar people that are out there struggling with, you know, losses in the middle of the day, every single day, that just need a bit of assistance. If we knew when the coal plants were going to close this transmission… you know,  in New South Wales consumers are paying on average $40 an hour more for their electricity in the spot market than Victorians because of a silly constraint in the in the West Murray. Australia imports $20 billion net of oil every year that we could, you know, which is a security risk, as well as everything else, that we could get rid of a large bid off if we had an electric vehicle policy. I mean, you don’t need to look out a long way. You just need to have people that can focus on immediately available opportunities, and there’s a lot of them, wouldn’t you agree?

 

Mike Cannon-Brookes  14:20

Oh entirely. And I think, you know, I’m, it’s written on the front door,  I’m pretty big into technology. But I think while the decarbonisation of the planet is a …. it’s a fundamental technology change, right? We need to change the technologies we use that are currently fossil fuel based at some root source to technologies which are electron and non fossil fuel based. That is the technology change, and it’s going to be different depending on whether we’re talking about a car or your rooftop panels or whatever it is, but it’s a technology change. The difference here is the government seems to be saying let’s go and invent some technology. And I would say if there was a word that should be in the plan a lot, it’s finance. Finance is what we need to take the current technologies and roll them out at much more rapid scale. It’s actually way more important to get the finance equation correct than the technology equation, especially if we think about inventing new technologies, right? If you took the price of solar straight line to the reductions you’re going to get over the next 20 years, you’d probably be pretty damn close, regardless of spending $1 of government money on technology r&d. But if you can finance it, bring the costs of deployment down, that is the thing that will help us roll it out faster, right. We need to switch the fundamental capex/ opex equation of renewables or pretty much any of this technology. And that doesn’t matter whether it’s household or business or manufacturing or grid level, financing this stuff correctly, and getting a cost of capital in the right places will be what leads into them getting us the benefits from those things. So I would have a lot more time for it if It was a finance investment roadmap, global finance trends, and further finance breakthroughs in deploying renewables.

 

Giles Parkinson  16:03

One of the reasons I think that they leave the technology description so vague is that I think they have in the back of their minds, or even in front of their minds, nuclear, but they’re just too worried about the political fallout of actually spelling that out right now. And it’s why they want us to keep all the abatement down the track to the next decade or two. And I hope that something like that come up there, because they simply just hearing Barnaby a couple of hours ago, they just don’t accept that wind and solar, backed by storage can do the job. So you talk about the finance and the cost of finance. I mean, that’s got to be absolutely essential, particularly for achieving the sort of cost reductions that we’ve been talking about in solar and things like that. I mean, you’re involved in what would be the world’s biggest solar project? And those sort of technology costs that have been talked about? Is that what you are banking on? And how do you get that cost of finance down to those levels that can actually deliver those  outcomes?

 

Mike Cannon-Brookes  16:58

Look, I think, at any level, whether you’re talking about singular household with, you know, we’re big backers, of Bright, which is one of the largest, if not the largest, I think,  household solar financing company, all the way through to something large like Sun Cable, you’re referring there to, which is a couple more solar panels than you might put on your household. They all need to think about “how do we get that cost of finance down?” Right? And what is the asset underneath it? What is it likely to return? How thorough is your plan? And this is where the frustrating and the hard thing to communicate is the instability of policy drives up finance cost, it drives up risk. And if you logically believe that financing at low cost is the best way to rapidly deploy the technologies we have in the time we have it, then the instability of policy, the lack of planning, right?…. Take take the current roadmap, right. In Britain, they have 2030 is the last day we can sell an ICE Vehicle, I think at the end of 2013, or start of 2031, you will only be able to sell electric vehicles. That lets the entire industry plan. Now lots of parts won’t like that, lots of parts will, but at least it lets you plan, right. If you’re a vehicle manufacturer, if you’re a vehicle seller, if you’re a vehicle servicer, or if you own a gas station, whatever it is, you can now plan your next nine years knowing that you know with certainty, when our policy environment keeps changing, it just means the cost of risk, you know, the risk return has to go up for any capital. So one of the good things about Sun Cable is we have a non risky customer party. And we have a defined environment, because we are not constrained by  connecting to the NEM and all sorts of other things in the initial project, which allows us to remove some risk, which obviously, we believe will bring down in some level the financing costs, and financing costs when you’re talking about a $30 billion project are pretty bloody important. And you know, it’s one example I think if it succeeds, I believe we’ll have 10s maybe even hundreds of cables going up to our neighbors in the north, and we have a lot of them, and each one of them will get cheaper and easier to finance because you will know exactly, it’s like household solar, just think of as a large version. Bright can finance household solar so efficiently and at very reasonable cost because the returns are known, we know the panels are going to last 20 years, we can tell you exactly how much you’re going to save on your bill pretty much, and hence we can finance it. We lend you the money to save on your bills. And as that equation becomes known in other parts of the economy, not just energy, right. Manufacturing, light industrials, there’s so many other areas where finance is effectively the gate to unlocking all of this sort of stuff. I think the part the government could play in that is the people with the largest capital base in the country is certainly our superannuation sector, obviously has a lot of long term money looking for returns and predictability, which is great, I think we have the fifth largest market in the world for that, some somewhere in that order of magnitude. But the government also can borrow money at very low rates. So there’s a chance that the government can help participate in some way, lots of different ways that I don’t understand, to reduce those finance costs from household all the way up to, you know, the grid level. And that’s how we could start accelerating deployment with with today’s technologies.

 

Giles Parkinson  20:43

We just have some bit more about Sun Cable, it’s an extraordinary project, it’s probably a million different parts. I think the latest talk was, well it sounds like you’ve got a customer coming up in Singapore. They actually declared they want four gigawatts of, of zero emissions power. That presents an opportunity for you. I think the latest we heard was that construction or work might start in 2023?  How’s it going? I’ve got a lot of questions, actually. Is it going to start in 2023? Are you going to be involved? Is Andrew Forrest involved? Where are you getting the money from? And what’s the big thing? What’s the big Missing Link? There must be a million different things that you’ve got to get in line? But what’s the biggest thing you need?

 

Mike Cannon-Brookes  21:28

It’s a very large scale infrastructure project. And before you start digging a hole in the ground, or laying a cable, you have to be very, very thoughtful and very, very planned. So there’s obviously a large project planning exercise going on, in terms of all of the preparations to reduce that risk, right. So the boat we have going across to Indonesia, and plotting the route that the cable will take, the point of that is not so much exactly where it’s going to go. It’s calculating exactly the cost and the directions and the different things. The other big thing that’s going on, because the technologies, the batteries, panels, cables, these are fairly well used technologies, some of them we are stretching for distance or for size or for scale. And the scale has some advantages, you can get some some great efficiencies if you’re clever about how you utilize your technologies and think about, the wind and where we are. We know exactly the location we are, we know exactly the time we’ll need. So we can really quite highly optimize the solar farm in lots of ways. But how all of the different components will work together to produce a reliable outcome? Right, our customers want reliable power. And it is our job in that collective system to continually balance to make sure that we have that reliability. And then the other factor I would say is all of the ancillary businesses that come along the way, which is equally interesting, right, so we’re going to be providing a fair bit of power to Darwin, and through Darwin, which is, you know, it’s very exciting to lots of parts of Northern Territory. We also have a cable that is obviously going from Darwin to Singapore. And when you lay that cable you’re going to  obviously put electricity down. And while you’re doing that, you’re going to put things like fiber inside the cable, which will mean you have a lot of power in Darwin, and you have a fiber going directly into the heart of Asia, the art of the finance, etc. But in an Australian legal geography. Now, that’s a great place to put a data center. So there’s a lot of other things to think through about making this thing.  I think you’ve had David on but we’re not underestimating the size and scale of the challenge of what we’re going about. But we’re trying to employ I think a lot of sensible logic, and make sure that every, you know, six months, we’re moving forward. And, you know, you’ve seen that with the announcements in  Indonesia and everything else, and just continuing to, you know, to build this thing, we’re gonna get this damn cable built.

 

David Leitch  24:08

It’s very similar to an LNG project in the size and the issues is where you have to, you know, sort out the capital costs and get the revenue, and once you’ve done that you can present the cash flows, then you can get a lot of finance from various parties, including I’m sure there’d be a lot of people that wanted to invest in safe, secure revenue streams for renewable energy in Singapore’s future. I’m sure your project will have a very low cost of capital if you can convince people about the capital costs relative to the revenue.

 

Mike Cannon-Brookes  24:43

Exactly. Exactly. And, obviously, stable customers. You know, green finance is often talked about, is incredibly important, right. So there is a lot of money chasing green finance opportunities. This is clearly an extremely green opportunity right? You literally just removing Singapore’s use of fossil gas, which runs most of their energy system today, as well as giving them strategic security. So there’s a lot of logic to that that first cable.

 

David Leitch  25:16

And it’s great to hear you talking about the cost of capital, because that’s something that regular listeners to this podcast will know I talk about all the time. And you know how for wind and solar, the cost of capital is a much bigger driver than it is for fossil fuel projects. Because it’s all in the cost of the capital, the capital cost and the cost of the capital. And I just wanted to ask something a little different because you do invest in Sun Cable. And you’ve mentioned Bright, and you’ve also invested, I think, with the CEFC in something Tenacious Ventures, which is an agri business. For other people that are sort of interested in these spaces, what are the things that make you choose one proposition over another one?

 

Mike Cannon-Brookes  26:05

Look, we have a very fast moving and relatively large now  private fund so we can make very quick decisions, and we do invest in everything from infrastructure and debt through private investments. So what would be called venture capital, you know, checks from 100 grand to 100 million bucks. And then obviously, we invest in liquid assets as well. So we have illicit funds. So we’re able to invest across the whole spectrum of types of investments. But in each of those areas we still employ, you would say, standard technics. Like if we’re looking at a venture capital investment, do we like the founder? Do we like the team? Do we think they can execute against the opportunity? Do they have a distribution model that makes sense? All the normal things you would look at in a venture capital investment, we just have the extra overlay that more than 75% of our invested dollars go into sustainability. We have a pretty big belief that this is a huge area of investment, right? What we’re going through is a massive disruption. It’s a technology dislocation. And there’s a lot of technology is going to be needed. And that is how to lean into and help accelerate that. It’s interesting if you look at Bright as an investment, it’s a finance business with a technology overlay or a technology business with finance overlay, whichever way you want to put it. It’s not building better panels, right. But it’s still a incredibly powerful force in helping accelerate household solar. You’re bringing the cost down for individual households to put solar on their roof, which will ultimately bring their power bill down, which, you know, for 20 years, there’s a huge profit for that household in doing that. So anything we can do to accelerate that’s good. We also look at agriculture quite a lot, because there’s a big sector there I think. We’ve done a lot in transportation, and obviously in the energy space, broadly. So we’re pretty flexible there. We just believe in this decarbonisation transition pretty deeply.

 

David Leitch  28:10

I do as well. I often say that there’s about US$ 3 trillion more or less of coal, gas and oil wellhead point of production value that is each year, that has to go away. And if you can’t find a way to, you know, that’s a tremendous threat, but also a tremendous opportunity in the replacement of it. And I guess we all find our own ways to do it, like our very own Giles, you know, become the leading voice essentially, or Renew Economy, for channeling all the information and stuff out to the market and performing a very useful role. And you, well Grok, has agreed to put about a billion dollars in over the next decade I think it is. Do you have any sense at all of what sort of areas that you’re going to go into, and in particular in the software space? To conflate a few questions, it looks to me like there’s fantastic opportunities in software somehow in the electricity industry and coordinating all the inverters and that sort of thing to make the whole bits and pieces of the system work as a seamless thing to bring the work management translated into energy management, or am I being a bit science fictiony?

 

Mike Cannon-Brookes  29:26

Oh, no, that’s not science fiction at all.Technology to coordinate resources can be just as effective as technology to finance those resources for sure. To be clear, we’ve already invested over a billion dollars in sustainability, and that pledge that we made recently was a further billion dollars on top of that, but by 2030, because I’m trying to focus people that, to get to, you know, to keep the world below one and a half degrees, we need to move now. Right? The urgency is what’s important in that. To be honest, we’ll smash the billion dollars by 2030 I’m pretty sure at the rate that we’re investing at the moment. So it’s more a case of that one and a half degrees by 2030. Getting any investor out there, anyone who’s looking at these sectors, to deploy the money now to deploy the philanthropy, deploy whatever it is now, because the next eight to 10 years, if we can get right, will make the 20 years after that so much easier. If we can’t, then the cost will go up precipitously, and it’ll be much more difficult. So I guess what we’re trying to get across with that pledge, which we were, you know, again, I think we’ll meet it and beat it, to not be too ironic, is the urgency with which to do it, trying to encourage people to do it by 2030, not over the next 30 years.

 

David Leitch  30:51

I just have one very quick question before Giles comes back. And it’s just really that you can put the money into the technology, but a lot of people put money into the politics directly, because they want to influence the legislation.  Do you have any view on that at all?

 

Mike Cannon-Brookes  31:08

Look, I think it’s going to take all parts of the economy, right? You can’t do it just with investment. Part of the reason behind that one and a half billion dollar pledge being a billion dollars of investment, we’re going to need the finance and financial capital. And some of that’s just debt to solar farms and other things, right, some of its very, very simple finance actually. We’re also going to need quite a lot of philanthropic or non financial capital in certain areas. So, you know, politics is always brought up. People love having a bit of a scrap. I think there’s a lot of other areas as well, advocacy, leadership. There are areas of policy that needs some really serious thought. Vehicle standards, building standards, we have very, very poor building standards in Australia, right? The work that groups like, we’ve funded Beyond Zero Emissions, do some great works on industrial precincts, and, certain areas of the economy, how we’re going to transform all of the Hunter,  New England region. You know, we funded the Rewiring Australia guys that have come out, different community groups in different areas. And so I think it’s going to take a lot more than just the politics down in Canberra or up here in Macquarie Street. We need some serious people thinking hard about all of these different standards and things that are going to go into into all those different transformations.

 

Giles Parkinson  32:37

I’ve got a couple of questions. First one is about green manufacturing. We’ve seen a lot of announcements over the last few weeks, we’re seeing that the smelters at Boyne Island and Tomago are going to go 100% renewables, that’s happening in the zinc refinery up in Townsville. We’ve had Andrew Forrest talking about manufacturing two gigawatts of electrolyzers in Gladstone. He’s also talking about a new one gigawatts of solar module manufacturing. You’ve talked about that massive amount of power that’s going to end up in Darwin, surely, there’s going to be green manufacturing opportunities there? I mean, you mentioned data centers, I guess you will have to be thinking I’m presuming about maybe some solar module manufacturing there. Any indications of what’s on the table?

 

Mike Cannon-Brookes  33:22

There’s a lot of things that require a lot of energy, if we’re going to be transforming any sort of chemical process. One of the things that having a large amount of energy can help you do is doing that at lower cost obviously. When I think about this at a higher level, one of the reasons, you know, I was an early sort of backer of whether it’s a 200% 500% or 800%, target, the point is we need a far larger amount of renewables in Australia than we have, and we need our aspirations to be incredibly high about where that could get to. The reason is, that will bring the price of power down. We should have the cheapest energy, largely in the world. If we had the cheapest energy in the world, you open up so many economic opportunities, because it’s such a fundamental input cost whether it’s manufacturing, whether it’s, as you said, a data center. But there’s lots of parts of our economy where energy is a fundamental input cost. If we could reduce Australia’s energy prices to the lowest in the world, we would attract a lot of different industries to come and do their work here. Right? Whether that is you know, green steel, or whether that’s a data center or everything in between, what we need to focus on is the belief that if we can have the lowest energy prices in the world, which we should be able to do, we can vastly grow the Australian economy. That is the core of the opportunity that we have.

 

Giles Parkinson  34:49

There’s been some some discussion about whether Tesla might make one of its next Giga factories in Australia. Your last tweet with Elon Musk was pretty successful. Perhaps he could do another one to get a giga factory built in Darwin.

 

Mike Cannon-Brookes  35:02

I’ve called him again, I’ve done a little a little bit of lobbying over time on the giga factory. Look at some point, I think it makes logical sense to me, I don’t pretend to understand the internals of those businesses exactly. Butit’s clear that we have a lot of the raw materials. And if we could have the low energy prices and the raw materials, if you zoom out a second, right, Australia has always exported energy, we’ve just exported it in molecule form, in fossil form, right? In the future, we are going to export energy in a bunch of different ways. Obviously, with Sun Cable I believe we’re going to export it directly down a wire. With hydrogen we’d be taking effectively our energy and turning it into some form of shippable hydrogen, ammonia, whatever it turns out to be, or whatever quantities they and shipping it. The other way we can ship our energy is by higher valued materials in manufacturing. So green steel’s the most obvious simple example, to understand, in terms of instead of shipping iron ore, we can ship steel, or one of the products on the path in between the two that require high energy costs to do. Battery manufacturing is just another example. Right, any of those automated factories where energy is a major input cost. You know, I’ve long been a believer that we shouldn’t shut down the aluminium smelters. In fact, we need them, they’re very powerful for the grid, if we can get it right, because they’re a huge energy consumer and anything like that, if they can be tuned up and down a little bit, you know, the demand management aspect on one side plus the lower energy costs on the other side. That smelter is only there because in the 70s and 80s, we had some of the lowest priced energy in the world, which is why we had the LMU smelter. Where we have the resources, the bauxite, the fundamentals, and we can have the lowest energy prices, that’s where the economic growth is going to come from. And it’s frustrating to me because it seems so logical. It’s like if I’m the government, I’m planning for the next 25 years, what else am I going to invest in? What is a better opportunity than that? There isn’t one.

 

Giles Parkinson  37:07

Just going back to that original tweet with Elon Musk that came after the South Australian blackout.  How did you get involved in this? I mean, were you always interested in energy? Or was that something that was sort of galvanized by the political debate that erupted after the big blackout there and all the nonsense that followed?

 

Mike Cannon-Brookes  37:26

I would say it was slowly bubbling. I’ve been pretty on record like seeing, you know, the original Inconvenient Truth movie was a pretty…. I remember walking out thinking shit, was that all true?

 

David Leitch  37:41

Seminal!  Up here, even in Roseville, a very conservative electorate, I remember my age group all sitting in the theater and coming out of that. It was it was a huge contribution. Sorry to interrupt.

 

Mike Cannon-Brookes  37:52

No, and that’s fine. But then I didn’t really know what to do. And obviously, pretty busy with the day job and doing things. You know, the South Australian battery, I don’t know what to call it,  incident episode was eye opening for me, because the more you learned about it, the fundamentals of that are that we had the technology, we just had all of this sort of bullshit around, all these stories about why it wouldn’t work. And that episode was transformative for me, because it happened so fast. You know, we had the same politicians when the thing was incredibly profitable and working and bringing down prices that were the ones that were saying it would never work because it all happened in  a 12 month period. So you think Well, hang on, what else could we do this with? And then you start digging into some of the politics and the stories and you know, you guys were probably watching earlier, you saw Barnaby just go with the standard Aash well, like the UK, renewables are to blame. And you’re like, Ah, seriously, we’re still doing this? Like, it wasn’t true then. And it’s not true now. Right? And the simplicity of that sort of discussion, let’s call it generously, takes away from these incredibly complicated issues, but they have solutions. It’s just, I don’t know, that some something around that that collective of forces just sort of fundamentally frustrated me. And then I’ve been getting deeper and get myself in more trouble ever since I suppose.

 

Giles Parkinson  39:28

Look we are just about to come to the end of this because we’ve taken up enough of your time, I have really enjoyed it. But just a final question, then I think at least from me, looking to the future, are you optimistic that we are going to get this sorted in the time that we have available?

 

Mike Cannon-Brookes  39:47

What do you define as this?

 

Giles Parkinson  39:49

Well the climate challenge, the transition, seasing the opportunities, limiting global warming to 1.5 degrees. I guess everything that they’re trying to do in Glasgow and sort of set this new course towards a  renewed economy.

 

Mike Cannon-Brookes  40:04

Um, look I’m optimistic about climate change in general. Because we have no other option, right? At some stage, we’re all gonna die and you’re like, Okay, well, if we fail, then we’ve all died and no one’s gonna notice. But I think I’m optimistic about fundamental humanity and how we get to solving problems. Where I probably lose a little bit of optimism is can we get ahead of them soon enough, right? It the old sort of like, I’ll eat healthily because I know I’ll die one day, like humans are kind of bad at that long term, predictive nature of things, right, we wait too long before we do any, any sort of work or change our habits or behaviors, or whatever it is, right. And so I am trying to advocate for us changing those habits and behaviors earlier. I think, where I am probably on the fence between optimism and pessimism is I’m incredibly optimistic that Australia has a potential giant opportunity. I am trying to explain to people so that we as a nation, take advantage of that opportunity. Where we have time to if that makes sense.

 

Giles Parkinson  41:16

Mike, it’s been fantastic having you on the episode. Really enjoying it. Glad to confirm that you’re an avid listener. And look, once again, thank you very much for your time. Thank you, David. Thanks to our sponsors. And I think that’s probably a wrap for this week’s episode.

 

David Leitch  41:36

Yeah, I’ll just mention Giles, it’s a race for Australia. Energy intensive industries that we already have will benefit. If we had good policy, we would have a lower cost of capital, which is a massive driver of the opportunity. And we should do something about building standards, which are terrible. And then there’s electric vehicles. I mean, it’s five easy….. Mike’s summarized everything and said it so much better than we could, but what we’ve been saying for years and years and years.

 

Mike Cannon-Brookes  42:07

And thank you guys. That’s not by coincidence. I do listen to you frequently, and I appreciate the podcast, you get very interesting guests.

 

Giles Parkinson  42:17

Fantastic. So just at the end there, I think we’ve just had a bit of a phase out there. So I’m just going to end the podcast right now. Thank you very much, Mike. And bye for now.