Working hard to get energy-transition policy right: learning from Gippsland’s Latrobe Valley efforts

Chloe Ward, Emma Shortis, Leo Goedegebuure and Bruce Wilson explore the lessons learned about innovation and regional development from three years of research and engagement in Gippsland by RMIT University and the University of Melbourne, using examples from New Energy projects now underway in the region.

In May 2020, thousands of people watched the livestreamed demolition of the Hazelwood Power Station’s eight chimneys. Long a symbol of Victoria — and Australia’s — dependence on coal-fired power generation, for the community of the Latrobe Valley, Hazelwood was a major industry and one of the region’s main employment providers.

Built in 1959, Hazelwood and its smokestacks had for decades been a familiar feature of the Latrobe Valley’s rolling green hills. At first perhaps a reassuring symbol of the industry and stability of the region, more recently, Hazelwood has been shrouded by anxiety—first, because of its privatization in the 1990s, then because of the disastrous mine fire of 2014. Today, Hazelwood is best known for its enormous contribution to Victoria’s greenhouse gas emissions, and the disastrous health effects of not only the fire, but its normal operations.

The mine and the plant were closed two years after the fire, and finally decommissioned by French owner Engie in March 2017. The Victorian State Government established the Latrobe Valley Authority in 2016 as part of its response to the closure of Hazelwood. A unique initiative in regional development, the LVA works with local industries and communities on projects that will secure a strong and resilient future for Latrobe Valley and the wider Gippsland region , as it faces the transition from coal to new and innovative areas of economic activity.

The Gippsland Smart Specialisation Strategy (G-S3) is part of the LVA’s longer-term strategic agenda. Since 2018, our expert team from  RMIT University and the University of Melbourne has worked closely with the LVA to identify opportunities for innovation in the region, to establish new ways of working bringing together government, business, research and the community, and, as we come to the end of the first phase of the project, lay the foundations for the longer-term development of the regional innovation system in Gippsland.

The symbolic end of coal-fired power in the Latrobe Valley is not the end of energy production in Gippsland, with an increasing number of renewable energy projects on the horizon. These projects, along with three years' experience and research in innovation and regional development, demonstrate the importance of collaboration, tertiary education, policy, vision, government and industry support, and creating a culture of learning in the region. These lessons are relevant not only to Gippsland, but, as Australia looks to rebuild after the COVID-19 pandemic, to the nation as a whole.

Smart Specialisation

Over a decade ago, in the years leading up to and following the Global Financial Crisis of 2008-2009, the Organisation for Economic Cooperation and Development (OECD) and the European Union (EU) collaborated in analysis that tried to explain why some regions’ economies perform better than others. Their research showed that some 10 per cent of regions produced 40 per cent of the total OECD growth.

They found that successful regional economic growth depended, largely, on systems: how assets are used, the relationships and interactions between actors, and the exploitation of synergies between them. The OECD came to argue strongly for innovation-centred, growth-oriented regional policies that, in the words of the 2009 Regions Matter Report, ‘embrace reform and continue a transition away from market-distorting subsidies to policies that unlock the potential of regions and that support long-term economic, social and environmental objectives’. This means that building infrastructure is not enough to encourage regional growth and development. Relationships, expertise, and financing are all critical to a regional ‘innovation system’.

In the EU, this led to the development of Smart Specialisation (S3). Since 2014, any EU region applying for EU Structural Funds must have an S3 strategy in place, with €80 billion made available to S3 initiatives between 2014-2020. Essentially, S3 strategies emphasise an evidence-based collaborative approach to stimulating place-based innovation, focused on distinctive local assets with potential for competitiveness in key global markets.

While Australia contributed to the original OECD analysis, compared to Europe it has had little influence on either regional policy or innovation policy. While Australia performs relatively well on the input side of innovation (investments and resources that enable innovation), it falls down on innovation outputs, with new ideas failing to reach the market. According to the Australian Innovation System Report 2016, part of the problem is in a weakly networked innovation system, noting that ‘Australia ranks poorly against OECD comparators in most business to research and business to business indicators’.

Yet innovation is crucial to the development of both regions and the national economy. Dependence on natural resources both as domestic energy sources and exports will not be sustainable in the future. Nor is our traditional manufacturing base sustainable in a globalized world. In Gippsland, the closure of Hazelwood and the devastating bushfires of summer 2019-2020, both dramatically demonstrated the social and environmental costs of failing to act.

Starting work in Gippsland in mid-2018, our team found no shortage of local knowledge and assets. The key issue in the region was the disconnect amongst local stakeholders who could, it was hoped, contribute to mobilising expertise and finance to deliver on innovations. Businesses, government, tertiary education and research, and the community, were ‘siloed’, and partnerships amongst them were ad hoc and unsystematic.

Under the leadership of the LVA, working with our expert team, these stakeholders were brought together to explore new ways of collaborating, with a view to identifying and developing strategic opportunities across the regional economy. While there is still a long way to go to build Gippsland’s regional innovation system, significant progress has been made, with direct and tangible results.

The original areas of focus for G-S3 were Food and Fibre, New Energy, the Visitor Economy, and Health and Wellbeing. Food and Fibre—which accounts for half of the regional economy—abounded with enthusiasm and ideas but had dispersed leadership and lacked networking capacity. Despite the disconnected nature of the sector, a number of strategic opportunities have been identified that through collective action provide the potential for competitive advantage.

A favourite example in the sector is a potential collectivised malting facility to support a growing craft brewing and distilling industry, built on the provenance of Gippsland. Such a facility could provide local growers with an additional market option for their grain; local communities with new employment options; and the region’s producers with a local malt that strengthens their provenance story and regional connection.

Following the principles of S3, the collective facility offers a bigger opportunity than simply the creation of a new business in the region. Enquiry tasks for the project currently involve efforts to understand and build genuinely collaborative business models; to bring together seed geneticists and agronomists to determine locally appropriate varieties; and the potential for industry-adjacent local education offerings.

Under the auspices of Food and Fibre Gippsland and with the support of the LVA through a dedicated project manager, innovation groups currently are further developing this and other opportunities for the sector.

‘New Energy’ in Gippsland

Despite its economic significance, the Food and Fibre sector in Gippsland remains overshadowed by the economic and cultural dominance of energy in the region.

In Gippsland, energy is one of the five largest employing industries in four of the Local Government Areas (LGAs), and one of the five largest industries by output in the same LGAs. Energy has been, and is, one of the core activities which has shaped land-use, employment and the nature of businesses in Gippsland since the time of white settlement. It is systemically important for the region.

In the wake of Hazelwood’s closure—and with the inevitable closure of other plants in the region—a notion persisted that in transitioning from coal, Gippsland should upgrade its existing energy infrastructure because its future economy depends on large-scale energy production and export. This is unrealistic. This does not mean, however, that energy production, use and distribution should disappear—in fact, quite the opposite. New Energy offers Gippsland some of the most exciting and innovative opportunities for developing its Regional Innovation System.

In Gippsland, in the context  of G-S3 four opportunities have been identified for New Energy as a result of the Entrepreneurial Discovery Process (EDP): Bio-energy; Geothermal energy; Community energy; and Smart Grids. In each case, proposals for New Energy projects are being carefully assessed by partnerships of local councils and state government, community groups, industry, and universities. These projects look to secure Gippsland’s energy infrastructure and its economy in a future, renewable economy, and to protect it from some of the effects of climate change.

In the wake of the devastating bushfires of last summer, there is new enthusiasm for ‘islanding’ solar energy, which would provide towns a secure power supply in the event of catastrophe. In towns like Heyfield, Smart Grids—which use technology to respond in real time to changes in supply and demand, collectivising power supply and use—present a potentially transformative opportunity. The Heyfield pilot puts local community at the helm, aiming to build an easily replicable local renewable energy system.

The S3 process aims, ideally, to integrate such initiatives into a functioning Regional Innovation System. In New Energy, longer-term system development remains a priority. A proposed ‘Energy Academy’ could prove a key initiative in such development. Located in Gippsland, the Academy could become a national resource for facilitating capability and developing relationships amongst Federation University—the linchpin for knowledge input across the Victorian and Australian tertiary sector— and industry and community with respect to new energy initiatives. Gippsland shows how things might be done differently.

These budding initiatives point to the potentially radical remaking of Gippsland’s identity: from energy producer, exploiter of the land and exploited by the city, to energy independence.

Lessons for innovation and policy

Traditionally, innovation has been defined, in the OECD’s words as ‘the implementation of a new or significantly improved product (good or service), a new marketing method, or a new organisational method in business practices, workplace organisation or external relations’. In a complex, globally-connected world, the concept of ‘open innovation’ has come to the fore. By contrast with ‘closed’ innovation, which emphasises competition, control, and development by the individual firm or organisation, our work in Gippsland has sought to embed an approach to innovation that is based on co-operation, complementarity and sharing of knowledge and resources, with a focus on collective problem-solving.

This taps into a void in Australian innovation policy. Notwithstanding two major inquiries in little more than a decade, one under a Labor Government and the other from a new Liberal Prime Minister, Australian policy has been preoccupied with the national innovation system and commercialisation of research, rather than recognising the potential value of place-based innovation systems and the collective problem-solving amongst a network of stakeholders that is now so common in Europe. Researchers and companies interact closely, also with government agencies and communities, depending on the nature of the problems that have been identified. Proximity matters, as it allows stakeholders to engage with each other readily, and often informally.

The Gippsland experience has demonstrated the potential of this approach, once stakeholders begin to recognise the potential shared interests than can be brought together on an innovation project. This has required time, patience, and support, to win a commitment to innovation from key regional stakeholders, whether business, TAFE, university or local government. Industries in the region tended to be inward-looking, with limited links to the wider, state economy, and very limited engagement in international markets. A long history of dependence on the fossil economy casts a shadow over attempts to engage with the future, which is renewables.

Not only does Australian policy neglect these opportunities, it actively undermines them through maintaining research funding schemes that do not meet the needs of regional institutions. Australia’s system of research funding is heavily weighted towards Category 1 grants – basic or ‘blue sky’ research either through the Australian Research Council or the National Health and Medical Research Council. In practice, this means large amounts of funding are channelled to research-intensive, Group of Eight universities in Australia’s capital cities. Regional universities and applied research that targets basic needs, training, and service delivery–like power generation–tends to miss out.

Another important lesson comes from Europe, where the concept of ‘institutional capability’ refers to the way in which political actors, government agencies and community groups are interconnected, within a framework of rules, regulations and commonly accepted forms of control and accountability. Organisations are deeply embedded in social and political environments, and organisational practices and structures reflect and respond to the rules, beliefs, and conventions built into the wider environment. In Gippsland and many other Australian regions, this capability is thin. In practice, this means the basic conditions for regional development are not always present.

The LVA, as a new, intermediary body between State and Local Government, has had some success in developing these conditions through activities like G-S3. The Victorian Government also deserves recognition for its willingness to take a new, experimental approach to regional development. However, developing institutional capability and seeing results takes time. The short-termism built into Australian budget and electoral cycles means that projects like this are frequently asked to prove themselves and demonstrate their benefit while their foundations are still setting. In reality, concrete outcomes from the G-S3 project, in economic terms, in terms of jobs and in terms of improvements in regional wellbeing will take longer than a term in government to become apparent.

Long-term investment, a willingness to experiment, partnerships and a culture of learning are the keys to innovation and economic development in Gippsland. Gippsland faces unique challenges in Australia’s much-needed transition to renewable energy production. The problems that inhibited economic development and innovation at the outset of this project, however, are not unique. Historically, there is abundance of attention paid to infrastructure, technology, and basic research compared with the networks that foster innovation. Our research suggests that attention to networks is overdue, and could be of benefit both to Gippsland, and Australia more widely.

AUTHORS

Dr Chloe Ward, Research Fellow, Design and Social Context, RMIT University

Dr Emma Shortis, Research Fellow, Global, Urban and Social Studies, RMIT University

Professor Leo Goedegebuure, Honorary Professorial Fellow, MSSI

Professor Bruce Wilson, Director of the European Union Centre at RMIT University, Co-Director of the PASCAL International Observatory and RMIT's Director of Research for Regional Development at its Hamilton site in Western Victoria

First published on 7 July 2020 in The Mandarin