Evaluating Australia's Renewable Energy Policy: Subsidies and Costs

This report examines Australia's commitment to renewable energy and the economic consequences of its subsidy policies. The analysis focuses on a news article that claims subsidies for renewable energy are driving up electricity bills. It discusses economic theories related to subsidies and their impact on supply and demand, highlighting the potential for supply shortages and increased prices. The report recommends a balanced approach to transitioning from conventional energy sources to renewables, emphasizing the need for detailed public information and gradual implementation to avoid power shortages and price hikes. It concludes that while Australia's shift to renewable energy is vital, careful policy revision is necessary to balance clean energy goals with the economic interests of its citizens. Desklib provides a platform to access similar solved assignments and study resources.

Running Head: AUSTRALIA’S STAND ON RENEWABLE ENERGY
Australia’s Stand on Renewable Energy
Name of the Student
Name of the University
Author note

1AUSTRALIA’S STAND ON RENEWEABLE ENERGY
Table of Contents
Introduction......................................................................................................................................2
Summary of the Article Story..........................................................................................................2
Economic theories and concept.......................................................................................................4
Subsidy policy.............................................................................................................................4
Supply shortage and high price....................................................................................................5
Recommendation.............................................................................................................................6
Conclusion.......................................................................................................................................7
References........................................................................................................................................8

2AUSTRALIA’S STAND ON RENEWEABLE ENERGY
Introduction
In the modern world, pressure from growing population and urbanization put heavy
pressure on natural resources. The rapid use of exhaustible resources lead to an end of the stock
of these resources. The exhaustible resources cannot be regenerated in the recent future. Hence,
countries now focus on increasing their reliance on the renewable energy sources. Australia put
forward great effort to increase its use of renewable energy source for electricity generation,
generation of thermal fuels and replace fossil fuels used in transportation. The energy sources
used here include wind, hydroelectric, solar thermal, biomass and bioenergy
(cleanenergycouncil.org.au 2017). The report evaluates a news article claiming subsidies to
renewable energy pushes up bills.
Summary of the Article Story
A significant growth in renewable electricity generation is observed in Australia since the
beginning of twenty first century. Around 14.6 percent of total energy production in Australia is
of renewable energy. The estimated production of renewable energy in 2015 was 35007
gigawatt-hours. Australian government provides subsidy to the renewable electricity to
encourage energy production using renewable energy sources. 82 percent of the subsidy is
granted to ‘Clean Coal Technology’. The remaining 18% fund goes to renewable energy project
named “Project Solar System’’.
The Subsidies given to the energy sector have made responsible for increase in power
prices. With this, electricity bills averaged to $300 as per the report published in energy market.
Therefore, government consider revising of its subsidy policy to counter the price rise. Josh
Frydenberg, the federal energy minister recently published Research Centre report that

3AUSTRALIA’S STAND ON RENEWEABLE ENERGY
mentioned phasing out of subsidy on renewable energy (theaustralian.com.au 2017). In addition,
Fed government announces to eliminate ban on gas extraction to stabilize power prices.
Recommendations are given to rethink about community planning on nuclear energy and revise
the target of state renewable energy with framework set for the national scale. The ongoing
energy price hike makes business owners and consumers angry. They do not have complete
information regarding the impact and implementation of state supported renewable energy target
program. They are direct bearers of the cost of subsidy. Their cost for electricity bill has
increased and that was not clear to them earlier.
The consumers suffer from rising power price and hence bear the cost of state’s ill-judged
policy. The state subsidy policy has ended up with less efficient and interrupted supply of
electricity pushing prices up. Last year, South Australia experienced a statewide blackout. This
reflect policy failure of energy market at all levels of government. No warnings are given to the
users about large-scale integration of non-synchronous energy into grid. In addition, they were
not informed regarding high costing of energy generation from sources like wind and solar
energy. The combination of high demand and reduced base load power impose threat of state
wide black out in coming season (news.com.au 2017). The newly designed policy aims at
maintain a balance between conventional and renewable sources of energy. The appropriate
balance will help to carry out the high production or operating cost in new power plants.

4AUSTRALIA’S STAND ON RENEWEABLE ENERGY
Economic theories and concept
Subsidy policy
Subsidy is a form of government assistance to encourage production or consumption of a
particular good. Policy aims to reduce burden on producers and consumers. The policy of
subsidy supports the particular sector of the economy. Subsidies often design to support industry
that is in its initial phase. The effect of a general subsidy policy is described in the following
figure
Figure 1: Subsidy policy and cost of
(Source: Friedman 2017)

5AUSTRALIA’S STAND ON RENEWEABLE ENERGY
In figure 1, D and S1 stand to denote demand and supply curve in the market. When a
subsidy of amount ab is imposed then this encourages the producers to supply more. As a result,
the supply curve will shift to the right from S1 to S2. The price received by the prouder is P1, a
price higher than the equilibrium price. Buyers now pay a price of P2, lower than earlier
equilibrium price. The difference between consumer and producer prices is the cost of subsidy
born by the government (Byrnes et al. 2013).
To encourage use of renewable energy subsidy is given to the energy market. The
subsidy entails a huge cost burden on government and the cost in turn by pass to common people
in form of increasing cost of electricity bill (Molyneaux et al. 2013).
Supply shortage and high price
In the market economy, demand and supply are two crucial factors in determining state of
equilibrium. Change in any of these factors causes price and quantity to change. The people in
Australia is now facing a shortage of power supply followed by the increased focus on renewable
energy (Azad et al. 2014). This is shown in the following figure

6AUSTRALIA’S STAND ON RENEWEABLE ENERGY
Figure 2: Supply shortage and rise in power prices
(Source: As created by Author)
The subsidy given to renewable energy expected to increase power supply from this
energy source. Many of the coal plants in Victoria and Southern Australia has closed
(skynews.com.au 2017). However, renewable energy source fails to attain the expected supply
level and hence the economy end up with power shortage and increased prices.
Recommendation
Australia makes a strong stand for renewable energy. In addition to encourage electricity
generation using renewable source of energy the nation should also looks after the rising cost of
electricity bills. Sudden switching from conventional energy sources to renewable one leads to

7AUSTRALIA’S STAND ON RENEWEABLE ENERGY
power shortage and raises prices. Before implementing such policy, detailed information should
be given to people so that they can adjust their demand and cost. In addition to clean energy
target the cost aspect should also be analyzed. The sudden close-down of traditional power plant
should be prevented and reliance on renewable means of energy should be done gradually.
Conclusion
In the phase of rapid globalization and urbanization pressure on exhaustible resources are
increasing. To address this issue, Australia attempts to shift its dependence from conventional
energy source to renewable sources. The state based policy of heavy subsidy to renewable
energy sector increases the cost of electricity bills. Hence, the energy ministry now considers a
revision of the policy to attain the objective of clean energy goals while protecting the interest of
people as well.

8AUSTRALIA’S STAND ON RENEWEABLE ENERGY
References
Azad, A.K., Khan, M.M.K., Ahasan, T. and Ahmed, S.F., 2014. Energy scenario: production,
consumption and prospect of renewable energy in Australia. Journal of Power and Energy
Engineering, 2(04), p.19.
Byrnes, L., Brown, C., Foster, J. and Wagner, L.D., 2013. Australian renewable energy policy:
Barriers and challenges. Renewable Energy, 60, pp.711-721.
Cleanenergycouncil.org.au. (2017). Clean Energy Council - Renewable Energy Target. [online]
Available at: https://www.cleanenergycouncil.org.au/policy-advocacy/renewable-energy-
target.html [Accessed 5 Dec. 2017].
Friedman, L.S., 2017. The microeconomics of public policy analysis. Princeton University Press.
Hutchinson, S. and Hutchinson, S. (2017). Renewable subsidies push up bills. [online]
Theaustralian.com.au. Available at: http://www.theaustralian.com.au/national-affairs/renewable-
energy-subsidies-push-up-bills-says-report/news-story/7ac107f97ae27bb0cb52a5d84ddeb3c6
[Accessed 5 Dec. 2017].
Molyneaux, L., Froome, C., Wagner, L. and Foster, J., 2013. Australian power: Can renewable
technologies change the dominant industry view?. Renewable energy, 60, pp.215-221.
NewsComAu. (2017). Australia’s Chief Scientist Alan Finkel has hit back at the Prime
Minister’s comments about renewable energy policy. [online] Available at:
http://www.news.com.au/national/politics/australias-energy-market-new-report-backs-labors-50-
per-cent-renewable-target/news-story/1d70ac663360225b0c270c0504810d30 [Accessed 5 Dec.
2017].

9AUSTRALIA’S STAND ON RENEWEABLE ENERGY
Skynews.com.au. (2017). South Australia moves to renewable energy. [online] Available at:
http://www.skynews.com.au/news/national/sa/2017/11/29/south-australia-moves-to-renewable-
energy.html [Accessed 5 Dec. 2017].