Economics for Business: Australian Renewable Energy Analysis Report

This report provides a comprehensive analysis of the economics of renewable energy in Australia, focusing on the country's efforts to expand its renewable energy sector. It examines the Australian Renewable Energy Target, the role of business economics in decision-making, and the economic theory of consumer behavior, including utility analysis. The report delves into the Australian economy, discussing its attractiveness for investment, the impact of renewable energy projects, and the roles of key organizations like the Australian Renewable Energy Agency (ARENA) and the Clean Energy Finance Corporation (CEFC). It also explores electricity generation from renewable sources, the Australian Energy Regulator, and the implications of fiscal decentralization on the economy. Furthermore, the report covers various projects, criticisms of the Renewable Energy Target (RET), and the contribution of different energy sources to Australia's total electricity production, providing a detailed overview of the current state and future prospects of renewable energy in Australia.

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Table of Contents
Introduction................................................................................................................................3
Business Economics...................................................................................................................4
Economic theory of consumer behaviour- Utility..................................................................5
Australian Economy...................................................................................................................5
Australian Renewable Energy Agency (ARENA)....................................................................6
Clean Energy Finance Corporation (CEFC)..............................................................................7
Electricity generation from renewable sources in Australia......................................................7
Australian energy regulator........................................................................................................8
Fiscal Decentralization and Australian economy.......................................................................8
Projects under Construction.......................................................................................................9
Projects with financial commitment.........................................................................................10
Criticisms of RET....................................................................................................................11
Conclusion................................................................................................................................12
References................................................................................................................................13

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Introduction
This report revolves around the Australian renewable energy. Renewable energy in Australia
means Australia is making efforts to expand its renewable energy. This report is about a ten
year plan by Australia for 100 per cent renewable energy. A renewable energy target has
already been set by the Australian economy that is around 33000 GWh by 2020. So now
Australia is working hard to achieve this target (BusinessFocus, 2017). Australia is having
some of the best renewable energy resources that can help it out in achieving this target.
Australia is also promoting the small renewable energy sources like roof top solar plant. If we
talk about business economics then for a business everything is economics because in a
business we have to take decisions from time to time. The success of business depends upon
the capability of business to take right decisions or to make the best choice among all the
alternatives available. Business economics is a combination of economics and business
administration.
There are different boards that are formed by Australian government to compete with this
target. These committees include Australian renewable energy agency (ARENA), Clean
Energy Finance Corporation (CEFC), Australian Energy Regulator (AER), Australian energy
statistics etc. and this report also explains many projects that were pre-planned by Australia
which are related to this renewable energy target. Some of the projects were completed but
some are still pending because of higher cost. This report also includes how the fiscal
decentralization affects the growth of the economy. When this renewable energy target was
set then it was around 41000 GWh by 2020 but in 2015 this target was revised. This report
explains the contribution of coal, hydro-electric power, wind power solar power , wave
power, nuclear power, geothermal and biomass in the country’s total electricity production
(Robinson, Nguyen and Wang, 2017).

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Business Economics
Business economics means applying economic theory to business. Business involves
decision-making. Decision-making means selection of best alternative among all the
alternatives available. The decision of choice occurs because resources are limited in an
economy. Economics for business includes four major decisions. First decision is demand
analysis and forecast. It means the business is transforming the raw material into consumable
goods. So for this a proper estimate of demand is required (MacroBusiness, 2017). The
business needs to properly forecast about the future demand then the make the quantity of
goods to avoid wastage. This decision requires a proper understanding of consumer’s tastes
and preferences. The second major decision is about cost and production analysis. This is a
most critical decision and the decision of pricing and profit depends upon this. The business
is required to analyse in advance the total budget required for the production. Production of
goods can only be possible if there is profit margin in the produced goods.
Next decision is about pricing. The business is required to price its goods in such a way that it
is not too high and not too low. Sometimes the selling of a product is based on its pricing.
Consumer buys goods according to their prices. Goods other than basic needs can only be
bought by consumers on the basis of two factors i.e. price and quality. The fourth decision is
related to profit management. The main objective of each and every business organization is
profit. Profit depends upon the cost of the product. If the cost to the company is higher then it
will earn less profit and if they produce goods at lower cost then there is a chance of higher
profit margin (Pandya and Sisombat, 2017).

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Economic theory of consumer behaviour- Utility
Economic theory of consumer behaviour is related to utility analysis. Utility refers to the
satisfaction that a consumer gains from the purchased product. Law of utility analysis
includes law of diminishing marginal utility and law of equi-marginal utility. Law of
diminishing marginal utility says that the more we have a thing the less is its utility. For
example: if a person is hungry then when he eats first chapatti its marginal utility is very high
then when he eats the second chapatti then third chapatti so with every chapatti he is eating
its marginal utility becomes decreasing. Law of equi-marginal utility states that the consumer
in this case is spending his money on the goods in such a way that the utility he get on his
first purchase and the utility he will get on spending the last rupee of his money is equal. So
in the diminishing marginal utility, the utility goes on decreasing and in case of equi-marginal
utility, the utility remains equalTayal and Rauland, 2016).
Australian Economy
Australian economy is considered as an attractive destination for investment. Australia is not
affected by the international financial crises because of controlled inflation and strong
banking system. Its banking system is strong and organized enough that it remains unaffected
at the time of financial crises (Ahmed and Ozturk, 2016). The market of Australia works as
an open market which means there are not many restrictions on the imports of goods and
services in Australia. This idea of opening up has made the Australian economy grow and
change as per the dynamic environment. An economy is required to be dynamic if it wants a
positive growth (Bloch and Bhattacharya, 2016). The Australian economy attracts foreign
direct investments because of its open market. Similarly this renewable energy projects will
increase employment opportunities for the Australian people and also attract other countries
to invest in industry sector of Australia.

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Australian renewable energy target is that at least 33000 gigawatt-hour of its electricity
comes from renewable sources by 2020. This contains two main schemes: First is large scale
renewable energy target (LRET). This scheme is related to financial incentives for energy
power stations. Second is small-scale renewable energy scheme (SRES). This scheme attracts
the people towards small-scale renewable energy systems such as solar system (Theguardian,
2017). In 2016, Australian renewable energy was generated around 17000 gigawat-hours.
About half of the projects which are under renewable energy target are still pending because
of large amount of finance requirement. So the Australian renewable energy agency
(ARENA) and Clean Energy Finance Corporation (CEFC) have pushed down the cost of
large – scale solar as it was few years ago (Kim and Gray, 2017). This renewable energy
project will be beneficial for the Australian economy in three ways i.e. it will create job
opportunities for the unemployed people, the people living in Australia will save money on
power bills after the completion of this target and it also generates investment in the
Australian industry. This RET target was reduced from 41000 GWh to 33000 GWh in June
2015.
Australia is considered as one of the most coal dependent country. Main source of Australia’s
electricity production is coal. 38% of Australia’s greenhouse gas emissions are produced by
the coal industry. Now, the growth of Australian economy depends upon this renewable
energy project and it will also reduce its coal consumption.The usage of electricity in
Australia is also very high. Australians are using the energy more productively as they have
new technology. The usage of electricity will increase from year by year. The second most
energy use in Australia is transport (Jones, 2017).
Australian Renewable Energy Agency (ARENA)
Australian Renewable Energy Agency is an agency developed by Australian federal
government. ARENA was established in the year 2012. The aim objective behind the

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development of this agency is to manage and control the government’s renewable energy
policies (Tam, Le, Zeng, Wang and Illankoon, 2017). The main responsibility of this agency
it to estimate the financial budget of the renewable energy sources programs and to review
the programs from time to time to analyse whether the programs is on the right direction to
meet the renewable energy target. The fund allocated to Australian renewable energy agency
was $3.2 billion out to 2020. The projects that are covered under ARENA include solar
thermal, wave energy, solar photovoltaics, geothermal projects and biofuel projects (Duffy,
Rogers and Ayompe, 2015). The estimated budget for these projects is around $1 billion.
Clean Energy Finance Corporation (CEFC)
The Clean energy finance corporation is established by Australian government as a Green
bank. The main responsibility of this green bank is to manage the increases in the finance
flows of clean energy sector. The total funding for clean energy finance corporation is about
$10 billion. Clean energy finance corporation is managed by a board and the board is
responsible for the functioning of the corporations then the board will be answerable to the
parliament through the ministers (Cornish, 2017). Clean Energy Finance Corporation’s
investment objective is to generate more funds that can be used for the Australia’s renewable
energy project.
Electricity generation from renewable sources in Australia
The main contributors of Australia’s electricity generation is coal, hydro-electric power, wind
power solar power , wave power, nuclear power, geothermal and biomass (Bundschuh, Chen,
Chandrasekharam, and Piechocki, 2017). All of them play a very important role in the
production of renewable energy in Australia. Coal contributes 77.2% of the country’s total
electricity production. For hydro-electric power, one scheme is created known as Snowy
mountains scheme. This scheme helps in the division and storage of water. Two artificial
lakes are created under this scheme i.e. Lake Eucumbene and Lake Jindabyne (FutureSuper,

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2017). Under this scheme the water is shifted from the Australian Alps into dams through
tunnels or pipes for use in hydro-electric power. The electricity supplied by wind power
during a year is 4.2% of Australia’s total electricity. Only less than 1% of electricity is
coming from solar power in Australia. The contribution from solar power is too less because
of higher cost per kW.
Australian energy regulator
The Australian energy regulator regulates the wholesale electricity and gas market in of
Australia. The main role of Australian energy regulator is the distribution and transmission of
revenues to the service providers and taking take of national electricity laws and regulations.
Australian energy regulator is a committee of three members (Herbes and Friege, 2017). One
is full-time chair, one member must be a commissioner of the ACCC and one member of
AER must be selected by the state and territories.
Fiscal Decentralization and Australian economy
Currently, fiscal decentralization is a controversial aspect of debate in Australia. There is a
dispute running in the relationship between Australia’s federal government and state
government. The dispute is related to the lack of control over the issues such as education,
health, infrastructure etc. The states are complaining about the shortage of money and on the
other hand according to the federal government, the states are inefficient (Letelier, 2016). So
in this kind of controversies, special attention is needed to understand the influence of
government on the Australian economy. The relations among the federal state government
will affect the functioning of the economy.
There is not a direct relationship between fiscal decentralization and economic growth. But
the countries having high income will have a positive relationship between growth and fiscal
decentralization when decentralization is increasing from low levels and then it reaches peaks
and then it turns negative. Though it is not having direct relationship with economic growth

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but it indirectly affects the growth of the economy. Fiscal decentralization will have impact
on the economy in two ways i.e. revenue decentralization and expenditure decentralization.
Revenue decentralization maintains a balance in the budget, increases medium term
economic growth and does not affect the size of public sector. In case of expenditure
decentralization, it unbalances the budget, decreases medium-term economic growth and
increases the size of public sector. Fiscal decentralization affects the stability of
macroeconomics in Australian economy (Nair, Flew, Harrington and Swift, 2017).

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Projects under Construction
Technology State Developer Project MW Investment Jobs Finish Turblines
Wind SA Neoen /
Megawatt
Capital
Hornsdale Stage
2 & 3
209 $800m 150 2017 72
Wind VIC RES Ararat 240 $450m 165 2017 75
Wind NSW Goldwind
Australia
White Rock
Stage 1
175 $400m 200 2017 70
Wind QLD RATCH Mt Emerald 180 $380m 150 2018 63
Wind VIC Windlab Kiata 30 $75m 70 2017 9
Solar WA APA Emu Downs 20 $50m 100 2017
Wind SA ELD Coober Pedy 4 $37m 2017 2
Solar QLD Sunshine
Coast
Council
Sunshine Coast
Solar Farm
15 $50m 60 2017
Solar NSW Goldwind
Australia
Gullen Range
Solar Farm
10 $26m 70 2017
Solar QLD Lakeland
Solar &
Storage
P/L
(Conergy)
Lakeland Solar
and Storage
10.8 $42.5m 60 2017

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Projects with financial commitment– to start construction in 2017
Technology State Developer Project M
W
Investment Jobs Start Turblines
Wind VIC ACCIONA Mt Gellibrand -
Stage 1
66 $140m 100 Q1 22
Wind NSW Partners Group
/ CWP
Renewables
Sapphire 270 $350m 200 Q1 75
Wind NSW Union Fenosa Crookwell 2 91 $200m 80 Q2 33
Solar QLD Sun Metals
P/L
Sun Metals Solar
Farm
100 $155m 250 Q2
Solar QLD ESCO Pacific Ross River Solar
Farm
135 $225m 150 Q2
Wind/
Solar
QLD Windlab Kennedy Energy
Park
40 $120m 50 Q3 10
Solar QLD Genex Kidston Solar
Farm
50 $126m 100 Q1
Solar QLD FRV Clare Solar Farm 100 $190m 200 Q2
Wind NSW Powering
Australian
Renewables
Fund
Silverton Wind
Farm
200 $460m 150 Q1 58
Solar QLD FRV Lilyvale Solar
Farm
100 $400m 200 Q3
Solar SA Snowy Hydro Tailem Bend 100 $200m 200 Q4

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Solar NSW Neoen Three projects:
Dubbo, Parkes
and Griffith
110 $230m 250 Q4
Criticisms of RET
Renewable energy target is having so many advantages but at the same time it also has some
disadvantages. Renewable energy target will increase cost because it requires a huge financial
budget for the completion of the scheme. Second criticism is policy uncertainty. Renewable
energy target includes proper review and the negotiation in the power purchase agreements.
Third is interaction with laws. Renewable energy target does not want the interference of
laws in the policy because planning laws will make the policy more difficult and costlier
(Hua, Oliphant and Hu, 2016).

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Conclusion
From the above discussion, it was concluded that Australian economy is required to focus on
this renewable energy target then only it is going to be fulfilled otherwise it will result in loss
to Australia. For the smooth running of a business it is must that the business is carried out
economically. Because in 2016, Australia’s renewable energy was 17000GWh so now the
time remaining is only three and half years. In electricity production, renewable energy is
contributing 10.7 per cent of its total capacity (Clean Energy Council, 2016). There is a
disadvantage to this renewable energy target which is cost issues but it can be solved by the
development of green bank. This bank is only responsible for the supply of funds as required
in the projects related to renewable energy. Every year, Australia is required to increase the
renewable energy by at least 4000GWh in order to achieve the target by 2020. It has already
achieved 17000 GWh and its target is 33000GWh so the remaining target for Australia is
16000 GWh so if it is increasing it by 4000 GWh every year then it will be achieved.
Renewable energy target requires a huge dedication towards it.

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References
Ahmed, K. and Ozturk, I. (2016) The emission abatement policy paradox in Australia:
evidence from energy-emission nexus, Environmental Science and Pollution Research,
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Bloch, H. and Bhattacharya, M. (2016) Promotion of Innovation and Job Growth in Small‐
and Medium‐Sized Enterprises in Australia: Evidence and Policy Issues, Australian
Economic Review, 49(2), pp. 192-199.
Bundschuh, Jochen., Chen, Guangnan., Chandrasekharam, D. and Piechocki J. (2017)
Geothermal, Wind and Solar Energy Applications in Agriculture and Aquaculture. USA:
CRC Press.
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https://businessfocus.westpacgroup.com.au/blog/2017/july/17/the-australian-economy-july-
2017/ (Assessed: 31 August, 2017).
Clean Energy Council (2016) Clean Energy Australia Report. [Online]. Available at:
https://www.cleanenergycouncil.org.au/policy-advocacy/reports/clean-energy-australia-
report.html (Assessed: 31stAugust, 2017).
Cornish, S. (2017) Inflation and the Making of Australian Macroeconomic Policy, 1945–85,
by Michael Beggs (Palgrave Macmillan, Basingstoke, 2015), pp. xii+ 325. Economic Record,
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Duffy, Aidan. Rogers, Martin.andAyompe, Lacour. (2015) Renewable Energy and Energy
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watch-in-2017 (Assessed:31 st August, 2017).

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Herbes, C. and Friege, Christian (2017) Marketing Renewable Energy: Concepts, Business
Models and Cases. USA: Springer.
Hua, Y., Oliphant, M. and Hu, E.J. (2016) Development of renewable energy in Australia and
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Tayal, A. and Rauland, V. (2016) Barriers and Opportunities for Residential Solar PV and
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