Economics for Business: Australia's Renewable Energy Policy Analysis

This report provides an economic analysis of Australia's renewable energy policy, comparing it to Germany's approach and emphasizing the importance of demand-side management for achieving a stable and affordable energy market. The report highlights Australia's focus on increasing energy efficiency in households and industries to control demand and reduce electricity costs, referencing a published news article on ‘Sydney Morning Herald’. It discusses the economic concepts of demand-supply equilibrium and the impact of changes in demand on electricity prices. The analysis suggests that Australia's approach, which combines renewable energy generation with demand-side efficiency measures, is more likely to achieve a clean energy target while maintaining stability and affordability in the energy market. The report recommends that the Australian government should continue to be ambitious about building codes and provide incentives for renewable energy adoption.

Running Head: ECONOMICS FOR BUSINESS
Economics for Business
Name of the Student
Name of the University
Author note

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Table of Contents
Introduction................................................................................................................................2
Article summary.........................................................................................................................2
Economic concept......................................................................................................................3
Demand-Supply and Equilibrium..........................................................................................3
Change in demand and price..................................................................................................3
Demand management in Australia and affordability.............................................................4
Recommendation........................................................................................................................5
Conclusion..................................................................................................................................5
Reference list..............................................................................................................................7

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Introduction
Renewable energy refers to the energy sources that can be replenished naturally and
hence, available in unlimited stock. Some useful renewable energy sources include sunlight,
wind, water, biofuel, landfill gas and others. Australia mostly relies on hydro sources to meet
its growing electricity demand (Twidell and Weir 2015). The paper discusses Australia’s
stand on renewable energy in reference to a published news article on ‘Sydney Morning
Herald’.
Article summary
The article has made a comparative analysis of Australia’s renewable energy policy to
that of Germany’s undertaken policy. Ten years back, in order to solve energy issues,
Germany highly relied on renewable energy. The power set up has made electricity
generation too costly leading to overpricing of electricity The prices are driven up by a large
feed in tariff. Germany has overlooked the issue of reliability and affordability and has
focused only on replacing traditional energy sources by renewable energy one.
Australia in addition to focusing on supply side also considered policies to manage
demand side responses. The renewable energy policy focuses on increasing efficiency of
energy consumption. It has found that the low emission target of Australia can be achieved
with generation of 50 percent renewable energy. However, if demand side efficiency would
not be achieved then Australia would need 70 percent energy generation (smh.com.au 2018).
Australian government has taken initiatives for building energy efficient code along with
achieving energy efficiency in household appliance.

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Economic concept
Demand-Supply and Equilibrium
Equilibrium in a market is defined as a situation where demand and supply matches at
a point. In order to achieve a stable equilibrium, willingness of buyers should match with that
of willingness of seller. Any deviation from equilibrium will automatically restore
equilibrium. However, if there are any exogenous force that affect demand or supply then
there can be instability in the market (Hill and Schiller 2015). The electricity demand is likely
to increase overtime due to several external factors causing instability in the market.
Figure 1: Equilibrium and market stability
(Source: as created by Author)
Change in demand and price
Several factors affect demand of a commodity. Now, when demand changes for any
other factors except than price, then this is called a change in demand. Change in demand
causes a rightward or leftward shift of the demand curve putting an upward or downward
pressure on price (Rader 2014).

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Figure 2: Renewable energy policy and electricity overpricing
(Source: as created by Author)
DD curve presents the demand for electricity and SS presents the supply of energy.
The equilibrium price is P* and equilibrium quantity is Q*. The renewable energy policy in
Germany aims at replacing existing energy sources with renewable energy sources. Overtime,
with increases in population and other factor electricity demand increases. This shifts the
demand from DD to D1D1. The increased demand given the supply lead to overpricing of
electricity in Germany.
Demand management in Australia and affordability
The focus of Australia is not only to replace exhaustible energy source but also to
increase efficiency in consumption to control demand and price. This is done by increasing
efficiency of household appliances (abc.net.au 2018). This helps to reduce power bills of
household. With this policy, the nation has saved electricity cost between $879 million and
$1.58 million (smh.com.au 2018). Along with cost saving efficient energy consumption
would lead to emission reduction between 4.5 and 6.9 mega tones.

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Figure 3: Effect of consumption efficiency in Australia
(Source: as created by Author)
Recommendation
Australian government has already taken steps to increase efficiency in renewable
energy frontier by managing demand side responses (Martin and Rice 2015). In order to
achieve a clean energy target along with a stable energy market many things are yet to be
done in Australia. Australia should have more ambitious about building code because it helps
to reduce the cost of electricity in construction sites of new building. To make a radical shift
to renewable energy source, carrots are important. As fossil fuels are the most cost effective
energy source, government incentives in form of mandating procurement, tax incentives and
legislation are required.
Conclusion
Learning from Germany’s mistake, Australia concentrates on achieving its clean
energy target along with a stability and affordability. For this, apart from increasing power
generation from renewable energy sources, attention has also been given to increase
efficiency in consumption both for household and industries.

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Reference list
Community-funded power 'doable', leading energy expert says. (2018). ABC News. Retrieved
6 April 2018, from http://www.abc.net.au/news/2018-04-06/community-funded-power-
doable-leading-energy-expert-says/9621474
Hill, C. and Schiller, B., 2015. The Micro Economy Today. McGraw-Hill Higher Education.
Latimer, C. (2018). Australia can avoid Germany's renewable energy mistakes. The Sydney
Morning Herald. Retrieved 6 April 2018, from https://www.smh.com.au/business/the-
economy/australia-can-avoid-germany-s-renewable-energy-mistakes-20180312-p4z3zh.html
Martin, N. and Rice, J., 2015. Improving Australia's renewable energy project policy and
planning: A multiple stakeholder analysis. Energy Policy, 84, pp.128-141.
Rader, T., 2014. Theory of microeconomics. Academic Press.
Twidell, J. and Weir, T., 2015. Renewable energy resources. Routledge.