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 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.
Economic theories and concept
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)
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
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.
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 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.
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.
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: [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: [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: [Accessed 5 Dec. 2017].
Skynews.com.au. (2017). South Australia moves to renewable energy. [online] Available at: [Accessed 5 Dec. 2017].