Australian renewable energy cheaper than fossil fuels

A recently conducted study by research firm Bloomberg New Energy Finance (BNEF) has produced some interesting data on the power bill discussion providing endless talk-back fodder across the nation.

Listen to any politician of any persuasion and they’re all ready to tell you that paying for electricity is becoming harder for the average ‘battling’ of ‘modern’ family.

According to the BNEF research, unsubsidised renewable energy is now cheaper than electricity generated from new-build coal and gas-fired power stations in Australia.

BNEF’s Sydney analysis team carried out a comprehensive study that modelled the cost of generating electricity in Australia from different sources.

The study concluded that electricity can be supplied from a new wind farm at a cost of $80 per Megawatt Hour (MWh) (US$83), compared to $143 per MWh from a new coal plant or $116 per MWh from a new baseload gas plant.

These figures are inclusive of the cost of emissions under the Gillard government’s carbon pricing scheme.

However, BNEF found that even without a carbon price, which it identified as the most efficient way to reduce economy-wide emissions, wind energy is 14 per cent cheaper than new coal and 18 per cent cheaper than new gas.

 

“The perception that fossil fuels are cheap and renewables are expensive is now out of date”, Bloomberg New Energy Finance chief executive Michael Liebreich said.

“The fact that wind power is now cheaper than coal and gas in a country with some of the world’s best fossil fuel resources shows that clean energy is a game changer which promises to turn the economics of power systems on its head.”

Bloomberg New Energy Finance claimed its research on Australia shows that since 2011, the cost of wind generation has fallen by 10 per cent and the cost of solar photovoltaics (PV) by 29 per cent.

This is in stark contrast to the cost of energy from new fossil-fuelled plants, which the firm said is high and on the rise.

The study identified high financing costs to be a major contributing factor in the expense of new coal projects.

The study surveyed Australia’s four largest banks and found lenders are unlikely to finance new coal without a substantial risk premium due to the reputational damage of emissions-intensive investments – if they are to finance coal at all.

It also demonstrated new gas-fired generation to be expensive; blaming the expansion of Australia’s liquefied natural gas (LNG) export market for forcing up local prices.

The carbon price adds further costs to new coal- and gas-fired plant and is forecast to increase substantially over the lifetime of a new facility.

Another conclusion to emerge from the BNEF study is that by 2020, large-scale solar photovoltaics will be cheaper than coal and gas, once carbon prices are factored in.

By 2030, dispatchable renewable generating technologies such as biomass and solar thermal could also be cost-competitive.

BNEF said the results suggest the Australian economy is likely to be powered extensively by renewable energy in future and that investment in new fossil-fuel power generation may be limited, unless there is a sharp, and sustained, fall in Asia-Pacific natural gas prices.

“It is very unlikely that new coal-fired power stations will be built in Australia. They are just too expensive now, compared to renewables”, Bloomberg New Energy Finance in Australia head of clean energy research Kobad Bhavnagri said.

“Even baseload gas may struggle to compete with renewables.

“Australia is unlikely to require new baseload capacity until after 2020, and by this time wind and large-scale PV should be significantly cheaper than burning expensive, export-priced gas.

“By 2020-30 we will be finding new and innovative ways to deal with the intermittency of wind and solar, so it is quite conceivable that we could leapfrog straight from coal to renewables to reduce emissions as carbon prices rise.”

Before that time, BNEf claimed, clean energy investment will be driven up, and power sector emissions down, only with the support of Australia’s Large-scale Renewable Energy Target.

The research said a compelling economic case for new-build renewables existed in Australia now, however, the country’s fleet of aging coal-fired power stations, which were built by state governments in the 1970s and 1980s are still more than capable of producing power at lower cost than renewables, mainly because their original construction cost has now been depreciated.

“New wind is cheaper than building new coal and gas, but cannot compete with old assets that have already been paid off,” Bhavnagri said.

“For that reason policy support is still needed to put megawatts in the ground today and build up the skills and experience to de-carbonise the energy system in the long-term.”