Analysts say renewable energy now cheaper option than new fossil fuels in Australia

Analysts say renewable energy now cheaper option than new fossil fuels in Australia
Bloomberg analysts say electricity generation from new wind farms is cheaper than new coal in Australia (Photo: Shutterstock)
Bloomberg analysts say electricity generation from new wind farms is cheaper than new coal in Australia (Photo: Shutterstock)
View 1 Image
Bloomberg analysts say electricity generation from new wind farms is cheaper than new coal in Australia (Photo: Shutterstock)
Bloomberg analysts say electricity generation from new wind farms is cheaper than new coal in Australia (Photo: Shutterstock)

In 2008, the Garnaut Climate Change Review ranked Australia as the highest per capita emitter of greenhouse gases of any OECD country and amongst the highest in the world. One of the reasons for the country's high carbon footprint is its reliance on coal for electricity generation – 54 percent of it, according to the Australian Coal Association. But a new study by Bloomberg New Energy Finance (BNEF) points to a cleaner energy future with the claim that unsubsidized renewable energy is now a cheaper option for electricity generation than new coal- or gas-fired power stations.

According to the BNEF study, electricity can now be supplied from a new-build wind farm in Australia for AUD$80/MWh (US$83), while the cost of electricity supplied from a new coal plant is AUD$143/MHh (US$148) and AUD$116/MWh (US$120) for new baseload gas plants. While these figures include emission taxation under Prime Minister Julia Gillard’s carbon pricing scheme that was introduced last year, the report says that, even without a carbon price, wind energy is still 14 percent cheaper than new coal and 18 percent cheaper than new gas.

The prices are the continuation of a downward trend for renewables in Australia. Since 2011, wind energy costs have fallen by 10 percent, while photovoltaic (PV) solar has decreased by 29 percent. Conversely, fossil fuel energy generation costs have trended upward, motivated by high financing costs linked to Australia's "big four" banks charging substantial risk premiums for potential reputation damage associated with investments in technologies that emit high levels of greenhouse gases. A massive expansion of Australia's liquefied natural gas (LNG) export market in the Asia-Pacific region has also pushed local prices up and the carbon tax has added to the costs of new coal and gas facilities.

“The perception that fossil fuels are cheap and renewables are expensive is now out of date,” said Michael Liebreich, chief executive of BNEF. “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 (Australia is the world's second largest coal exporter after Indonesia) shows that clean energy is a game changer which promises to turn the economics of power systems on its head."

BNEF analysts believe the construction of new fossil fuel-fired power stations in Australia is unlikely. This is because the country isn't expected to require new baseload capacity until after 2020, by which time renewable energy will be even more cost-competitive than coal and export-priced natural gas. It's also anticipated that new technologies will have solved the intermittency problems of solar and wind by this time.

However, in the interim, clean energy investment will continue to be spurred by Australia’s Large-Scale Renewable Energy Target (LRET), a government scheme intended to complement the carbon price and speed up the adoption of renewable energy technologies with aim of ensuring the equivalent of at least 20 percent of Australia’s electricity comes from renewable sources by 2020.

Despite the push for renewables, coal is not exiting Australia's energy stage any time soon. Old Australian coal plants built in the 1970s and 1980s are still the cheapest options for electricity generation because of the depreciation of their original construction costs.

Rest of the world

Rising electricity demands from emerging nations means coal's slice of the global energy mix is also set to grow over the next few years. According to a recent forecast made by the International Energy Agency in its Medium-Term Coal Market Report (MCMR), coal’s global share will continue to rise and, by 2017, will come close to surpassing oil as the world’s top energy source. The IEA expects coal demand will increase in every region of the world except in the United States, where natural gas is undergoing a sort of "golden age." Emerging giants such as China and India will lead the growth in coal consumption over the next five years. The report predicts China will surpass the rest of the world in coal demand during the outlook period. India, in its turn, could become the largest seaborne coal importer and second-largest consumer, even beating the United States.

Parallel to higher coal demand, wind-powered electricity generation is expanding and becoming more competitive in other markets, too. A recent statement by the American Wind Energy Association asserts last year was the U.S. wind energy industry’s strongest year ever in that country. In 2012, a record 13,124 megawatts (MW) of wind energy generating capacity was installed, taking it to a cumulative total of 60,000 MW. It said this is enough to power 15 million homes, or all households in the states of Colorado, Iowa, Maryland, Michigan, Nevada, and Ohio.

The International renewable Energy Agency (IRENA) recently said one of the reasons that wind power has become competitive with fossil fuel-fired electricity is that turbine prices have started to fall again after a temporary spike. That trend is likely to continue as low-cost manufacturers from emerging economies enter the global market. In the U.S., the cost of generating wind power at the best sites can be as low as US$0.04 to US$0.05/kWh, which makes it competitive with gas-fired electricity.

China has also increased its wind generation capacity. According to the latest data from the Global Wind Energy Council, in 2012 China was producing 77 GW of wind power, the largest capacity in the world. That amount accounts for around two percent of the country’s net electricity generation.

While wind turbines can be 50 to 60 percent cheaper in China than in North America, and in recent years the Chinese government has enacted a series of policies to facilitate wind power development, wind power still costs roughly twice as much as coal.

According to Reuters, Chinese grid operators can buy wind power for government-dictated prices of 0.51-0.61 yuan (US$0.08-US$0.10) per kilowatt-hour (kWh), while electricity from coal-fired power plants sells for as little 0.3 yuan (US$0.05). However, Beijing has signaled plans to implement a quota system that would require grid operators to source 5 to 15 percent of their electricity from wind farms.

At this stage, there are no clear signs as to when renewables will reach grid parity with fossil fuels on a global level. However, clean energy specialists seem to be convinced that technology and temporary government policies will take us there, at least in some specific markets.

“As renewable energy technologies become more cost-competitive, the importance of government subsidies is set to decrease to create a sustainable growth platform for both developed and emerging markets, as well as manufacturers,” predicts Ernst & Young’s Cleantech Leader, Gil Forer.

Sources: BNEF, IEA, IRENA (PDF), Ernst & Young

Nigel Giddings
How is it that only Australia can produce electricity from wind power cheaper than fossil fuels when, if I read your article correctly, nowhere else in the world can.
I hope that when you quote the price per MW of wind and coal you have already adjusted for the 20-25% efficiency of wind turbines caused by periods of lack of wind?
You also fail to discuss the issue (and cost) of needing fast acting backups, in the form of OCGT (Gas Turbines) in the grid to deal with the sudden fluctuations in wind turbine delivery where it can fluctuate from peaks of 100% of capacity to Zero production for days at a time. You do mention storing power but I have yet to see a viable solution and this would double or treble costs at a rough estimate?
I have no data on the Australian Grid but this website shows how wind operates in the UK in near real time with information going back over the previous week, month and year showing just how intermittent wind is. http://www.gridwatch.templar.co.uk/
It is misleading to allow figures to be cherry picked for the benefit of one solution when the picture is much more complicated than initially presented.
Freyr Gunnar
> It's also anticipated that new technologies will have solved the intermittency problems of solar and wind by this time.
That's a big anticipation.
In the mean time, instead of bulding nuclear plants based on newer safer design, everyone's going for coal, which is a major contribution to global warming and pollution.
It is almost 100% certain that this article does not take into account all the other punitive taxes on fuel when it makes this absurd comparison.
The propensity to invent artificial costs for unfashionable things and compare them to artificially low costs of fashionable things is tantamount to civilizational suicide.
Is the cost of land, maintenance, reduced utility of nearby lands, environmental damage such as bird deaths factored in? The reduced efficiency of remote power generation (no warm superconductors yet boys) or lack of storage for electricity factored in?
Racqia Dvorak
It's clear from the article that most of the additional costs of conventional power sources is due to artificial factors, like "carbon taxes" and insurance premiums designed to punish companies for their fuel source.
Don't get me wrong, I believe the future is renewable energy and I think it makes sense to make the switch, but to say that it is cheaper without the appropriate clarification amounts to intentional misinformation.
Meanwhile in the USofA wind energy companies are in panic mode because federal subsidies are endangered.
It's not just Aussies as in the US many wind farms are cheaper than coal power too.
But that isn't the most cost effective which are various RE depending on the site is on homes, businesses that pay 2-3x's as much after utility costs, profits,etc. That means payback is that much faster.
If well shopped, contracted solar, wind, biomas, cogen, etc can be installed for under $2k/kw. So having a 3kw system gives about 15kwhrs/day, enough for most any eff home at $6k. Payback for such is about 3-6 yrs getting almost free power for 20-50 yrs afterward. Even if a utility got it's power for free they probably can't beat a well done home/building RE sysytem.
Phillip Noe
Progress! The coal industry will surely argue the point. For the sake of future generations we MUST shift to the clean alternatives even if the apparent costs don't favor them. If the externality costs of a deteriorating habitat were added to the costs of burning coal, the costs of green energy would be MUCH less expensive!
Caneng 62
This analysis was criticized quite strongly for among other thing estimating natural gas prices tripling over the period discussed. You might want to check out this link from an Australian site normally pro renewables. With the need for backup generation, and the variation spreads in output, it is very hard to believe the conclusions of this article/
Matt Fletcher
Wind farms that's nice but extremely inefficient. Ocean Hydro electric systems are more efficient but Fission and Fusion is where it's really at and can produced with little to no radioactive waste. Just need to get the gov't costs/regulations down to reasonable levels to make it more affordable.
There have in the last week been similar articles about, of all places, Texas. Texas has lots of land, lots of wind, and lots of natural gas. So in Texas new power generation from wind (repeat: new) is about on parity with new generation from natural gas (about 6c per kWh) - even at the present point of the fracking bonanza and really low natural gas prices in the US. So no, this is not a uniquely Australian phenomenon.
Load More