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Down Under, Renewable Energy Is Now Cheaper Than Fossil Fuels

By on February 12th, 2013

From Bloomberg New Energy Finance, the results of a new study that found that energy from renewable energy—specifically wind farms—is now cheaper than gas or coal plants.

This new ranking of Australia’s energy resources is the product of BNEF’s Sydney analysis team, which comprehensively modelled the cost of generating electricity in Australia from different sources. The study shows that electricity can be supplied from a new wind farm at a cost of AUD 80/MWh (USD 83), compared to AUD 143/MWh from a new coal plant or AUD 116/MWh from a new baseload gas plant, including the cost of emissions under the Gillard government’s carbon pricing scheme.

I know what you’re thinking, but:

 However even without a carbon price (the most efficient way to reduce economy-wide emissions) wind energy is 14% cheaper than new coal and 18% cheaper than new gas.

The consequences?

The results suggest that 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 will remain a work in progress for a while. Legacy power stations that have had their construction costs depreciated produce power less expensively than cheaper than that produced by new renewable stations, but as they age and go offline will likely not be replaced by anything but renewables.

“New wind is cheaper than building new coal and gas, but cannot compete with old assets that have already been paid off,” [Kobad Bhavnagri, head of clean energy research for Bloomberg New Energy Finance in Australia] 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.

  1. 5 Responses to “Down Under, Renewable Energy Is Now Cheaper Than Fossil Fuels”

  2. By Todd Mason on Feb 13, 2013 | Reply

    Don’t you still have to build the Gas Plants for the times when there is no wind?

  3. By Greg on Feb 13, 2013 | Reply

    Another Richard Romano blog post, full of gas. Going deeper than a simple headline, one might find the following, per Tristan Edis at Climate Spectator:

    BNEF actually found the underlying “cost” for new build coal excluding government policy considerations was $56 per MWh or $61 to reflect expected rises in the price of coal. This is substantially lower than wind.

    What made coal more expensive than wind was down to two factors that fundamentally hinge on government policy:

    1- Banks are extremely reluctant to finance new coal fired power stations because they perceive a high risk that government will impose stringent constraints on carbon emissions in the future. According to BNEF this leads to a finance risk premium over lower carbon alternatives that increases the effective cost of new coal by $32/MWh.

    2- BNEF assumed the carbon price would ascend from $23 per tonne of CO2 to $44 in 2020 and keep rising further after 2020. Taking into account the 40 year lifetime of a coal this worked out to an extra cost of $51 per MWh once discounted back to today.

    On point 1, BNEF are spot on – banks will not lend you the money to build a new coal fired power station in Australia right now. Unless of course a state government is involved in underwriting the carbon risk such as the WA government with Bluewaters 2. Judging from the public statements of Queensland Energy Minister McArdle, you wouldn’t want to completely discount the idea they might do something similar.

    On point 2 these carbon price assumptions are what government probably should do if policy action matched rhetoric. But they are out of the ballpark of what will happen based on current policy settings. For BNEF’s prices to become a reality requires Europe to address its massive oversupply of emission allowances, and the market is yet to be convinced this will happen. Also I’d suggest that if government really did follow through with a credible carbon pricing regime then banks would have greater comfort about regulatory settings and reduce the risk premium they currently apply to coal power stations.

    In terms of wind being cheaper than combined cycle natural gas, the key assumption behind that conclusion is that new gas contract prices will rise from the $4 per GJ that most power plant are paying today, to $12 per GJ for new plant. This is noticeably higher than what a range of experienced Australian gas market analysts are currently forecasting out to 2020

  4. By Roland Waitszies on Feb 15, 2013 | Reply

    I believe that we should stay away from coal plants due to the high Sulfur emmissions and causing the depletion of our Ozone layer. Anything to help with producing safe energy should be studied and find ways to make it feasible.

  5. By Pat Berger on Feb 21, 2013 | Reply

    Natural gas is a fossil fuel. It comes from organic matter.


  6. By Greg on Feb 21, 2013 | Reply

    Ummm, yes – it sure is…