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Graph of the Day – How fossil fuels lose out to wind and solar

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The story that has really captured the imagination of our readers this year has been on the Bloomberg New Energy Finance analysis that demonstrated that wind energy was already cheaper than new coal and gas plants in Australia, and solar PV was not all that behind.

Because of that interest, we’ve decided that today’s Graph of the Day should be another set from the BNEF report, because they demonstrate so vividly how the technology costs of wind, solar PV, solar thermal, biomass and even geothermal fall below rising coal and gas plant costs over the coming decades.

Remember when looking at this graph of the day that Australia needs no new baseload power plants for another 10 years – that’s according to the Australian Energy Market Operator and the utilities themselves. So this shows that the new plants we are getting built now – wind farms, thanks to the renewable energy target – are the cheapest option.

By the time 2020 comes around, solar PV will have well and truly joined wind on the southern side of the cost curve (and will no doubt be competing for space in the RET), and solar thermal – with its ability for storage and dispatchable energy, will be competing vigorously with gas.

Looking at these, it really is hard to disagree with BNEF’s CEO Michael Liebrich, who said that “clean energy is a game changer which promises to turn the economics of power systems on its head”.  And it’s also hard to stomach the constant carping from “the other side” about the expense of renewables.

We’ve published one graph that includes 2012, 2020 and 2030 forecasts, because the contrast is so visible. But due to the formatting, it may be easier to view the graphs individually, so we have also reproduced them below if the numbers and the letters are too small to see in the first. (STEG stands for solar thermal electricity generation).

graph of the day

 

graph of the day

 

 

graph of the day

Screen Shot 2013-02-19 at 7.00.59 PM

 

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  • http://energyinachangingclimate.info Martin Nicholson

    Giles, you know I have raised this before but one has to question how Bloomberg determined the “coal” band for each of these graphs. The future increases for coal are going to be largely based on the carbon price as the cost of building the plants and O&M costs in Australia are probably not going to rise that much over time.

    The BREE estimates for the non-coal options are largely the same as Bloomberg’s. But they are very different for coal.

    BREE estimates the cost for new black coal plants without a carbon price at $84/MWh and $95/MWh for brown coal. To get the Bloomberg range for 2012 of $146 to $240 for coal means a carbon price of at least $51/MWh. At a volume weighted emission intensity for new coal plants of 0.85 t/MWh and a known carbon price of $23/t gives a carbon price of $20/MWh not $51.

    Based on BREE estimates the coal range for 2012 should be between $102 and $119/MWh depending on the coal mix using a carbon price of $23/t. Wind is around $116/MWh so lower than brown coal but not black coal.

    The only explanation I can come up with is that Bloomberg has assumed new coal plants will cost between $126 and $220/MWh without a carbon price. These figures are between 40% to 140% higher than BREE – which beggars belief.

    The error appears to have been repeated in other years. By 2030 Bloomberg has coal between $190 and $300/MWh in real 2012 AUD (the cost of the plants will not increase) so again the only reason is an increasing carbon price. For simplicity, let’s assume the volume weighted emission intensity for black and brown coal has risen to 1 t/MWh. We need a carbon price of between $95 and $205/t based on BREE plant costs to get the Bloomberg range.

    The Treasury estimates a carbon price of $55 in 2030 so the Bloomberg plant costs must have risen to between $135 and $245 in real terms – which beggars belief even more!

    • Giles Parkinson

      Martin, cost of capital is your answer again.
      You say: Based on BREE estimates the coal range for 2012 should be between $102 and $119/MWh depending on the coal mix using a carbon price of $23/t. . As we have agreed, BREE did not include cost of capital.
      BNEF says: Our survey of Australia’s four largest banks reveals that lenders are unlikely to extend finance to new coal-fired projects due to carbon price and reputation risks. If they did, the pre-tax weighted average cost of capital (WACC) is likely to be around 12.5% – significantly higher than the 8.1% for a new wind farm. This cost of capital adds approximately AUD 32/MWh to the LCOE of coal.
      that explains part of the gap. loss of legacy coal supplies adds another $5/MWh

      • http://energyinachangingclimate.info Martin Nicholson

        Sorry Giles but the BREE AETA Introduction, third paragraph on P 7 quite clearly states that the cost of capital is included. To my knowledge it is not possible to do a meaningful LCOE calculation without it.

        • Giles Parkinson

          well i wonder which financiers they found to deliver at nuclear at sub $100? I think the BREE figures are a bit all over the place, and if they did take into account cost of capital, they didn’t assess risk.