CSIRO GenCost: Wind and solar still reign supreme as cheapest energy sources

Wind and solar continue to reign supreme as Australia’s cheapest sources of new electricity generation, with the latest assessment from the CSIRO confirming that renewables continue to outcompete coal and gas.

On Friday, the CSIRO released a consultation draft of the latest iteration of its annual GenCost assessment, which calculates and projects the expected levelised cost of electricity from a range of electricity generation technologies.

The draft of the 2021-22 edition of GenCost confirms the status of wind and solar as the cheapest sources of new electricity supply, even after the costs of storage and network investments are taken into account and, importantly, at very high levels of renewables.

As the table below illustrates, and which is highlighted by the CSIRO, even at levels of 90 per cent wind and solar in the grid, the costs of electricity – including storage and transmission – are still significantly below fossil fuels, and just a fraction of nuclear power.

Source: CSIRO GenCost 2021-22 Consultation draft

The finding is highly significant as the recently unveiled draft of the 2022 Integrated System Plan, produced by the Australian Energy Market Operator, forecasts Australia’s main grid reaching levels of wind and solar by the mid 2030s, if not earlier.

The GenCost assessment estimates that the levelled cost of electricity using solar PV currently sits within the range of $44 to $65 per MWh, while wind power costs range from $45 to $57 per MWh, depending on size and location.

This compares to the estimated levelised cost of a new black coal generator of between $87 and $118 per MWh and gas generation costs between $65 and $111 per MWh. These costs reflected a ‘baseload’ use case and a 40-80 per cent capacity factor, with costs for peaking generators even higher due to lower utilisation.

Crucially, the CSIRO expects that the costs of the fossil fuel technologies will remain largely unchanged in real terms over the next three decades. In contrast, the costs of wind, solar and integrating technologies like battery storage will continue to fall as their respective technologies continue to advance.

The CSIRO says the integration costs for renewables remained low, adding around $10 to $15 per megawatt-hour to the cost of wind and solar generation. These costs cover additional investments in energy storage, network infrastructure and grid support services like synchronous condensers.

Given the significant cost advantages that wind and solar projects already enjoy, these integration costs do not prevent renewables from remaining cheaper overall compared to fossil fuel alternatives.

The assessment highlights that wind and solar are likely to retain their dominance in new generation investment, with the gap between renewables and fossil fuels projected to widen over the next three decades.

The CSIRO suggests that the only scenario where gas generators can compete on cost is one where gas prices fall, the project is shielded from any potential climate change risk, including a guarantee that no costs for greenhouse gas emissions are ever levied on fossil fuelled generators.

"The closest technology is the low range cost of a gas combined cycle generator which can match the high range costs of variable renewables with integration costs. However, the low range 2030 gas combined cycle cost assumptions will be challenging to achieve," the report says.

"It requires no climate policy risk at the financing stage (despite the 25-year design life extending beyond the net zero emission targets of most states), a gas price just below $6/GJ throughout that period and a capacity factor of 80 per cent in a system with an increasing share of energy from near-zero marginal cost renewables."

Additionally, the CSIRO found that the added costs of carbon capture and storage technologies for electricity generation almost doubled the levelled cost of both coal and gas generation.

The GenCost report estimates that adding CCS to a black coal generator increases the levelised cost to between $162 and $216 per MWh, while gas generation costs increase to between $107 and 170 per MWh.

The assessment shows nuclear energy continuing to rank as one of the most expensive options in Australia, with the CSIRO noting the significant uncertainty around nuclear costs due to there being no operating facilities in Australia.

CSIRO chief energy economist Paul Graham said that the CSIRO sought feedback from stakeholders on the initial analysis, adding that the research agency wanted to ensure its analysis kept pace with the rapid change underway in the energy market.

"The energy sector is rapidly changing so we need updates like this report to ensure that our planning is based on the most up-to-date cost estimates," Graham said.

"It's also crucial that stakeholders have an opportunity to scrutinise the changes to ensure they are consistent with direct industry experience."

For the first time, the CSIRO has included a forecast of electrolyser costs, the key component of renewable hydrogen production.

The forecast sees electrolyser capacity costs falling by as much as two-thirds from current levels over the next decade and by more than 90 per cent by 2050.

Such an achievement would mirror the substantial costs reductions that are already being achieved in solar, wind and battery technologies contributing to an overall trend of clean energy technologies becoming highly competitive on cost.

Source: CSIRO GenCost 2021-22 Consultation draft

AEMO's group manager for forecasting, Nicola Falcon, said the latest iteration of the GenCost report would aid in the market operator's future grid planning.

"The CSIRO's process to regularly monitor, consult on and update generation technology cost trajectories is incredibly valuable as we plan for an accelerated transformation of the NEM," Falcon said.

"Offshore wind, for example, has great potential due to resource quality, but economics are not yet proven in Australia. If technology costs continue to track down, as foreshadowed in this year's GenCost, then this technology could play a greater role in future Integrated System Plans."

The CSIRO will seek stakeholder feedback on the consultation draft, with the final version of the 2021-22 GenCost report expected to be published by mid-2022.

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