Wind and solar remain cheapest new sources of power, even after inflation hit

Renewable energy remains Australia’s cheapest option for new sources of electricity but cost pressures are eating into capital, the national science agency says.

Modelling released on Tuesday shows renewables construction and installation costs rising by one-fifth on average, but the energy source remains more cost effective than new gas or coal plants.

The inflation warning comes as energy ministers, industry leaders and financiers gather for a two-day energy expo and summit in Sydney.

The modelling by the CSIRO and Australian Energy Market Operator (AEMO) marks the first time all technology costs have increased from the previous year since the annual guide began in 2018.

Costs for Australian projects began to inflate in 2020 as the pandemic hit, making freight and raw materials more expensive, and the Russian war in Ukraine has further disrupted supply chains.

But the global race to clean up the world’s biggest source of emissions – burning fossil fuels to produce electricity – is adding further to the costs of renewable energy projects.

CSIRO chief energy economist Paul Graham said input costs are showing signs of moderating.

“However there is an expected delay due to future price uncertainties and the robust demand associated with the global energy transition,” he said.

Like solar technology, wind costs should come down as more turbines go up, given greater global climate policy ambition and deployment.

In contrast, new fossil-fuel generation risks higher financing costs over time because of government targets for net-zero emissions by 2050 or before.

Technology costs have mostly peaked and the risk of cost pressures extending beyond 2030 will be mitigated as global manufacturing ramps up, according to the GenCost report.

However, some in the industry say the price bubble will become a permanent feature, and will strengthen.

Globally, renewables – led by wind and solar – are the fastest growing energy source, which is putting further pressure on global supply chains.

The report found costs for Australia’s big batteries have increased by 13 per cent for one-hour storage and up to 28 per cent for eight-hour duration batteries.

Onshore wind project costs have risen by more than one-third (up to 35 per cent).

But cost increases were as low as nine per cent for rooftop solar and solar farms.

Floating offshore wind data was added, with international proponents vying to build in world-class winds off the coast of Victoria.

The modelling also confirmed grid-scale energy storage and car batteries are set to play a crucial role.

AEMO head of system design Merryn York said the data is crucial for planning the least-cost investments needed to fill the gap left by the exit of coal.

“And as more variable renewables delivers our energy for consumers, and decarbonisation, we need investment in firming – which is on-demand energy to smooth out the peaks and troughs,” she said.

AAP