Renewables now cheaper than fossil fuels in Australia

Photo credit: AGKPhoto credit: AGKWind power in Australia is now cheaper than energy from fossil fuels, according to a report from Bloomberg New Energy Finance (BNEF). Electricity generated from new wind farms costs about $82 for each megawatt per hour (MWh) produced, while electricity from new coal plants costs about $95/MWh and electricity from new natural gas plants costs about $100/MWh. These prices do not include Australia’s carbon tax, which runs at about $23.5 per tonne of carbon emissions, which makes the real market price of coal power about $146/MWh and natural gas about $119/MWh.

According to Michael Liebreich, chief executive of BNEF, “The perception that fossil fuels are cheap and renewables are expensive is now out of date [. . .] 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 shows that clean energy is a game changer which promises to turn the economics of power systems on its head.” Indeed, Australia was the world's fourth-largest coal producer, and the world's largest coal exporter, in 2010.

Prices for both renewable energy and fossil fuel-based energy have been changing rapidly in Australia. Since 2011, the price of wind has come down 10 percent and the price of energy from solar has dropped by 29 percent. Meanwhile, fossil fuel prices are rising. This is especially true for Australia’s natural gas prices, as large exports of liquefied natural gas (LNG) have driven up prices domestically.

The relatively low price of renewable energy will likely effect Australian power plant and energy choices going forward. Already, the owners of at least one aging coal power plant in northern Queensland are looking seriously at either switching to solar power or switching to a hybrid power source. Kobad Bhavnagri, head of clean energy research for Bloomberg New Energy Finance in Australia, explained, “It is very unlikely that new coal-fired power stations will be built in Australia. They are just too expensive now, compared to renewables [. . .] Even baseload gas may struggle to compete with renewables. Australia is unlikely to require new baseload capacity until after 2020, and by this time wind and large-scale PV should be significantly cheaper than burning expensive, export-priced gas.”

Nonetheless, most current operating coal power plants were built in the 1960s and 1970s, meaning that they are producing their electricity solely at operating cost (having amortized their fixed costs) and they are therefore significantly cheaper to run than new renewable generation plants. To help deploy renewables, the Australian government created policies promoting the use of renewable energy. In 2009, the nation set a goal of using 20 percent renewables by 2020 as part of its Renewable Energy Target (RET). To achieve this goal, the RET requires electric retailers to purchase a pre-determined amount of energy each year from large-scale wind farms, solar fields, and hydroelectric dams. This program should help support the continuing decrease in renewable energy prices.