Skip to content

Economics prove renewables are the future of energy generation

by Eliza Booth, Assistant Editor, Energy Magazine

There’s no doubt that renewable energy is the way of the future, but often the cost of transitioning to clean energy sources presents a major roadblock for uptake of renewables. Now, a new report from CSIRO and AEMO has found unequivocally that renewables, like wind and solar, are the cheapest new sources of electricity generation in Australia– a third cheaper than previously estimated – and will remain the cheapest option for the foreseeable future.

To learn more about the report’s findings, Energy Magazine talked with Paul Graham, Chief Economist at CSIRO’s Energy business unit, and co-author of the GenCost 2020-21: Consultation draft, about the new report’s most critical findings and what it means for the future of energy generation and renewables in Australia.

The rise of variable renewables

In December 2020, CSIRO released the GenCost 2020-21: Consultation draft, the third such report since beginning in 2018, undertaken in collaboration with the Australian Energy Market Operator (AEMO).

The aim of the report is to provide current and updated capital cost estimates of different types of electricity generation technologies and storage options in Australia. GenCost also plays a major role in the future of the energy industry as the modelling provides a roadmap for industry, councils and government to reference.

This year’s GenCost report was particularly interesting, with new and updated modelling showing that renewables like wind and solar currently are, and will remain for the foreseeable future, the cheapest form of electricity generation. Mr Graham said that the new GenCost report focused on factoring in the additional costs that often come with the integration of variable renewables like storage and transmission, with the results showing that variable renewables will remain the most cost-effective form of electricity generation, even with the added cost of storage and transmission factored in.

“We’ve reported in the past that renewables were looking very low cost, but this is the first time we’ve more accurately calculated the cost of all the additional integration costs that come with variable renewables,” Mr Graham told Energy magazine.

“As we know, variable renewables only provide power when the sun’s shining or the wind’s blowing. So it’s always been a concern for everyone in the electricity sector, how would we proceed with using that as our main source of supply, because you have to back them up.”

In order for variable renewable energy to work seamlessly, storage and transmission of the generated electricity is a major consideration. Mr Graham said that current transmission methods are designed primarily to take energy from coal fields to city centres and are not optimised for variable renewables to be integrated.

In addition, storage is another major consideration when it comes to renewable uptake. There needs to be adequate storage facilities to ensure that there is enough energy supply to keep the grid running smoothly during peaks and troughs.

“What you generally find is that the more variable renewables you add, the more storage you have to add. It actually increases non-linearly. So that’s another big cost. So initially transmission is the main cost, but as you get towards 70, 80, 90 per cent variable renewable, storage is overwhelmingly the largest cost associated with renewables,” Mr Graham said.

In earlier reports, Mr Graham said that they tried to include these kinds of costings, however the calculations were much more simplified at the time. Originally they added one piece of storage equipment for every solar and wind farm that was deployed, however, this year’s report found that this was causing drastic over-estimates as that much storage is not needed.

“It turns out, that was overkill. You don’t need that much storage,” Mr Graham said. “That was adding upwards of nearly $100 a megawatt hour to the cost of a solar or wind farm.

Now that we’ve got the more accurate estimate, it’s only adding up to about $30 a megawatt hour. So it was nearly triple the cost that we previously expected.” Mr Graham said that this time the GenCost report also included transmission cost estimates, which helped to give more accurate results.

“Previously, we were just looking at storage, and this time we included transmission. The thing about transmission is we’ll always need to add that, no matter what scale of variable renewables we’re going for. So it is an important factor, and that’s all based on inputs that AEMO has developed for their integrated system planning.

We’re using all their transmission costs, so that we’re consistent with common views about what transmission will cost in the future.” This comes as incredibly exciting news for the energy industry and for the uptake of variable renewables. The fact that current and accurate estimates from the GenCost report find that the cost of variable renewables are a third less expensive as previously estimated, even with the inclusion of storage and transmission costs, means that more companies, councils and governments will be incentivised to invest in, and transfer to, variable renewable generation.

Modular technology and hydrogen potential

While variable renewables are projected to be the most cost-effective form of energy generation for the future, there’s also good news for modular technologies becoming more affordable and accessible.

The new GenCost report found that modular technologies such as solar PV and batteries will continue to experience the fastest rates of reduction of costs thanks to the faster turnover rate of producing these technologies compared to other technologies such as carbon capture and storage (CSS), which have much longer turnover rates Mr Graham said that technologies that are repeatable, like solar cells that are used on roofs, at large scale and in electronics, as well as batteries, which are used in services like personal electronics, large-scale projects and electric vehicles, are best placed to take advantage of technological advances and improvements.

“There’s something about these technologies that you can produce modularly, because you’d get the turnover rate of producing them much faster,” Mr Graham said.

“Compare that to a coal CCS plant, you do it once, and it costs three to five billion. Then you don’t do another one for a while. You can still carry the learnings over but it takes a lot longer, and you just can’t get the rate of turnover to actually build improvements over time.

But solar PV and batteries have got that option, and that possibility that manufacturers are able to exploit. In particularly exciting news, Mr Graham and his team think that this repeatability could probably be seen with hydrogen electrolysers too.

Mr Graham said that electrolysers, which are used to make hydrogen from electricity, are experiencing growth and innovation similar to solar and batteries have in the past. These cost reductions in modular technologies are also helping to scale up Australia’s hydrogen energy generation potential, which is great news for the Australian Federal Government who is investing in this form of energy as part of its National Hydrogen Strategy1.

“[Electrolysers] are going through a process where there’s lots of demonstration projects going on around the world, much like there was for solar ten years ago, and like there was for batteries five or seven years ago. So it looks like we’ve got a potentially modular technology that’s starting to scale up. There’s an expectation that we might also be able to get these cost reductions falling for hydrogen electrolysers,” Mr Graham said.

“We’ve noticed in the last two years a huge step up in the interest around hydrogen for clients and partners, including government, university and industry. Everybody wants to look at hydrogen from some sort of angle, whether it’s research or just trying to understand the future possibilities.”

The way forward

Although the findings of the GenCost report are fantastic news for the renewable energy generation sector, it also found that there are still many roadblocks impeding cost reductions for other clean energy technologies like CCS, nuclear, small modular reactors, thermal and ocean
energy, and Mr Graham said it all comes down to investment.

“There’s nothing magical about the passage of time that makes those technologies cheaper, the only way they get cheaper is if people invest,” Mr Graham explained. “From our observation, when you’ve got a technology that’s sitting higher up its learning curve, there hasn’t been too many built, the only way to bring it down is by building them, as demonstration plants or commercial plants. If that doesn’t happen, then they stay stuck.”

Mr Graham said that the best hope for real change and advancement in these technologies is through global cooperation and investment, as has happened with batteries and electric vehicles.

“With a coordinated global approach, the technologies that are lagging behind will be able to catch up, giving more options and opportunities for renewable, clean energy to enter the grid.

Feedback from the industry

Before the GenCost report was released to the public, it was initially shared with key stakeholders to gauge reactions. Mr Graham said that with reports like GenCost, there is generally interest in the updated current costs reported and how these costs are determined.

“The feedback has generally been just wanting to question and understand that we’re getting those costs from the right sources. The sorts of things that people might raise is, ‘Oh, I see you’ve got that price for batteries. I’m seeing a different price. What were your specs?’.”

For the 2020-21 GenCost report, AEMO commissioned engineering consulting and advisory company, Aurecon, to assist with calculating the current costs and utilise its own data to project where these costs might move in the future. This, combined with industry feedback is invaluable to produce the most accurate data possible.

“A lot of the discussion with stakeholders is just trying to find common ground about what we’re actually talking about. One of the difficulties we have, for example, with coal-fired plants and updating their costs is we haven’t built any for quite a while, for more than a decade.

So what is the current cost for coal in a country that hasn’t built any? Do we look to China? Do we look to somewhere nearby that’s built something? How do you adjust for engineering costs and exchange rates?,” Mr Graham explained.

Now that the GenCost 2020-21 report has been released to the public for industry and commentator feedback, CSIRO and AEMO are considering the input.

“The feedback is always very useful and we’ll be sure to incorporate any immediate improvements where we can, and where not, build in opportunities in future releases.”

The GenCost 2020-21: Consultation draft is available from the CSIRO website. publication/PIcsiro:EP208181