Coal, renewables jostle for energy costs crown

Black coal remains competitive on price as an energy source but firmed renewables will reign supreme by the end of this decade, a joint CSIRO and AEMO report finds.

The cost of building wind farms in Australia has increased according to the latest GenCost report by CSIRO and AEMO. Picture: Getty Images

Black coal has staged a comeback to rival firmed renewables as the cheapest form of electricity in 2024-25, amid a spike in costs to build onshore wind, while small modular nuclear plants remain the most expensive technology if built into Australia’s energy grid.

The CSIRO said black coal was $111 per megawatt hour at the lowest end of its annual forecasts, compared with backed-up wind and solar which was $116 MWh under the cheapest level of modelling. Those figures represent a turnaround from a year ago when black coal at $107 MWh was outpaced by firmed renewables, which was forecast at $97MWh.

Black coal is not expected to retain its position, however, with the costs of firmed solar and wind falling substantially to $76MWh by 2030, compared with black coal at $103MWh by the end of the decade.

The joint report by Australia’s national science agency and the Australian Energy Market Operator measures electricity technologies by comparing a levelised cost of energy that includes operating and capital costs over the power generator’s economic life.

While black coal just pipped green energy at the lowest end of the price projections, the median figure of $144MWh for the fossil fuel was above the $140MWh median for firmed renewables under an assumption of 70 per cent clean energy in the grid.

Variable standalone solar generation – with no back-up – was by far the cheapest electricity generation source with solar costs from as low as $48MWh, with onshore wind at $80MWh.

Firming or “integration costs” to support renewables are estimated at $48MWh to $64MWh in 2024-25 and $23MWh to $40MWh in 2030 depending on the renewable share.

Still, calculations point to the cost of firmed renewables increasing by up to 20 per cent from a year ago, according to the GenCost report, whereas black coal has fallen by 9 per cent at the mid point of the forecast range.

The reduction in fossil fuel generation costs between 2024 and 2030 is not a result of technological improvement but rather cheaper fuel prices and capital costs. Picture: Getty Images

CSIRO points out the reduction in fossil fuel generation costs between 2024 and 2030 is not a result of technological improvement but rather cheaper fuel prices and capital costs, which were impacted by global inflationary pressures that peaked in 2022. “Also, using fossil fuels without carbon capture and storage makes them high emission technologies which makes them incompatible with national and state emission targets,” CSIRO added.

It comes as AEMO chief executive Daniel Westerman will tell a clean energy conference on Tuesday that 90 per cent of Australia’s remaining coal fleet is set to close in the next decade, posing a challenge for system security.

CSIRO said the capital costs of onshore wind technology rose by a further 6 per cent in 2024-25, following an 8 per cent increase the year before.

This year’s spike included a one-off 4 per cent increase to take account of work camp costs not previously included in wind capital cost estimates. CSIRO also pointed more broadly to sustained long-term increases in Australian construction costs.

Combined cycle gas turbines costs jumped by 11 per cent, reflecting tight global supplies, while large scale batteries and solar fell 20 per cent and 8 per cent respectively.

“Stakeholders remain concerned about the cost of wind projects,” CSIRO said. “In discussions with stakeholders it was identified that the increasing remoteness of wind projects and their workforce needed means that they typically need to construct a work camp as part of the project costs.”

While global inflationary pressures earlier this decade hit a raft of energy technologies, CSIRO singled out the “difficult circumstances” for Australia’s onshore wind projects for its assumption that capital costs will not return to a normal cost path until 2035, some five years later than other technologies. After 2035, wind costs are projected to decline only a modest amount.

Australia’s nascent offshore wind sector has struggled to overcome investment hurdles despite being central to Victoria’s plan to phase out coal and replace it with renewable energy.

CSIRO pointed to a lower rate of cost reduction for offshore wind over time compared to last year given less resource availability for floating offshore wind and the impact of continued reductions in solar technology costs.

The draft report issued in December claimed the cost of large-scale nuclear power plants far exceeded firmed renewables over the long term, even if solar and wind farms are completely rebuilt every 25 or 30 years. The opposition, which took its pro-nuclear policy to the federal election, and other nuclear advocates had previously slammed historical GenCost figures, which were modelled over a 30-year time frame, claiming that was a flawed assumption, and that nuclear facilities were designed to operate for a period of more than 60 years.

Large-scale nuclear has been costed at between $180MWh and $293MWh with small modular reactors between $456MWh and $757MWh.

The science agency also pushed back on any possibility of Australia delivering nuclear on a fast-track basis such as the UAE at 12 years.

“Australia is not likely to be able to repeat the UAE experience because our level of consultation will be consistent with our higher level of democracy and the experience of other Western democracies. As such, at least 15 years remains the most plausible lead time,” CSIRO said.