Renewables to win the price race by 2030?

A landmark government report shows wind and solar PV to be Australia’s cheapest electricity sources come the 2030s, with wind the leader by 2020. It highlights the potential for a clean energy transformation by 2050.

Canberra is catching up on the extent of solar and wind price declines, with a new report from the Bureau of Resources and Energy Economics forecasting wind and solar PV to be two of the cheapest power sources come 2030.

The Bureau engaged WorleyParsons to assist with the study – the Australian Energy Technology Assessment – into cost estimates for 40 electricity generation technologies and among the key findings was:

“By 2030 some renewable technologies, such as solar photovoltaic and wind onshore, are expected to have the lowest LCOE (levelised cost of electricity) of all of the evaluated technologies.”

The report is the first of its type to factor in the carbon price as well as the first government report to really grasp the rapid price reductions for some renewable technologies. It assumes a carbon price of just over $50/tonne by 2030 – in line with Treasury forecasts – and the large-scale renewable energy target and small-scale renewable energy scheme remaining in place through 2030. Neither of these conditions are assured of course, and given it’s challenging to forecast policy settings a year out, yet alone 18, it will be a cause of contention.

Carbon price estimates. Source: Treasury forecasts.

Wind will be the leader when it comes to lowest cost in 2020 and 2030, the report suggests, but by 2040, solar PV will be the cheapest option, ahead of onshore wind – and this will continue through 2050. Compared to previous studies, the biggest difference was the recognition of significant solar price reductions and a softening of expectations for geothermal.

Combined cycle gas and nuclear were seen as the non-renewable technologies offering the lowest LCOE by 2030, and would be cost competitive with wind and solar out to 2050, according to the report.

While the landmark report is very positive for the sector, there is still a long way to go before Australia will be ushering the era of clean energy domination given the current extent of fossil fuel domination and weakening electricity demand, which reduces the need for new power sources. On this point, however, the long discussed transition to renewables from coal through gas may be looking less realistic. With reports of no need for new baseload pre-2020 and the plunging costs of solar and wind, a gas transition period could be shorter than some expect.

The real positive is that the government is finally exposed to the extent of the growing cost competitiveness of solar PV and onshore wind, something Climate Spectator reported on last week. With knowledge that has often been two or three years behind what has actually been going on in the industry, plans to support renewable energy often appear a lot more costly than they would prove in reality.

LCOE forecasts for 2012, 2020, 2030, 2040 and 2050

Solar PV

The study was bullish on the potential for solar PV to keep charging down the cost curve, a point not surprising given the report alluded to a 22 per cent learning curve for solar. This means that for every doubling of capacity, prices fall 22 per cent. Statistics from Bloomberg New Energy Finance suggest it may even be as high as 24 per cent, but regardless of the exact figure, swift price declines are inevitable.

“As a result of ongoing cost reductions, differences in the cost of generating electricity, especially between fossil fuel-based and renewable electricity generation technologies, will diminish,” the report advised. “Nevertheless, LCOE (levelised cost of electricity) costs do vary substantially across the technologies and range from the lowest cost of $91/MWh (landfill gas power plant) to the highest cost of $366/MWh (solar thermal c.l.f.) in 2012 and from $86/MWh (solar PV nontracking) to $288/MWh (IGCC brown coal plant) in 2050.”

Solar thermal

Solar thermal was viewed as being very costly at this point in time but cost reduction potential was “substantial”, given its relative infancy. Unlike solar PV, a learning curve is not reported as there is not enough installed capacity to come up with a robust figure. With this in mind, assessing the true cost reduction potential of the technology is challenging. This is the same for other technologies like wave and geothermal.

Onshore wind

Onshore wind is already quite competitive on the cost curve, having the fifth lowest LCOE in 2012 of the technologies assessed. By 2020, thanks to a learning rate of between 7 and 10 per cent, it will have the lowest LCOE and will be lowest or second lowest through to 2050.

“Onshore wind generation represents the most mature form of renewable energy generation technology to emerge in the past 30 years,” the report acknowledged.

The report noted an “increasing trend to develop larger scale onshore wind projects in Australia,” pointing to the example of the 400 MW Macarthur Wind Farm, due to become operational early next year. Over the period forecast, the report said “100 MW wind farms will become more common… with an ongoing trend towards deployment of fewer, larger capacity machines.”

Offshore wind

Offshore wind is unlikely to play any meaningful contribution to Australia’s energy mix by 2050, given its LCOE will only be around the middle of the pack by then. This is no surprise as Steve Sawyer, from the Global Wind Energy Council, last week told delegates at the Clean Energy Week conference that offshore wind is “many, many years away” and potentially mightn’t play a role until we have reached close to 100 per cent renewable energy.

Until Australia has 60-90GW of wind capacity there is no need for offshore, he said, and given we have 2GW now, that’s a long way away.

Wave

The BREE analysis didn’t offer as much enthusiasm for wave power, suggesting in its forecasts that by 2050 it will still languish in the bottom half of technologies when it comes to LCOE. That being said, the report accepts that wave power is “immature” and given this, forecasts beyond the next few years are incredibly difficult. Wave won’t play a role of any significance by 2020, but beyond this it will be guided by the pace of development and the consequent ability to achieve efficiencies of scale.

Geothermal

Australia’s geothermal sector has had a challenging few years, with the great expectations being tempered by a number of roadblocks. The report wasn’t particularly enthusiastic about the cost reduction potential, with its figures less optimistic than many other reports.

“The AETA LCOE for this technology are substantially higher than the estimates made by ACIL Tasman, SKM-MMA and ROAM, and are at the high end of the cost range estimated by EPRI,” BREE said.

“The major reason for the cost difference arises from a more recent and better informed appraisal of drilling costs that comprise a major component of the capital cost of hot rock geothermal systems.”

Australia’s renewable future

Clean Energy Council Deputy Chief Executive Kane Thornton said the report was a significant step forward in the appreciation of the increasing cost competitiveness of renewables.

“While the recent public debate often oversimplifies Australia’s energy choice as ‘clean vs cheap’, this report shows the argument is now desperately out of date. Renewables are rapidly becoming the cheapest source of energy,” he said.

“Every government in the country has underestimated the ability of renewable energy to improve in efficiency and come down in cost. This report goes some way towards addressing the balance.”

This increased understanding in Canberra, it appears, will prove the biggest positive from the report.

The final word however, should be left to BREE’s chief economist, Professor Quentin Grafton.

“Australia will experience an energy transformation over the coming decades that will have a profound impact for electricity networks, how energy is distributed and on Australia’s ability to meet its targeted greenhouse gas emissions reductions.”

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