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Renewables Hold Steady as Cheapest New-Build Power in Australia

Each year, national science agency CSIRO, and the Australian Energy Market Operator (AEMO), work with a range of industry stakeholders to give an updated cost estimate for large-scale electricity generation in Australia. The latest 2021-22 report confirmed past years’ findings that solar and wind are the cheapest, even when considering their additional integration costs such as storage and transmission.

These additional integration costs arise due to the variable nature of the renewable output which can be influenced by factors including weather, along with their wider distribution compared to fossil fuel generation. Modelling released recently confirms that integration costs remain low, even despite global COVID-19-related manufacturing shortages. However, forward projections for 2022-23 assume that cost reduction for all technologies will stall for 12 months because tight global supply chains will require more time to recover from the pandemic.

The 2021-22 report also includes an update on the costs of hydrogen electrolysers which could be an important pathway for producing low emission hydrogen. Hydrogen electrolysers were included for the first time in the previous year’s report and updated costs in the current report have fallen considerably, which is in line with 2020-21 projections.

The Chief Energy Economist at CSIRO stated that the energy sector is rapidly changing so we need updates like this report to ensure that our planning is based on the most up-to-date cost estimates. He noted that it is also crucial that stakeholders have an opportunity to scrutinise the changes to ensure they are consistent with direct industry experience.

The updated analyses also find that:

  • Both onshore and offshore wind costs have fallen faster than expected. Onshore wind cost changes reflect Australian projects. Offshore wind is yet to be developed in Australia however, cost reductions achieved overseas mean that Australian projects are expected to be lower cost than previously expected.
  • Cost reductions for technologies not currently being widely deployed, such as carbon capture and storage (CCS), nuclear small modular reactors, solar thermal and ocean energy are lagging and would require stronger global and domestic investment to realise their full potential.

The Group Manager of Forecasting at AEMO stated that CSIRO’s process of regularly monitoring, consulting on and updating generation technology cost trajectories are incredibly valuable as the organisation plans for an accelerated transformation of the NEM. Offshore wind, for example, has great potential due to resource quality, but the economics are not yet proven in Australia. If technology costs continue to track down, as foreshadowed in this year’s GenCost, then this technology could play a greater role in future Integrated System Plans.”GenCost assists us, and industry stakeholders, to achieve the vision for a reliable, low cost, net-zero emissions electricity system,” she added.

Other updates to the report include revised scenario names to better align with the direction of international climate policy development, and the inclusion of guiding principles for selecting which technologies will be included in GenCost. The final version of the GenCost report will be delivered in mid-2022.

The GenCost project is a collaboration between CSIRO and AEMO, together with stakeholder input, to deliver an annual process of updating electricity generation and storage costs. Each report incorporates updated current and future cost estimates and global electricity scenarios.

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