Renewables are cheapest, even with poles, wires and batteries added in
Wind and solar power remain the cheapest route to decarbonising the energy grid, even after including transmission and storage costs needed to manage their variable output, according to a new CSIRO report that also casts doubt on the economics of nuclear.
The research body’s annual cost comparison of energy generation has raised by 39 per cent its estimates for small modular nuclear reactors, which the federal opposition says should be built in Australia. The big jump came after a now-junked marque project in Utah gave CSIRO real-world price benchmarks for its calculations, replacing its previous theoretical estimates.
On renewables, CSIRO updated its methods in response to criticism that previous versions of its annual GenCost report ignored the cost of poles and wires needed to connect solar and wind to the grid, or batteries and other firming assets needed for when wind or sun is lacking.
In its draft 2023-24 report, CSIRO included the cost of transmission and firming projects committed to be built between now and 2030, but renewables’ cost advantages remained, especially given the price of offshore wind and solar assets have come down during the year.
“The bottom line doesn’t appear to have changed – in 2023, in 2030, variable renewables have the lowest [operating] cost range,” said Paul Graham, CSIRO’s chief energy economist.
The annual GenCost report is a key planning tool for investors showing best estimates of capital costs, which refers to investment in generation, as well as all-in operating costs, referred to as “levelised cost of energy” – which includes operating and amortised capital costs.
The cost of solar panels would fall 8 per cent, CSIRO said, helped by Chinese manufacturers rapidly expanding production.
The prospects for wind power, however, are mixed. The 2022-23 spike in offshore wind turbine capital costs, which triggered project cancellations in Europe and the US, has reversed, giving rise to predicted cost falls of 9 per cent this year. Onshore wind assets, however, will rise 8 per cent after jumping 35 per cent last year.
“There’s a lot of talk that the global wind industry just isn’t quite as profitable, so they still need to push up prices,” Mr Graham said. “But the [solar] panel guys seem to be doing OK.”
Battery costs will edge up just 2 per cent in 2023-24 after a 20 per cent increase last year.
The most punishing cost increase is for small modular nuclear reactors, set to soar 39 per cent in 2023-24.
‘Most honest’ test of nuclear costs
Mr Graham said the November collapse of a Utah nuclear project that had planned to use small modular reactors developed by Colorado-based NuScale provided the “most honest” test of the commercial cost and viability of the technology to date.
The Utah consortium failed to sell enough power to fund the project. CSIRO used disclosures from the project to estimate nuclear would have a capital cost of $31,100 per kilowatt.
This is roughly five to six times the cost estimates produced by the Minerals Council of Australia and a University of Queensland researcher in 2020, and sets a stiff challenge for the opposition to justify its campaign for nuclear to be considered in Australia’s energy transition plan.
By 2030, CSIRO estimates SMR costs will have fallen to about $16,000 per kilowatt as experience in building them grows. That will reduce their operating cost to just under $300 per megawatt hour in 2030 – still three times the cost of firmed renewable energy – from more than $500/MWh this year, or five times that of firmed renewables, CSIRO estimates.
The huge jump in wind turbine costs last year triggered the cancellation of several offshore wind projects in Europe and the US, so the 9 per cent fall this year will come as a relief to the many groups vying for offshore wind licences in Victoria and NSW. This estimate was based on overseas projects as no local projects have begun construction.
The inclusion of transmission and firming costs to 2030 in the 2023 costings increases the operating cost of variable renewables to about $120 per megawatt hour for grid mixes of 60 per cent to 90 per cent renewables. By 2030, these costs are expected to fall to about $80/MWh.
In either case, the only technologies able to compete with wind and solar power on a levelised cost basis are unabated coal and gas plants, which are increasingly difficult to finance and get approval to build because of their climate impact. Coal and gas plants with carbon capture and storage will be much more costly in 2023 and 2030.
Generating power from green hydrogen remains prohibitive at five to six times the cost of power from variable renewables.
The Albanese government has shortlisted six applicants for the first round of funding under the $2 billion Hydrogen Headstart scheme including ventures from Origin Energy in the Hunter Valley and the Queensland government-owned Stanwell Corp. Others include the Murchison Hydrogen Renewables project in Western Australia, KEPCO’s project at the Port of Newcastle and smaller projects from HIF Australia in Tasmania and BP in WA.
The successful applicants will be announced next year.
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