Renewables remain cheapest, but cost reductions on hold: CSIRO

Renewables remain the cheapest new-build electricity generation option in Australia, although inflation and supply chain disruptions will likely put cost reductions on hold for the next year, CSIRO’s annual GenCost report has found.

Each year, CSIRO and the Australian Energy Market Operator (AEMO) work with industry to give an updated cost estimate for large-scale electricity generation in Australia. The report considers a range of future scenarios to understand the mix of technologies that may be adopted and costs for each of these possible pathways.

The 2021–22 report confirms past years’ findings that wind and solar are the cheapest source of electricity generation and storage in Australia, even when considering additional integration costs arising due to the variable output of renewables, such as energy storage and transmission.

According to CSIRO Chief Executive Dr Larry Marshall, the detailed scientific and engineering analysis reported on in GenCost provides important insights into the electricity market, helping industry and government navigate Australia’s energy transition.

“Australia’s energy sector faces a number of unique challenges as we navigate the transition to net zero emissions. GenCost is a rigorous analysis to help inform decision-makers with detailed insights to support the decarbonisation of Australia’s energy system,” he said. “The latest report shows renewables are holding steady as the lowest-cost source of new-build electricity.

“With the world’s largest penetration of rooftop solar, unique critical energy metals, a world-class research sector and a highly skilled workforce, Australia can turn our challenges into the immense opportunity of being a global leader in renewable energy.”

Projections in the report assume that cost reductions for all technologies will stall for the next 12 months because tight global supply chains will require more time to recover from the pandemic.

However, after the current inflationary cycle ends, solar, wind and batteries are all projected to keep getting cheaper.

CSIRO Chief Energy Economist Paul Graham said researchers had observed year-on-year cost reductions for most technologies and this year’s report is no exception.

“What will be different in the next year is that we will have a confluence of factors impacting project costs. The war in Ukraine has resulted in fossil energy price inflation which flows through to all parts of the economy through transport and energy costs. We also have tight supply chains that are still recovering,” he said.

The final 2022 report also includes an update on costs of hydrogen electrolysers, which are experiencing rapid cost reductions and could support a faster transition to green hydrogen, particularly in the current context of high natural gas prices.

Both onshore and offshore wind costs have meanwhile 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.

Solar and wind continue to be the cheapest sources of electricity for any expected share of renewables in the grid — anywhere from 50% to 90%. A 100% renewable system would not be entirely made up of wind and solar but would include other renewables such as hydro power, biomass and green hydrogen.

Solar and wind begin to require additional investments in storage and transmission once variable renewables reach ~50% share of generation. Solar and wind require new transmission connections to access the best resource. Storage, in the form of batteries or pumped hydro, together with existing flexible gas generation, ensures that demand can be met reliably from these variable generation sources.

Cost reductions for technologies not currently being widely deployed, such as carbon capture and storage (CCS), nuclear small modular reactors (SMRs), solar thermal and ocean energy, are lagging and would require stronger investment to realise their full potential.

The status of nuclear SMR has not changed. Following extensive consultation with the Australian electricity industry, report findings do not see any prospect of domestic projects this decade, given the technology’s commercial immaturity and high cost. Future cost reductions are possible but depend on its successful commercial deployment overseas.

AEMO’s Executive General Manager – System Design, Merryn York, said analysis shows that timely investment in new, firmed renewables will provide the most economic form of electricity generation moving forward.

“With growing opportunity to decarbonise Australia’s economy, understanding the investments that can support a low-emissions power system, provide resilience to international pressures and reduce consumer costs is critically important to enabling the energy transition,” she said

A copy of the GenCost report can be downloaded here.

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