A new analysis from research firm Bloomberg New Energy Finance has concluded that electricity from unsubsidised renewable energy is already cheaper than electricity from new-build coal and gas-fired power stations in Australia. The modeling from the BNEF team in Sydney found that new wind farms could supply electricity at a cost of $80/MWh –compared with $143/MWh for new build coal, and $116/MWh for new build gas-fired generation. These figures include the cost of carbon emissions, but BNEF said even without a carbon price, wind energy remained 14 per cent cheaper than new coal and 18 per cent cheaper than new gas.“The perception that fossil fuels are cheap and renewables are expensive is now out of date”, said Michael Liebreich, chief executive of Bloomberg New Energy Finance. “The fact that wind power is now cheaper than coal and gas in a country with some of the world’s best fossil fuel resources shows that clean energy is a game changer which promises to turn the economics of power systems on its head,” he said.
The Greens Party has unveiled an ambitious new document that outlines possible pathways to turn Western Australia – one of the most energy-intensive states in the world – into one where its stationary energy needs are powered 100 per cent by renewable energy sources in less than two decades.The Greens offer two principal scenarios to transform the coal and gas-dependent grid known as the South West Interconnected System (SWIS), which includes the capital Perth and the most populous regions. The first involves a heavier reliance on solar thermal and storage technologies currently deployed in Spain, the US and elsewhere, while the second relies more on currently cheaper technologies such as wind energy and solar PV. Both are supported by bio-mass and pumped hydro.
According to Scott Ludlam, the WA-based Senator whose office anchored the report with the help of specialist consultants, the plan seeks to make two important points – one that it is feasible, and two, it will not cost much more than business as usual (BAU).
Indeed, even using somewhat conservative technology cost forecasts for the various forms of solar, and to allow for a safety-first approach to capacity requirements, the study concludes that the levellised cost of electricity in the various renewable scenarios ranges from $208/MWh to $221/MWh by 2029. (We go into detail further down)
The levellised cost of electricity in the BAU case is not much cheaper – $203/MWh. While it has lower up front capital costs – $20 billion vs $60 billion, the balance of the BAU scenario bill will be paid in fuel costs, which for gas and diesel customers in WA is already proving expensive and forcing those on isolated and remote areas in particular to already consider solar alternatives. ...
The document was drawn together by Ludlam’s team, but the detailed technology scenarios were put together by an engineering team from Sustainable Energy Now, and drew on previous work by the likes of CSIRO and Beyond Zero Emissions.
Rooftop solar continues to have a dramatic impact on the energy market in South Australia – the Australian state with the highest penetration of rooftop solar.As these graphs provided by Melbourne Energy Institute’s Mike Sandiford illustrate, the proliferation of solar PV is not just having an impact on overall demand in the state, it is also shaving and reshaping the peak demand curves.
The impact of solar PV in South Australia was recognised by a special study by the Australian Energy Market Operator last August. As we reported then, South Australia had some 267MW of rooftop solar as at June 30, representing one in five households. AEMO said rooftop solar was accounting for 2.4 per cent of overall demand, and more than one-third of the PV systems were operating at the time of peak demand at any one time.
These graphs deliver a further illustration of their impact, as they illustrate what happened in the latest months of December and January, traditionally the period of hottest temperatures and highest demand. (If the graphs are not easy to read we suggest you click on them to see them better).
The ones immediately below show the average demand curves in South Australia over the last five years. The pink line shows 2012/13. As Sandiford points out, midday demand in SA this summer is down 15 per cent on where it was five years ago, even though night-time demand is up, confirming the impact of solar PV.
The stunning set of data, cost profiles and market analysis produced in the first few weeks of calendar 2013 have confirmed what many had long suspected – that the global energy markets are changing faster than anyone had thought possible.The implications for the incumbent energy industry – be they generators, network operators or retailers – couldn’t be more significant. The business models that supported the ageing infrastructure are broken, and if they can’t adapt to the new environment, they may soon be out of business. The idea of a rapid change to a largely renewable energy grid no longer seems aspirational, it could be inevitable.
Consider what we have learned this week:
- The price of wind energy (and in some isolated cases solar PV), is already cheaper than coal and gas in Australia. This gap is likely to widen considerably in the coming decade.
- By the time new baseload capacity is required in 10 years time, other technologies, including solar thermal with storage, and concentrated solar PV, will also be cheaper than coal and gas. Marine energy and geothermal could be close to parity.
- But not only do we have “grid parity” at the utility level, we also have socket parity, which means that homeowners and businesses can lower their cost of electricity by installing solar panels on their roof.
- the growing impact of large scale renewables, the self consumption market driven by rooftop solar and battery storage, and the impact of energy efficiency schemes, is reshaping the profile of the energy market and the dynamics of the industry. Sometimes in the most dramatic way. Coal and gas fired generators are getting priced out of the market.
As investment bank UBS noted last week, we are facing a “solar revolution” in the energy industry, and another is on the way with battery storage. As we suggested last year, the change is so profound that existing business models appear broken. According to Macquarie Bank, the German energy model is already “kaput”.
As we have seen in Australia, the increase in renewables is pushing down wholesale electricity prices, forcing the closure or mothballing of 3,000MW of fossil fuel capacity. In Germany, the closure rate is so rapid that the electricity authority has had to step in to slow them down.
The more retailers and network operators seek to recoup their investment in the face of lower demand, the more customers will be tempted to look after their own energy needs. Even halting all subsidies for rooftop solar will not stop it, said Macquarie. “The ever-increasing (grid) prices for domestic and commercial customers as well as rapid solar cost declines have brought on the advent of grid parity for German roofs. Thus, solar installations could continue at a torrid pace,” it notes. The same applies for Australia. ... Coal-fired power stations will not get built, for reputational and economic reasons, and gas – the much touted transition fuel – may also not get a look in. “Costs are just falling so quickly and the cost of fossil fuel are so much higher than public perception,” said Kobad Bhavnagri, head of clean energy research for BNEF in Australia. ”We could leapfrog gas as transition fuel.”
Bhavnagri said that by 2020 the “world could look quite different”. The market operator and system will be more experienced and adept at handling intermittency. “The case for gas is not as strong as people assumed a few years ago.”
The upshot of that analysis is that the plants we will be building in the 2020s will be – because they are the cheapest options – large scale solar with storage and other dispatchable renewables. The economic case for existing fossil fuel generators will be further undermined.
This explains why the fossil fuel industry in Germany, and in Australia, have been trying to halt the expanse of renewables. The primary policy goal of generators and fossil fuel industry for the past decade or more has been one of delay – to push back the build up of renewables long enough to extract maximum value from their existing assets, and even to create space so they can build more assets. The extractive industries have the same, simple plan.
All the major Australian utilities made clear in their submissions to the Climate Change Commission that allowing the renewable energy target to stand – and more wind farms and large scale solar PV to be built – would reduce the profits of their generators, quite dramatically. Yet diluting that target would allow them to build more gas-fired generation.
This is also why the utilities have also argued against the Clean Energy Finance Corporation, because it is designed to help usher in those technologies such as solar thermal and ocean energy that will be competitive in a decade’s time. But they can’t be competitive if none are built, and installation and manufacturing costs are reduced.
Many European markets are now at critical junctures with high penetration of wind and solar. This includes Germany, Italy, Denmark, Spain and Portugal. Australia, should it maintain its current renewable energy target, will follow soon enough. Germany, while reducing subsidies, is still increasing its renewables targets – 40 per cent by 2020 and 80 per cent by 2030.
Its biggest challenge is to figure out how to redefine the market rules so that it can provide enough economic incentive to prevent too many closures of fossil fuel plants, and to encourage existing gas to stay open rather than coal. It needs these gas plants to assist with the transition.
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