Wednesday, January 8, 2014

New Renewable Plants Are Cheaper Than New Fossil Fuels In Australia

Bloomberg New Energy Finance (BNEF) in Australia has discovered that renewable energy is cheaper to produce than conventional fossil fuel sources, even without the subsidies.

The study found that electricity generation cost for a new wind farm is US$83 per MWh, compared to US$148 per MWh for a new coal plant and US$120 per MWh for a new gas plant, including the cost of emissions under the Gillard government’s carbon pricing scheme. However even without a carbon price wind energy is 14% and 18% cheaper than new coal and gas, respectively.

Few reasons driving the lower cost in building new renewable power plants:

(1) The cost has fallen by 10% for wind generation and 29% for solar photovoltaics since 2011.

(2) New coal is made expensive by high financing costs. Banks are unlikely to finance new coal without a substantial risk premium due to the reputational damage of emissions-intensive investments.

(3) New gas is expensive as the massive expansion of Australia’s liquefied natural gas (LNG) export market forces local prices upwards.

(4) Carbon price adds further costs to new coal- and gas-fired plant and is forecast to increase substantially over the lifetime of a new facility.

BNEF’s analysts conclude that by 2020, large-scale solar PV will also be cheaper than coal and gas, when carbon prices are factored in. By 2030, dispatchable renewable generating technologies such as biomass and solar thermal could also be cost-competitive.

Of course, the new wind is cheaper than building new coal and gas, but still cannot compete with old assets that have already been paid off.

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