Renewable sources such as solar and wind remain relatively inexpensive energy generation technologies across Australia in terms of construction costs despite a surge in build costs for all energy generation types, new data shows.

And solar and wind are expected to be the cheapest generation technology on a ‘levelised cost basis’ (see below) by 2030.

Meanwhile, nuclear power appears set to remain many times more expensive to build even if newer small modular reactors are considered.

Published by the CSIRO, in collaboration with the Australian Energy Market Operator, the 2022/23 edition of the GenCost report provides an estimate of current costs along with future cost projections for energy generation, energy storage and hydrogen production across a range of technologies.

On a current capital cost basis – which measures the current price that would be awarded under a construction contract to build generation facilities –  the report found that open cycle gas without any carbon capture and storage was the cheapest generation technology (refer chart 1).

Chart 1: Current Capital Costs of Generation Technologies

When considered on a levelised cost basis, however, solar and onshore wind emerge as least expensive (see chart 2) followed by coal with gas being the most expensive option (see chart 2).

(The levelised cost calculation is a holistic cost estimate which accounts for all costs which a generation operator needs to recover including returns on investment.

With regard to variable generation sources such as wind and solar, this cost includes the additional costs which are needed to integrate these into the National Energy Market. These include costs such as storage, additional transmission lines and peaking gas capacity.)

Chart 2: Levelised Cost for Each Generation by 2030

Turning to nuclear, the report indicates that these facilities are likely to be many times more expensive to build even if the fast-emerging small modular reactors  (SMRs) are considered.

In its report, the CSIRO does not give estimates of a current cost to deliver nuclear power via SMRs. This, it says, is because commercial deployment of these has thus far been limited to a small number of projects and deployment of these in Australia is not expected before 2030.

Based on forward projections for 2030, however, it estimates that the capital cost of these facilities would be around $18,000 per kW.

This is many times the price of any other generation technology and is more than ten times the current cost of solar PV (just under $1,600 per kW).

Whilst solar and wind remain least expensive, however, the report also highlighted cost pressures associated with construction of all forms of generation technology.

Over the past year, average new build costs increased by 20 percent across all generation technologies.

Whilst higher costs were seen across all technology types (see chart), increases have been particularly evident in wind technology (up 35 percent) and have been least evident in rooftop and large-scale solar (up 9 percent each). According to the CSIRO, differences in cost performance across each technology vary according to material inputs and exposure to freight costs.

Whilst much of the increase has resulted from lingering COVID supply chain constraints and the Ukraine War, the report raises concerns that the rapid pace of the energy transition worldwide will contribute to ongoing cost pressures.

This, the report says, is attributable to the scale of manufacturing, raw materials and labour which are needed to develop and deploy clean energy technologies consistent with net zero goals.

The report also said that:

• Globally, renewables led by wind and solar are the fastest growing energy source.
• Batteries are set to play a crucial role in supporting both variable renewable generation in the electricity sector and the rapid expansion of electric vehicle deployment in transport.

CSIRO’s Chief Energy Economist and GenCost lead author, Paul Graham, said that the COVID-19 pandemic had resulted in lingering global supply chain constraints which impacted the prices of raw materials that are needed in technology manufacturing as well as freight costs.

This has been further exacerbated by the Ukraine war, which has led to higher energy costs for all industries.

“During the recovery from these global events, various input costs are showing signs of moderation, however there is an expected delay due to future price uncertainties and the robust demand associated with the global energy transition,” Graham said.

“GenCost analysis anticipates that technology costs have mostly peaked and the risk of cost pressures extending beyond 2030 will be mitigated, as the global manufacturing capability established by that time will adequately meet deployment needs.”

Merryn York, Executive General Manager – System Design at the Australian Energy Market Operator, said the report was important in terms of informing decisions regarding the transition to net zero.

“As coal fired power generation leaves Australia’s grids, we need investment in generation to fill those gaps,” York said.

“And as more variable renewables delivers our energy for consumers and decarbonisation, we need investment in firming – which is on-demand energy to smooth out the peaks and troughs from renewable generation.

“GenCost is important data for AEMO to plan the least-cost investments needed to fill the gaps from coal generation that is reaching end of life.

“This is important to deliver the transition while maintaining reliable, secure and affordable energy supply for consumers.”

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