Renewable energy now cheaper than new fossil fuels in Australia

Australia wind beats new coal in the world’s second-largest coal exporter

Sydney, 7 February 2013 – Unsubsidised renewable energy is now cheaper
than electricity from new-build coal- and gas-fired power stations in
Australia, according to new analysis from research firm Bloomberg New
Energy Finance.

This new ranking of Australia’s energy resources is the product of
BNEF’s Sydney analysis team, which comprehensively modelled the cost of
generating electricity in Australia from different sources. The study shows
that electricity can be supplied from a new wind farm at a cost of AUD
80/MWh (USD 83), compared to AUD 143/MWh from a new coal plant or AUD
116/MWh from a new baseload gas plant, including the cost of emissions
under the Gillard government’s carbon pricing scheme. However even
without a carbon price (the most efficient way to reduce economy-wide
emissions) wind energy is 14% cheaper than new coal and 18% 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is now out of date”, said Michael Liebreich, chief executive of Bloomberg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.

Bloomberg New Energy Finance’s research on Australia shows that since
2011, the cost of wind generation has fallen by 10% and the cost of solar
photovoltaics by 29%. In contrast, the cost of energy from new
fossil-fuelled plants is high and rising. New coal is made expensive by
high financing costs. The study surveyed Australia’s four largest banks
and found that lenders are unlikely to finance new coal without a
substantial risk premium due to the reputational damage of
emissions-intensive investments – if they are to finance coal at all. New
gas-fired generation is expensive as the massive expansion of Australia’s
liquefied natural gas (LNG) export market forces local prices upwards. The
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.

The results suggest that the Australian economy is likely to be powered
extensively by renewable energy in future and that investment in new
fossil-fuel power generation may be limited, unless there is a sharp, and
sustained, fall in Asia-Pacific natural gas prices.

“It is very unlikely that new coal-fired power stations will be built in
Australia. They are just too expensive now, compared to renewables”, said
Kobad Bhavnagri, head of clean energy research for Bloomberg New Energy
Finance in Australia. “Even baseload gas may struggle to compete with
renewables. Australia is unlikely to require new baseload capacity until
after 2020, and by this time wind and large-scale PV should be
significantly cheaper than burning expensive, export-priced gas. By 2020-30
we will be finding new and innovative ways to deal with the intermittency
of wind and solar, so it is quite conceivable that we could leapfrog
straight from coal to renewables to reduce emissions as carbon prices
rise.” he added.

Before that time, clean energy investment will be driven up, and power
sector emissions down, only with the support of Australia’s Large-scale
Renewable Energy Target. Despite compelling economics for new-build
renewables today, Australia’s fleet of coal-fired power stations built by
state governments in the 1970s and 1980s can still produce power at lower
cost than renewables, because their original construction cost has now been
depreciated.

“New wind is cheaper than building new coal and gas, but cannot compete
with old assets that have already been paid off,” Bhavnagri said. “For
that reason policy support is still needed to put megawatts in the ground
today and build up the skills and experience to de-carbonise the energy
system in the long-term.”

For further information:

(Asia Pacific)
Nathaniel Bullard
Bloomberg New Energy Finance
+852 2977 4827
nbullard@bloomberg.net

(Europe)
James Isola
Cubitt Consulting
+44 20 7367 5116
james.isola@cubitt.com

(Americas)
Ethan Zindler
Bloomberg New Energy Finance
+1 202 416 3466
ezindler@bloomberg.net



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