The energy transition presents several unique challenges for Australia. That is, the transition of our energy system to net zero emissions. We have the world’s largest uptake of rooftop solar per person. We have valuable critical energy metals, which are important for building batteries and solar panels. And we have a world class research sector and a highly skilled workforce. In other words, we have the chance to be a global energy leader.
But our vast nation means there can be long distances between where energy is generated, and where it is bought and sold. Some of our infrastructure is quite old. We are not immune to outages, demand and supply problems. Project approvals and changes can be slow.
Most of all, we need to better understand the pros and cons of different energy-generating technologies. How do we decide what new energy projects we should invest in? We need reliable information to help guide investment in new projects and manage future energy costs. And we need robust models to assess alternative policies and regulations and for planning.
Helping ‘future proof’ our energy system
GenCost investigates the costs of electricity generation technologies. It is a rigorous analysis by our experts who check their work against the on-ground expertise of the energy industry.
Our experts’ analysis provides important insights into the electricity market with updated electricity generation and storage cost data.
Throughout the year, we show our work to organisations and individuals across the energy industry. We incorporate their feedback into the report. This results in a higher quality report that is more relevant to the sector.
Technology costs are an important piece of the puzzle
Since 2018, the GenCost report has shown that wind and solar are the cheapest forms of newly built electricity generation. This is true even when considering additional costs that arise due to the variable nature of renewables. This include the costs of energy storage and transmission.
Globally, renewables (led by wind and solar) are the fastest growing energy source. The role of electricity is expected to increase substantially over the next 30 years. This is because electricity technologies present some of the lowest-cost opportunities for reducing greenhouse gas emissions.
To limit emissions, our energy system needs to evolve and become more diverse. Currently, electricity comprises around a quarter of our overall emissions, with roughly 75 per cent still coming from fossil fuels. With renewables now the cheapest (and getting cheaper), new renewable electricity projects make the most economic sense.
Our Chief Energy Economist and lead author Paul Graham said the team has observed year-on-year cost reductions for most technologies. And this year’s report shows the same trend.
Solar and wind power
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 per cent. A 100 per cent renewable system would not be entirely made up of wind and solar but include other renewables such as hydro power, biomass and green hydrogen.
Both onshore and offshore wind costs have 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 Australian projects are expected to be cheaper than previously expected.
Solar and wind begin to require additional investments in storage and transmission once variable renewables reach about 50 per cent 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.
What about nuclear energy?
The status of nuclear Small Modular Reactors (SMRs) 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.
How do international supply chains and inflation affect energy costs?
We’re seeing supply chains and inflation affect our day-to-day lives, from buying lettuce to finding building supplies.
Paul said in the next year, a number of factors will be impacting energy project costs.
"The war in Ukraine has resulted in fossil energy price inflation. This flows through to all parts of the economy, including transport and energy costs. We also have tight supply chains that are still recovering,” he said.
There’s good news, though. After the current inflationary cycle ends, solar, wind and batteries are all likely to keep getting cheaper.
What’s in and what’s out?
When it comes to the transition to net zero emissions, our research suggests it will require a range of different technologies to achieve our goals. Costings presented in GenCost include technologies most likely to play a significant role in the energy transition in Australia.
Technologies that are currently very expensive (and potentially a long way off commercial readiness) will need substantial investment to get them to the point where they might play a stronger role in Australia. These include carbon capture and storage, solar thermal and ocean energy.
But, as the national science agency, our research will continue to focus on technologies that will ensure our energy future is affordable, reliable and sustainable – well into the future.