This was submitted to The Australian as a letter to the editor on 28 July 2023.
Letter to the Editor
Paul Graham, Chief Energy Economist, CSIRO
I would like to clarify how CSIRO calculates relative costs of energy from different generation technologies in the GenCost Report following yesterday’s article Why our energy transition needs a price tag, (The Australian, Commentary 28.7.23).
Firstly, it is important to be clear on the purpose and scope of GenCost. The report provides two sets of data: capital cost data to be used by modellers and calculations of levelised cost of electricity (LCOE) data for new build generation capacity.
LCOE is a simple metric for non-modellers to understand the relative costs of energy from different generation technologies. The method essentially calculates the cost per MWh that would have to be recovered for a new electricity generation investment to break even if it were to take place in a given year such as 2030. The report does not provide the cumulative cost of all investments up to 2030 because this is addressed in a separate project called the Integrated System Plan of which GenCost is one of many inputs.
The methodology for calculating the LCOE for variable renewables used in GenCost has evolved to include an estimate for the costs of the additional storage and transmission needed to address the variability and wider displacement of renewables. The GenCost LCOE analysis focuses on calculating the cost of moving from the expected 50% variable renewable share in 2030 to either 60%, 70%, 80% or 90%. All existing generation, storage and transmission capacity up to 2030 is treated as sunk costs since they are not relevant to new-build costs in that year.
When we make these calculations, we find that the LCOE of moving to the variable renewable shares of between 60-90% is lower than the LCOE of any other technology.
Caution is needed when interpreting alternative studies that find higher costs for renewable integration. These tend to be based on renewables operating in ways inconsistent with least cost system design which must make use of all available technologies and only deploy renewables where they contribute to lower system costs.
GenCost is Australia’s most comprehensive electricity generation cost projection report. It provides benchmark cost data for more sophisticated systems analyses, using the best available information to provide an objective annual benchmark on cost projections for new build generation, and updates forecasts to take into account technology improvement and supply chain factors.
Furthermore, since its inception in 2018 CSIRO has publicly invited input into each consultation draft to ensure industry best practice.