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GenCost 2021–22: renewables are still the cheapest

Each year, Australia's national science agency CSIRO, and the Australian Energy Market Operator (AEMO), work with industry to give an updated cost estimate for large-scale electricity generation in Australia.

They consider a range of future scenarios to understand the mix of technologies that may be adopted and project costs for each of these possible pathways.

The 2021–22 Report found that renewables remain the cheapest new-build electricity generation option in Australia, although inflation and supply chain disruptions will likely put cost reductions on hold for the next year.

This confirms past years' findings that wind and solar are the cheapest, even when considering additional integration costs arising due to the variable output of renewables, such as energy storage and transmission.

Insights into Australia's unique electricity market

According to CSIRO Chief Executive Dr Larry Marshall the detailed scientific and engineering analyses reported on in GenCost provide important insights into the electricity market, helping industry and government navigate Australia's energy transition.

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. ©  iStock

"Australia's energy sector faces a number of unique challenges as we navigate the transition to net zero emissions. GenCost is a rigorous analysis to help inform decision makers with detailed insights to support the decarbonisation of Australia's energy system.

"With the world's largest penetration of rooftop solar, unique critical energy metals, a world class research sector and a highly skilled workforce, Australia can turn our challenges into the immense opportunity of being a global leader in renewable energy," he said.

Next year all technology costs on hold

Projections in the report assume that cost reductions for all technologies will stall for the next 12 months because tight global supply chains will require more time to recover from the pandemic.

However, after the current inflationary cycle ends, solar, wind and batteries are all projected to keep getting cheaper.

CSIRO Chief Energy Economist Paul Graham said researchers had observed year-on-year cost reductions for most technologies and this year's report is no exception.

"What will be different in the next year is that we will have a confluence of factors impacting project costs. The war in Ukraine has resulted in fossil energy price inflation which flows through to all parts of the economy through transport and energy costs. We also have tight supply chains that are still recovering," he said.

Wind and solar are the tip of the iceberg in GenCost 2021–22

Hydrogen electrolysers

The final 2021–22 report includes an update on costs of hydrogen electrolysers, which are experiencing rapid cost reductions. These could support a faster transition to green hydrogen, particularly in the current context of high natural gas prices.

Onshore and offshore wind

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, but the cost reductions achieved overseas mean that Australian projects are likely to be lower cost than previously expected.

The solar and wind share

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 also include other renewables such as hydro power, biomass and green hydrogen.

Once they reach around 50 per cent share of generation, variable renewables like solar and wind will need additional investments in storage and transmission. They'll need new transmission connections to ensure they are located where they can capture the best resource. Storage in the form of batteries or pumped hydro, together with existing flexible gas generation, will ensure that demand can be met reliably from these variable generation sources.

The potential of other technologies

Cost reductions for technologies not yet widely deployed, such as carbon capture and storage (CCS), nuclear small modular reactors (SMRs), solar thermal, and ocean energy, are lagging and will require stronger investment to realise their full potential.

The status of nuclear SMRs has not changed. Following extensive consultation with the Australian electricity industry, report findings do not see any prospect of domestic SMR projects this decade, given the technology’s commercial immaturity and high cost. Future cost reductions are possible but depend on the successful commercial deployment of this technology overseas.

Download GenCost 2021-22

The report encompasses updated current capital cost estimates commissioned by AEMO and delivered by Aurecon.

Based on these updated current capital costs, the report provides projections of future changes in costs consistent with updated global electricity scenarios which incorporate different levels of achievement of global climate policy ambition.

GenCost 2021–22

GenCost 2021–22 (accessible) DOCX (752 KB)

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