Will Australian renewables really replace coal?
Fossil fuels are on the way out as renewables play an increasingly significant role in electricity generation in Australia, the world’s second largest coal exporter. At least that’s the key message from market analysts Bloomberg New Energy Finance. Is this really the end for Australian coal?
It says electricity generated from new wind farms is now cheaper than from new fossil fuel plant, leading the Sydney Morning Herald to declare that coal “could soon be extinct”. This would be something of a shock in a country that in 2011 generated almost 70 per cent of its electricity from coal.
But a group that advocates the decarbonisation of Australia’s economy through more nuclear power disagrees with Bloomberg. Decarbonisation SA says giving the whole of Australia’s electricity generation a renewables makeover doesn’t make economic sense.
Renewables cheaper than fossil fuels
Crucially, Bloomberg is talking about new renewables capacity, not electricity from existing plant. The analysis says electricity from new wind farms is cheaper than from new coal or gas plant.
This is not just because renewables are cheap – it’s because it’s currently expensive to build new coal and gas plant in Australia. Bloomberg says it’s now hard to raise money to build coal plant because investors are concerned about the damage giving to high emissions projects will do to their reputations.
Banks are also concerned about future government restrictions on greenhouse gas emissions. And if they do agree a loan, banks charge higher interest rates than for low carbon alternatives, making coal plant relatively expensive to build.
Gas is expensive at the moment because the strength of the Australian export market is driving domestic prices up, so generating electricity from new gas plant is also costly. Bloomberg estimates that electricity from a new wind farm costs 80 Australian dollars (AUD) per megawatt hour – compared to 143 AUD from new coal, or 116 AUD from new gas.
These price comparisons include the impact of the carbon price – but even without it, Bloomberg says the cost of electricity from renewables sources is still cheaper than from new coal and gas plant. The analysis suggests the smart investment in new electricty plant is in renewables, not coal and gas.
What can renewables do in the future
Head of clean energy at Bloomberg, Kobad Bhavnagri, says in a press release:
“it is very unlikely that new coal-fired power stations will be built in Australia. They are just too expensive now, compared to renewables”.
Bloomberg expects the cost of electricity generation from renewables to keep falling, while it predicts fossil fuel generation will get more expensive. Bhavnagri says this means that by the mid 2020s, “it is quite conceivable that we could leapfrog straight from coal to renewables to reduce emissions as carbon prices rise.”
This is the prediction that Decarbonise SA takes issue with.
Renewable sources currently only supply electricity intermittently – because the wind doesn’t blow and the sun doesn’t shine all the time. But coal and gas plant can be on all the time, making sure there is always enough electricity available. Decarbonise SA says that this means coal and gas are good at providing a baseload of electricity, while renewable electricity is best used when there is peak demand.
Decarbonise SA says if renewables were to be used to provide a baseload, lots of expensive solar would be needed alongside wind power – as wind electricity would be too intermittent. It calculates that electricity costs would be more like AUD 250 per megawatt hour for solar, and AUD 90 per megawatt hour for wind – considerably more than Bloomberg predicts.
At these costs, it certainly wouldn’t make economic sense to generate baseload electricity with renewables. So why the difference between the two predictions?
New technology
The main reason Decarbonise SA’s cost estimate is so high the cost of solar technology. In sum, Decarbonise SA calculates its figures based on costs now, whereas Bloomberg assumes the cost of solar PV will reduce significantly in the future.
Bloomberg tells Carbon Brief its prediction is based on historical trends, and is in line with predictions such as those in the International Energy Agency’s World Energy Outlook.
It emphasises the main issue isn’t the cost of solar, but the problem of intermittent supply from renewables. It expects electricity storage technology in 2020 to be “significantly evolved” compared to now, stressing:
“if these problems are resolved then there is no fundamental reason why renewables will not eventually substitute fossil fuels in the baseload”.
Predicting the future
Bloomberg’s key point is that it doesn’t make sense to invest in new coal or gas plant right now as new wind farms are a more economically attractive option – and its numbers seem to stack up. Whether or not this remains the case depends on a high domestic gas price and strong government greenhouse gas emissions regulations. Most of all it depends on significant electricity storage technology improvements – and coal will only become extinct if these predictions come true.