New wind and solar now as cheap as existing coal

06.12.18 By

Early this week, energy analysis firm Bloomberg New Energy Finance (BNEF) produced new research that comes to a stunning conclusion: new renewable energy is now the same cost or cheaper than existing coal power stations in New South Wales and Queensland.

This is a critical inflection point. Due to the continued fall in the cost of wind and solar, as well as the higher international price for black coal, it is now the same cost or cheaper to build a new wind or solar plant in Australia than to continue operating old coal power stations in New South Wales and Queensland.

Or in the words of BNEF’s analyst Ali Ashgar, “This means that it is already cheaper to build a new solar or wind plant than burn export-linked coal in an existing, fully depreciated, coal plant.”

For a number of years, renewable energy like wind and solar have been the cheapest forms of new generation. That is, it is cheaper to build a wind or solar farm than to build a coal or gas power station. Wind and solar costs have been falling dramatically over the past decade, with lower capital costs than coal and gas power stations and far lower running costs.

This is why private companies are overwhelmingly choosing to invest in new renewable energy generation. A new coal power station is so expensive that the only way one could get built is with a significant government subsidy. Table 1 shows that it is now almost three times more expensive to build a coal power station than it is to build a wind or solar farm:

Table showing cost of power in 2018

Source: BNEF (2018)

However, existing coal power stations have continued to produce a cheap supply of electricity. Most of Australia’s ageing coal powers stations, like the decrepit Liddell power station in New South Wales, were built decades ago and were funded entirely by the taxpayer. With all the capital costs already paid by government, these power stations could supply electricity relatively cheaply, at least until they eventually break down from old age.

But not anymore.

Figure 2 shows how the cost of generating electricity over the lifetime of solar and wind farms, including capital, construction and running costs (described as the levelised cost of energy, or LCOE), has fallen dramatically over the past two years. Meanwhile, the cost of generating electricity from coal power stations, including just the running costs (described as the short run cost), has risen over the past two years.

Tables howing the cost of coal versus the levelised cost of solar and windSource: BNEF (2018)

 

With the costs of wind and solar expected to fall even further in the years to come, it is probable that private companies will increasingly close their ageing coal power stations early, replacing them with cheaper renewable energy. This will accelerate Australia’s transition away from polluting coal power stations and towards clean renewable energy.

Renewable energy is a win-win, reducing both prices and greenhouse gas pollution.

For further reading, check out Renew Economy’s article on BNEF’s analysis: ‘Why coal – and not renewables – is root cause of surging Australia power prices