Is Renewable Energy Cheaper than Coal Based Electricity

The Lib/Nat government have spent a lot of time and energy trying to convince us the reason our electricity bills are so high is because of all the renewable energy being added to the grid. So you can imagine my surprise when I heard the Head of Energy Purchasing at Origin Energy talk about Coal being the most expensive source of energy.

It is important to understand just how big Origin is, they buy more then 20% of all the electricity generated, so when they talk pricing it comes from a position of authority.

The numbers are quite amazing. When companies are buying electricity in the whole sale market the costs are shown below.

Coal  – 5.0 cents / kWh
Solar – 4.5 cents / kWh
Wind  – 5.0 cents / kWh

There are a couple of interesting points to note about the above electricity production costs.

 

Renewable electricity is the same price or cheaper.

The argument that focuses on renewable energy being expensive is clearly false. Wind and Solar electricity is now as cheap or cheaper than coal fired electricity.

The electricity price hides an untold truth

There is a really important difference between the cost of coal generated electricity and that of solar and wind generated electricity… Brace yourself this will get a little technical.

The production costs underpinning the coal based electricity price of 5 cents are predominantly marginal costs; by margin costs I mean the costs associated with buying the coal, processing the coal, and generating the electricity. The coal fired power stations paid for themselves a long time ago, so there is little or no capital payback costs associated with the electricity price.

If we built a new coal fired power plant tomorrow, the cost of that electricity would be the margin costs plus the costs associated with paying off the new asset, this would mean the price of coal based electricity is significantly higher than 5 cents. Some people predict that cost would be closer to 30 or 40 cents per kilowatt hour.

The costs associated with Wind and Solar farms are the exact opposite. The margin cost of wind and solar electricity is almost zero. The price of wind and solar electricity is predominantly the costs associated with paying off the asset. This means once the asset is paid for the cost of producing the electricity is zero.

Renewable Energy has a margin cost of $0/kWh, coal based electricity has a margin cost close to 5 cents/kWh..which one is more likely to drive down electricity prices over the long term?

The short and long term price trend

Because electricity generation assets have a very long life it is important to look at the long term trends.

Coal fired power generation has stayed fairly constant over the long term, the price of coal based electricity rises and falls with the price of coal, so over the long term we can expect coal fired power to remain much the same. But if a new coal fired power station is added to the network then the cost of electricity will rise dramatically.

Renewable Energy however is a very different story, the cost of electricity sold to the grid from solar and wind farms has been falling dramatically, and is predicted to keep falling below the rates shown above. The idea that renewable based electricity prices should keep falling is no surprise. Remember the marginal cost of generating electricity through renewable sources is zero, there is a one off installation cost only. As our ability to install Wind and Solar power plants gets better and the technologies improve the costs will continue to trend towards zero.

Solar and Wind generated electricity is getting cheaper, Coal based electricity generation is stable and there is no scope for it get cheaper..Which one is more likely to drive down electricity prices?

 

To Wrap Up

The New England and Northern Tablelands are predominantly agricultural communities and we are already feeling the effects of climate change. All of the science is telling us things are going to get a lot worse if we do nothing. Our livelihoods depend on making the transition to renewable energy happen.

The electricity industry is transitioning to renewable sources of electricity as fast as it can, but the industry is wanting/needing the federal government to show some leadership and get behind the transition to Renewable Energy. Disappointingly there is no sign of this happening. My advice to you is send the National Party (Barnaby Joyce) a very clear message. If you do not get behind renewable energy you wont get my vote.