Energy Generation in the Age of Carbon Pricing

The Australia Energy Technology Assessment 2012

The AETA was developed in close consultation with WorleyParsons, the Australian Energy Market Operator, CSIRO, and a stakeholder reference group drawn from industry and research/academic organisations with interests and expertise in a diverse range of electricity generation technologies. Under its provision of high level transparency, the AETA offers comprehensive details of its underlying methodology, assumptions, parameter values and component costs within the report and its accompanying model.

It is important to note that the AETA is not intended as a predictor of future market outcomes, but rather is intended as an unbiased set of estimated technology generation costs incorporating key energy modelling, projections and planning. All common input costs (e.g. labour, materials, components, carbon price) are itemised, to ensure that the cost estimates for the various technologies are consistent. The report also includes a levelised cost of electricity (LCOE) that allows for cross-technology and over time comparisons.

The AETA is updated on a biennial basis and its conclusions are anticipated to contribute significantly to the Australian Government’s Energy White Paper, due for release later in 2012.

Executive Director and Chief Economist of the Bureau of Resources and Energy Economics, Professor Quentin Grafton, emphasised in the report that, “If planners and investors in the electricity sector are to effectively manage and adapt to this energy transformation, up-to-date and rigorous estimates of the cost of various electricity generation technologies are required.”

Minister for Energy and Resources, Martin Ferguson AM MP, said of the report, “It provides important insights into Australia’s potential electricity generation mix out to 2050 and predicts that a number of renewable energy technologies could have the lowest levelised costs within the next 20 years, helping Australia meet its Renewable Energy Target.”

Minister Ferguson continued, “The Australian Government is driving innovation and investment in these emerging technologies by putting a price on carbon and through the newly established $3.2 billion Australian Renewable Energy Agency and the $10 billion Clean Energy Finance Corporation.”

Based on Australia’s current policies, the report predicted that – of all the evaluated technologies – solar photovoltaic (both tracking and non-tracking) and onshore wind were the top two renewable technologies with the lowest potential levelised costs by 2030, noted by Mr Ferguson. The evaluated technologies encompassed a diverse range of energy sources, including renewable energy (such as wind, solar, geothermal, biomass and wave power), fossil fuels (such as coal and gas), and nuclear power.

Surprisingly, the report also indicated that a number of technologies including nuclear and wind power were already competitive, with other renewable technologies including solar-cell farms joining the energy mix in the future.

Solar costs, which have dropped dramatically in the past two to three years, appear to be a result of the market oversupply and an increase in overseas suppliers of less expensive photovoltaic cells. Manufacturing capacity for such devices has already increased and will likely continue this trend into 2030, when LCOE of AUD$116 is predicted to be feasible.

Meanwhile, larger and more efficient wind turbines are helping to decrease LCOE for wind generators, which are already experiencing a drop in costs from inexpensive overseas wind turbine manufacturers. With the recent influx of such installations (and another hundred new generators expected), end-of-life and depreciation costs are expected to stay low, resulting in a predicted LCOE of AUD$93.

Within the same time frame, solar thermal, wave, nuclear and geothermal technology costs are forecast by the AETA to decrease and become cost competitive with some coal and gas based technologies.

Coal is, in fact, gradually being costed out of the market as we move forward with a strengthened focus on renewable technologies, reflecting strongly this transition into a market wrought by carbon pricing considerations. Indeed, brown coal would remain less expensive than wind by 2030 – with an LCOE of AUD$92 – were it not for the carbon tax. Instead, factoring in the tax and projected future carbon prices, brown coal is projected to hit $157. And this isn’t merely an anomaly; prices for all forms of coal generation are expected to rise, with carbon pricing a very significant factor in these increases.

Ken Baldwin, a member of the steering committee, and Australian National University Energy Change Institute Director noted that the detailed study was the first of its kind to consider carbon pricing in its comparison of the levelised cost of electricity generated by technologies.

This inclusion, he noted, would allow decision-making on the transition to a carbon-free economy. “These figures are really indicating we are moving into a carbon pricing environment and also that things are shifting very rapidly in terms of the alternative forms of energy generation,” Prof Baldwin told AAP.

“These two things combined together show that coal doesn’t really have the long-term future many decades out.”

Professor Grafton also noted that, “Among the non-renewable technologies, combined cycle gas (and in later years combined with carbon capture and storage) and nuclear offer the lowest levelised costs of electricity generation over most of the projection period, and remain cost competitive with the lower cost renewable technologies out to 2050.”

Interestingly enough, the report predicted little success for geothermal energy, one of Australia’s most abundantly available resources, which has generated considerable stock market interest. In fact, geothermal energy costs are not projected as falling significantly even into the 2050s.

These changes, said Professor Grafton, “suggest that Australia’s electricity generation mix out to 2050 is likely to be very different to the current technology mix.”

Clean Energy Council deputy CEO, Kane Thornton, agreed with Professor Grafton on the overall changes in the way Australia generated and consumed energy, noting that “By building renewable energy now we are able to create the diversity of sources we need to have low cost and reliable energy in the future.”

Mr Thornton also asserted that every government in the country had significantly underestimated the potential for renewable energy to improve in efficiency and diminish in cost. “This report goes some way towards addressing the balance,” he said.

Indeed, as Australian policymakers continue to embrace a culture of conservancy through innovative green technologies and long-term planning, we will continue to see the gap between renewable and non-renewable energy close. Concludes Professor Grafton, “Over the coming decades, the Australian electricity sector will need to adjust to unprecedented changes in the relative cost of electricity generation technologies from technological innovation, movements in the fuel prices and climate change policies.”

In doing so, however, one can only hope that these changes will come on the backs of necessary shifts in not only the practices but also the philosophies of those involved throughout the process.

The Australian Energy Technology Assessment Report and its accompanying LCOE Model generator are available for free download online from the Energy Publications webpage, www.bree.gov.au

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July 26, 2017, 12:32 PM AEST