A new analysis has revealed that inflation and supply chain issues have resulted in significant cost increases for renewable energy projects in Australia. These cost pressures are expected to persist until the end of the decade. The Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Australian Energy Market Operator (AEMO) have published a report examining the latest changes in the costs of electricity generation technologies for Australia’s transition to net zero emissions. For the first time, the report showed that the costs of all technologies had increased compared to the previous year.
The report highlighted that onshore wind experienced the highest increase in capital costs, rising by 35 percent, followed by gas open cycle and black coal at 24 percent. Rooftop and large-scale solar panels saw a nine percent increase in costs. Storage technologies also reported substantial cost growth, with construction and installation costs rising by 13 percent for one-hour duration batteries and up to 28 percent for eight-hour duration batteries. The COVID-19 pandemic and disruptions in global supply chains caused by the war in Ukraine were identified as factors contributing to these cost increases.
Furthermore, the report noted that the global race to replace fossil fuels as a means of electricity production also contributed to the rising costs of renewable energy projects in Australia. Despite these challenges, CSIRO chief energy economist Paul Graham mentioned that there were signs of input cost moderation in technologies. However, he acknowledged that uncertainties in future prices and the robust demand associated with the global energy transition could delay the mitigation of cost pressures beyond 2030.
The report forecasted that the costs of solar and wind would decrease as manufacturers increased production. However, it cautioned that new fossil-fuel generation could face higher financing costs over time due to the government’s goal of achieving net-zero emissions by 2050. Despite the significant cost increases, CSIRO found that renewable energy remained the cheapest option for new-build electricity generation in Australia. The levelized cost of electricity for solar panels in 2022 ranged from $48 to $81 per megawatt hour, while onshore wind varied between $58 and $96 per megawatt hour. In contrast, offshore wind projects were more expensive, ranging from $149 to $194 per megawatt hour, comparable to other fossil fuel options.
The report did not include the cost of small modular nuclear reactors, despite their potential to provide stable generation capacity for the grid. CSIRO stated that it would include the cost of small modular reactors in future reports. AEMO emphasized the importance of the new costing data for the transition to net-zero in the energy sector, noting the need for investment in generation to fill the gaps left by coal-fired power generation and in firming, which provides on-demand energy to balance out the fluctuations from variable renewables.