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Australian wind farms undercut fossil fuel power prices

Australian wind farms undercut fossil fuel power prices

Bloomberg New Energy Finance study reveals electricity from new wind farms can be provided at a lower cost than power from new coal or gas power plants
By BusinessGreen staff 08 Feb 2013

New research from Bloomberg New Energy Finance (BNEF) has this week provided further evidence that renewable energy can increasingly compete on cost with fossil fuels, revealing that unsubsidised wind farms can undercut electricity sold by new coal or gas-fired power plants.

The analysis suggests electricity can be provided from wind farms at a cost of A$80/MWh, while the cost of power from new coal or gas plants, which is now subject to a carbon tax, stands at A$143/MWh and A$116/MWh respectively.

Significantly, even when the impact of the Australian carbon tax is stripped out wind power is still 14 per cent cheaper than new coal and 18 per cent cheaper than new gas.

"The perception that fossil fuels are cheap and renewables are expensive is now out of date," said Michael Liebreich, chief executive of BNEF, in a statement. "The fact that wind power is now cheaper than coal and gas in a country with some of the world's best fossil fuel resources shows that clean energy is a game changer which promises to turn the economics of power systems on its head."

The company's analysis suggests the cost of wind power in Australia has fallen 10 per cent since 2011, while the cost of solar PV has fallen 29 per cent, aided by the global glut in solar panels.
Meanwhile, the cost of new coal plants is rising as a result of high financing costs and investor fears over long-term reputational and legislative risk, and the cost of gas is being driven up as Australia expands its liquefied natural gas export capacity, giving gas suppliers access to global markets.

"The results suggest that the Australian economy is likely to be powered extensively by renewable energy in future and that investment in new fossil-fuel power generation may be limited, unless there is a sharp, and sustained, fall in Asia-Pacific natural gas prices," BNEF said.
Kobad Bhavnagri, head of clean energy research for BNEF in Australia, said investors were unlikely to support new fossil fuel power plants.

"[Coal-fired power stations] are just too expensive now, compared to renewables," he said. "Even baseload gas may struggle to compete with renewables. Australia is unlikely to require new baseload capacity until after 2020, and by this time wind and large-scale PV should be significantly cheaper than burning expensive, export-priced gas."

However, Australia remains largely reliant on its existing coal power infrastructure, which has made the country one of the highest per-capita emissions in the world, and Bhavnagri warned ambitious renewable energy policies would still be required to deliver deep emission reductions.

"New wind is cheaper than building new coal and gas, but cannot compete with old assets that have already been paid off," he said. "For that reason policy support is still needed to put megawatts in the ground today and build up the skills and experience to de-carbonise the energy system in the long-term."

The research is the latest in a series of studies to suggest renewables are fast approaching a level where they can compete with fossil fuels on costs - a point commonly referred to as "grid parity".

Numerous studies from the solar industry have predicted solar power will be able to undercut coal power in hot countries by the end of the decade, while Bloomberg recently reported that four energy developers in Brazil had signed a deal to sell power from 10 proposed wind farms at a world record low price 87.94 reais/MWh ($42.16).