Wind and solar power are the fastest growing electricity sources in our energy mix – but how does the cost of these renewables compare to other forms of generation?

Each year, the GenCost report – a collaboration between CSIRO and the Australian Energy Market Operator – provides estimates for the costs of building new electricity generation and storage projects.

The report covers a range of technologies, including coal, natural gas, solar thermal, nuclear and solar photovoltaic (PV) and wind. (The report groups solar PV and wind together, for the purpose of its projections, since its modelling indicates these technologies are best deployed in tandem.)

The report draws on the expertise of a large number of energy industry stakeholders, and is used by business leaders and decision makers to help guide their plans for the future.

How does GenCost calculate electricity costs?

The report projects the cost of new-build electricity generation technology. It includes two types of data – capital costs and levelised costs.

Capital costs cover the investment required for each technology, excluding running costs, and are updated with input from an engineering firm.

Levelised costs represent the per-unit cost of building and operating a generator over its lifetime, providing a standardised measure for comparing electricity production costs across different technologies.

These levelised costs combine capital expenses with running costs such as operations, maintenance, and fuel, allowing for side-by-side comparison of technologies.

For investors, the Levelised Cost of Electricity (LCOE) indicates the average price of electricity needed over the investment's design life to recover all costs and achieve a reasonable return. The technology with the lowest LCOE is considered the most competitive.

Does GenCost account for the cost of integrating renewables into the grid?

The report found that renewables have the lowest LCOE of any new-build technology when they’re considered as stand-alone technologies, without any additional costs.

But in practice, that’s not how these technologies work. The output of solar panels and wind turbines is variable, or intermittent – it changes depending on the weather and the time of day.

In order for the grid to provide a continuous flow of energy to homes and businesses, even when the sun isn’t shining and the wind isn’t blowing, these variable energy sources need to be firmed with dispatchable sources that aren’t dependent on the weather, and can be ramped up quickly to cover shortfalls in supply.

Integration costs are the investments required to reliably integrate variable renewables like solar and wind into the grid. These costs include investments in energy storage, peaking generation , transmission and synchronous condensers.

So, to make sure the comparison with other technologies that don’t require integration costs is fair, the GenCost report includes integration costs in its analysis of solar PV and wind technologies.

Are renewables cheaper?

The latest edition of the GenCost report (2023-24) found that renewables – i.e. solar and wind + firming – remain the cheapest new-build technology, even after factoring in the expense of integrating them into the grid.

This is despite the fact that the cost of onshore wind generation technology increased by 8 per cent over the last year, as a result of inflationary pressures that had a disproportionate impact on the wind industry’s material inputs and supply chains.

The report found energy from renewables will cost between $89 and $128 per megawatt-hour (MWh) by 2030, even with variable renewables accounting for 90 per cent of the generation in the grid. At 80 per cent, the cost falls to between $83 and $120.

This cost range overlaps with the lower end of the cost range for coal and gas generation – but these are high-emission fossil fuels that wouldn’t be consistent with Australia’s climate change policies, if they were used to deliver the majority of Australia’s power supply.

In Queensland, it’s expected that the majority of the state’s energy will come from renewables by 2035. By that stage, Queensland will no longer need to rely on coal-fired generation . Gas will still be needed to firm the grid , but it’s expected that Queensland will convert existing gas turbines – and install new turbines reducing emissions further.

It all adds up to a clean energy future that’s better for the environment – and, ultimately, easier on our wallets.