Whenever you hear a politician say that this or that source of energy is the “cheapest” form of power they are normally talking about the future even though they are using the present tense.
Take for example Chris Bowen’s claim that the CSIRO’s GenCost report shows that “renewables remain the cheapest form of energy”. You have to read the report to understand that it does not include figures on the cost of building coal, gas or renewable power stations in the recent past. Instead, the CSIRO commissioned an engineering firm to estimate what the cost of building these things would cost in the future.
My experience with consultants has made me cynical. The old joke about them goes, ask a consultant what 2 + 2 equals and they will whisper back, “how much would you like it to equal?” So it is normally better to look at what happens in the real world rather than be guided by the ‘choose your own story’ world of the professional consultant.
Finally someone has investigated how the energy world is rather than how they would like it to be. In a new paper, for the Alliance for Responsible Citizenship conference, Gene Tunny and Gerard Holland have done just that by using the recent cost of building coal, gas and renewable plants for their calculations.
Using their numbers, it costs $1.5 billion to build a 1000 megawatt hour coal fired power station (roughly the size of a large power plant) and between $4.2 and $21.2 billion for a nuclear power plant. These are the actual costs of building real power plants, not estimates or projections.
Calculating the cost of renewables is more costly given the need to provide backup power. But the average cost of replacing all our coal fired power plants with renewables works out at roughly $11 billion per 1000 megawatts of reliable power.
So, on a capital cost basis, basis a coal fired power station is almost a tenth of the cost of renewables. Even if it costs more to build such a power station in Australia, the savings would be considerable.
It is true that these figures do not consider the higher fuel costs of coal fired power. But, even after taking that into consideration (and the higher construction costs in Australia) coal fired power offers wholesale power prices of $50 to $100 per megawatt hour compared to $150 to $200 per megawatt hour for renewables.
Aluminium smelters say that they need an energy price of around $55 per megawatt hour to stay in business. Without coal, it will not matter what Trump does with tariffs, Australian aluminium jobs will be lost and the Gladstone economy would be smashed.
Nuclear power offers wholesale power prices of $100 to $150 per megawatt hour. Higher than coal but still up to one-half lower than renewable energy.
This result mirrors that of the International Energy Agency, who like this paper, compares real world data. The IEA concluded that “the long-term operation of nuclear power plants constitutes the least cost option for low-carbon generation.”
All of this is not to argue that we should only produce one type of power. What is cheapest on paper will not always be the best solution in the real world. Some customers will pay the premium for lower emission nuclear energy (like data centres). Renewables will have applications where reliable power is not as crucial, or in remote locations away from the grid.
The greatest sin of our energy policy is to obsessively pick just one type of energy based on mythical estimates of costs. This approach has led our power prices to skyrocket and for Australia to lose thousands of industrial jobs.
The good news is that Australia is blessed with all these types of energy and we can restore our manufacturing strength. All it takes is to return from the land of make believe to the real world.
