The penny has finally dropped. Coal is the cheapest form of electricity generation in Australia. The CSIRO finally admitted that this week in an update to its GenCost reports.
For years the CSIRO has maintained that solar and wind is cheaper than coal but that relied on making assumptions that biased the calculations against coal. While that bias remains in their latest report, increases in the costs of renewables, and reductions in coal prices, has meant that even they could not hide coal being the cheapest.
In their latest report, the CSIRO finds that the low end of coal fired power costs $111 per megawatt hour. Solar and wind (with some form of backup) come in at least $116 per megawatt hour. Now that difference is marginal but the gap is larger than it looks because the CSIRO loads the dice against coal.
First, the CSIRO assumes that coal fired power stations only last for 30 years. However, many coal fired power stations have run for 50 years or more. The effect of this means you must recover the costs of building a coal fired power station over fewer years which increases average costs. If the CSIRO assumed a 50 year life it would almost halve the capital costs of a coal project.
Second, the CSIRO uses a bizarre method to calculate its range of coal fuel costs. Instead of just taking the minimum and the maximum costs of existing coal fired power stations, the CSIRO takes the average of those costs as the minimum and the highest cost as the maximum. The choice of the upper end of coal costs has no rationale, especially when any new coal fired power station would probably be built at a coal mine mouth where costs are typically lower.
Third, the CSIRO insists on only costing an Advanced Ultra Super Critical coal fired power stations. This technology is still at the development stage and only around 5 have been built around the world. Most new coal fired power stations are built to an Ultra Super Critical technology so why does the CSIRO refuse to cost them?
The result is that the CSIRO estimate the cost of building a new coal fired power station at over $6 billion per gigawatt hour. China has recently built coal fired power stations for a cost of just $500 million per gigawatt hour. We would not be able to build things for the same cost as China but we should not be more than 10 times the cost, and if we are, then we are in more trouble than we think.
Fourth, the CSIRO assumes that any new coal fired power station would need 50 to 100 kilometres of rail line to connect coal mines to a power station. This is despite there being many places where a power station could be built at either an existing power station or at a mine mouth where there would be no need for new rail links. This adds hundreds of millions of dollars to the cost of coal.
The CSIRO’s new report is embarrassing for the Labor Government that has relied so heavily on its work to justify its renewables only energy policy. But the results should not have been unexpected.
Last year Arche Energy, with economist Gene Tunny, released a report comparing the cost of electricity which removed the CSIRO’s biased assumptions. To no surprise their report showed that coal fired power came in much cheaper than solar and wind. Coal was costed at $82 per megawatt hour and wind and solar at $125 per megawatt, so coal was 35 per cent cheaper.
These figures are a test for the newly elected Labor Government. What are their priorities? Do they pursue a globally imposed net zero target even though it will mean we have higher electricity prices? Or do they run our energy system to deliver the cheapest power for Australians?
I don’t think it should be a hard question. The Australian Government should put the interests of Australians first.
