Burning questions: Is coal power really cheaper than renewables?

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A fresh fight has erupted over the cost of coal in the nation’s electricity grid, with a clique of Coalition MPs calling for a renaissance of the fossil fuel industry while the Albanese government doubles down on renewables as it sets a new climate target for 2035.

Continuing to replace coal with more wind, solar and hydropower is central to the Albanese government’s commitment, announced last week, to cut emissions by at least 62 per cent within 10 years in a bid to tackle global warming.

But a group of opposition MPs is renewing calls for Australia to dump its emissions targets, ditch the goal to reach net zero, and build more coal plants, claiming this would flood the electricity grid with cheap power and revive the energy-hungry manufacturing sector.

“We need cheap energy,” Liberal MP Andrew Hastie said last week, imploring Australia to “make the most of our coal”.

Nationals Queensland Senator Matt Canavan, who has built his political brand on promoting fossil fuels, has repeatedly declared “coal is the cheapest form of electricity generation in Australia”.

The federal government, meanwhile, has a set a goal to boost clean energy to 82 per cent of the grid by 2030. “The cheapest form of energy is renewables,” Prime Minister Anthony Albanese says.

Is coal really cheaper than renewable energy?

At the heart of the political fight is the CSIRO’s annual energy cost report card, known as GenCost. Its latest update in August found that a new coal plant, using the most modern technology to keep emissions down as much as possible, would produce electricity for between $111 to $178 a megawatt hour.

But electricity produced from renewable energy, CSIRO found, would cost between $116 and $165 a megawatt hour – and that’s factoring in the estimated $40 billion in rollout costs to pay for the large batteries and fast-start gas turbines needed to back up wind and solar farms, and the extra transmission links to connect far-flung renewable energy zones to major cities.

The above costs were calculated in today’s dollars and assumed the current price of construction.

GenCost uses a levelised cost of energy calculation to price energy from various technologies. This represents the price needed for an electricity generation plant to earn back the cost of its construction and running costs over its lifespan.

However, state and federal governments cannot ignore emissions. Due to binding climate targets, they must assess pollution impacts, and coal is one of the highest-emitting sources of energy, responsible for much of the pollution that is driving global warming.

Is a coal-dominated electricity grid still realistic?

Coal-fired power stations still supply more than 50 per cent of Australia’s electricity, but not for much longer: at least half of the remaining coal generation fleet is due to shut within 10 years. Two of the nation’s largest coal plants – Yallourn in Victoria and Eraring in NSW – had initially been due to keep running until the 2030s, but have made commercial decisions to bring forward their closure dates over the past four years, partly due to the soaring costs of maintaining ageing infrastructure.

Australia’s coal plants are already among the oldest in the world, and operators have warned they are increasingly prone to equipment faults and breakdowns, and cannot stay open long after their scheduled retirements.

Their profits and viability are also under mounting pressure. When the sun is bright in the middle of the day and the grid is overflowing with cheap electricity from solar farms and millions of rooftop solar panels, giant coal-fired generating units, unable to ramp up and down quickly, simply cannot compete.

The Australian Energy Market Operator (AEMO) assumes more coal-fired power stations will accelerate their closures in the years to come, with 90 per cent expected to retire by 2035.

Investors are unlikely to greenlight the construction of new coal plants to replace them. In Australia and around the world, a growing number of banks and insurers have been withdrawing from coal lending, while shareholders in publicly traded power utilities, such as AGL, have meanwhile been ratcheting up pressure for their boards to commit to stronger decarbonisation plans.

How much would coal power cost if we ditched net zero?

Recent studies by energy experts examined what the cost of electricity would be by 2040 if the grid was powered by nearly all renewables, or if it was dominated by coal.

One of the reports focused on Queensland costs, by Professor Paul Simshauser and Associate Professor Joel Gilmore from Griffith University’s Centre for Applied Energy Economics and Policy Research, said a 50 per cent renewables buildout would supply power for $100 per megawatt hour, while coal would cost $150.

Another of their reports, focused on Victoria, found a coal grid would be even more expensive at $180, while renewables would be $130.

The current average wholesale price for electricity is around $90 per megawatt hour.

Coal lobbyists and Canavan have said estimates of coal power costs are based on flawed assumptions, and are likely to continue to claim they are too high.

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