Record lows for wind and solar costs

 From The Guardian

Renewable energy companies have promised to build and operate projects for record low minimum power prices in a New South Wales government tender that shows market interest is high.

The results of NSW’s first renewable energy tender were released on Monday, kicking off a series of auctions to be held over the next decade as the state transitions from coal-fired power generation.

The tender process fosters competition while providing companies and their backers with the confidence to develop projects, as winning bidders are guaranteed a minimum price for energy generation. When energy prices are higher than an undisclosed maximum, the spoils will be shared between the energy companies and the NSW government.

There were winning bids of less than $35 a megawatt hour for two solar farms and less than $50 a megawatt hour for a windfarm, the auction organiser, Aemo Services, said. These prices are perhaps the lowest for such auctions ever seen in Australia.

“The transition to clean renewable energy in NSW is essential and under way,” said the NSW energy minister, Penny Sharpe.

“This tender has shown how much demand there is to invest in NSW to build renewable energy and it is very welcome that this investment will also support 3,300 jobs over the next 10 years.”

The first tender locks in 1.4 gigawatts of new clean energy generation, bringing the total committed so far to 4.1 gigawatts as part of the former Coalition government’s 12 gigawatt target by 2030. This will go some way to replacing the coal-fired power stations dropping out of the market, such as AGL’s Liddell power plant did last week.

The new Labor state government has made public its concerns that the looming exit of Origin’s Eraring power station – the nation’s largest – in 2025 could leave the market short of supply in periods of high demand.

The tender also included long-duration renewable energy storage. The winning bidder, RNE Renewables, offered a battery that would supply 50 megawatts for at least eight hours (400 megawatt hours). AEMO Services did not provide the winning bid’s price.

Three of the four winning bids were for projects in NSW’s special renewable energy zones, including ACEN Australia’s 720 megawatt solar farm planned for New England and a 400 megawatt solar farm earmarked for the central-west Orana zone, also by ACEN. The battery is in the south-west zone.

Goldwind Australia also won for its 275 megawatt Coppabella windfarm in the southern tablelands.

AEMO Services estimates the projects will avert as much as 11m tonnes of carbon dioxide emissions over a 20-year period.

Wholesale power prices in the national electricity market averaged $83 a megawatt hour in the first quarter of 2023, down about two-thirds from the record levels of $264 averaged in the June quarter of last year.

The executive general manager of AEMO Services, Paul Verschuer, said the projects were first assessed on their “social licence commitments, deliverability and quality”, with a second level assessing financial value.

“This tender round has brought forward a range of innovative and considered initiatives from proponents, including ambitious projects to secure employment outcomes for First Nations people, careful and creative site selection and other community benefits,” Verschuer said.

To put this in perspective, A$35/MWh is US$24/MWh, A$50/MWh is US$35/MWh.  Or, another way of looking at it, A$35/MWh is 3.5 cents per kWh.  This is extraordinarily cheap.  I pay >30 c/kWh, as well as a monthly fixed charge for the "poles and wires".       

Because wind blows at night when the sun doesn't shine, and because wind is at worst uncorrelated with solar, and at best negatively correlated, it's easier to get a stable grid with a mixture of wind and solar.  Its average cost would be $42.50/MWh.  

Even if you have twice as much capacity as you would on average need, the cost per MWh would be $85, way below the cost of new coal or gas (>$120/MWh).  And that assumes that output is curtailed when there is too much wind and sun.  What if surplus green electricity is used to make green hydrogen and green methane instead of being curtailed?  Then the cost is lower.  What if we build more HV powerlines, connecting areas with different climates and time zones, minimising the need for overcapacity?  Then the cost is lower, too.  

In other words, at these prices, we can easily switch to 100% renewables at a lower cost than the existing grid.  (Last year in NSW, the average grid price was $198/MWh, the year before $81.)   So far this year, just 31% of NSW's electricity has come from renewables, including hydro.   The new renewable energy zone concept, which involves HV grid connections plus a guaranteed minimum price set by auction, will turbocharge NSW's switch to renewables.