Australia’s energy transition
The cost of renewable-generated electricity keeps on falling
Further shifts in relative costs favour renewable energy, and bring batteries to the fore.
“Renewables remain the lowest-cost new-build electricity generation technology, while nuclear small modular reactors (SMRs) are the most costly.”
That’s the first sentence in the CSIRO’s summary of its GenCost report, which updates the cost estimates of electricity generation based on different technologies. It finds that by a substantial margin solar photovoltaic and wind, with firming included, is the cheapest form of electricity generation – around $70 to $140 per MWh (7 to 14 cents per KWh in more familiar units).
The cost of large-scale batteries is falling particularly quickly. Just this month, on the site of the former Munmorah coal-fired power station in New South Wales, an 850 MW/1680 MWh battery has come on line, allowing the power system to cope with surges in demand, or rapid fluctuations in supply from solar and wind energy.
Relative prices of different technologies keep moving: it’s unsurprising that price movements favour newer technologies over more established technologies, such as nuclear and coal.
These shifts in relative prices will undoubtedly influence the pattern of investment in renewable energy, probably favouring a more distributed system rather than a centralized one.
Voices for a carbon price
A carbon price is the most economically efficient and market-friendly way to get to net zero, but are we held back by memories of Tony Abbott’s economic vandalism?
Ross Garnaut argues that we should once again go for a carbon price, as we did for a short period before the incoming Abbott Government abolished it in 2014. He re-iterates the case for carbon pricing in a Conversation contribution: Let’s tax carbon: the time is right for a second shot at carbon pricing – an extract from his book Let's tax carbon: and other Ideas for a Better Australia.
Writing in Renew Economy Rachel Williamson supports Garnaut’s call, pointing out how the collapse in the price of Large-scale Generation Certificates is unintentionally benefiting gas generators, and that subsidies for the Capacity Investment Scheme are imposing a heavy demand on public finances: Garnaut says carbon price could solve budget black hole and fill funding gap from LGC collapse.
This debate is in the context of our commitment to achieve net zero from our own use of energy, but Independent Member of Parliament Zali Steggall urges us to go one step further, and to apply a carbon tax on fossil fuel exports – or risk losing revenue to other nations that apply a carbon price to fuel imports.
Writing in The Conversation Felicity Deane of the Queensland University of Technology explains how a carbon price would be the most economically efficient way to tackle climate change, while having a positive effect on the public budget. A carbon price carries political risks, however, particularly if in its early years it results in higher prices for household energy such as electricity and gasoline: Economists want a carbon price comeback – but does Australia have the political courage?.
In terms of macro resource allocation there isn’t much theoretical difference between a carbon price and subsidies for clean energy. They can both be designed to bring to account the externalities of CO2 pollution. Economists tend to prefer a carbon price, because it can operate with little need for government intervention – which is why opposition to a carbon tax is so oddly inconsistent with the general principles of the Liberal Party. Subsidies are more complex because they involve both taxing and spending, but they can be shaped to be consistent with industry policy and it is probably more equitable to collect revenue to finance subsidies through general taxation measures rather than through energy bills.
The real price of electricity has been falling for two years
Even without rebates, the price of electricity has fallen by 6 percent over the last two years.
Doesn’t everybody know that but for those Commonwealth and state subsidies, the price of electricity would be going through the roof?
Beware of “everybody knows” statements, because they are often wrong, as this one is.
Electricity prices shot up in June 2023, as a result of the Australian Energy Market Operator’s pricing decision, following global energy price rises consequent on Russia’s invasion of Ukraine. But in spite of new AEMO determinations in 2024 and 2025, electricity prices have been stable since then, and consumers have been compensated with rebates which have effectively kept prices at around their pre-invasion level.
These movements can be illustrated graphically. Below is a replica of a graph regularly published by the ABS in its CPI series, showing the electricity price indexed to 100 at June 2023. The black line shows the index before rebates, and the red line shows the index after the application of rebates.
The green line is an addition, deflating the non-rebated price to the CPI. It’s an index of the real, inflation-adjusted price of electricity. It has been falling from its peak of 117.2 in September 2023 to 110.0 in June 2025 – a fall of 6 percent. To re-frame, the real price of electricity to households has fallen by 6 percent since its 2023 peak.
This doesn’t fit the “everybody knows” narrative of ever-rising electricity prices. Coalition politicians and the fossil fuel lobby don’t want to bring it to our attention. Busy journalists, even if they are familiar with the arithmetic of indexation, find it too hard to explain. And because of deliberate obfuscation by so-called electricity “retailers”, few people know how much they pay per KWh for electricity.
Although people may not know the price of electricity, they are more conscious of the size of their electricity bills. The basic driver of one’s electricity bill is the amount of electricity used, and there are many reasons people may use more electricity. In fact households that disconnect from gas have higher electricity bills, but generally lower energy bills. And when people buy electric cars their electricity bills will rise, but their energy bills will fall even further.
We should be suspicious when politicians talk about rising electricity bills, and challenge them to re-frame their arguments in terms of prices – preferably real, inflation-adjusted prices. Similarly we should call on journalists to be more disciplined with their language when they confuse prices and bills. They are different.
Coming changes in the National Electricity Market
The rules about the wholesale electricity market are up for review. Maybe there will be a better deal for Australia’s 3.6 million electricity generators.
The prices consumers see in their electricity bills are a long way from the wholesale price of electricity, to which are added the costs of transmitting electricity, distributing it locally, and retailers’ (mainly undeserved) margins.
The wholesale price of electricity is set by the Australian Energy Market Operator every five minutes, based on the price offerings of different generators – essentially an application of the economists’ principle of marginal cost pricing.
The government has established a review of this mechanism, which is likely to become more difficult to manage as more generators and sources of storage (batteries and reverse hydro) come on line. Among those generators not easily accommodated by the existing mechanism are 3.6 million establishments, mainly households, with rooftop solar, which to date have been seen as operating outside the National Electricity Market rules – rules that are constructed around the traditional economic concept of separate “suppliers” and “customers”.
At times rooftop solar is a major source of electricity in the NEM, as shown in the chart below, a screenshot of Renew Economy’s live supply and demand widget, at 1300 hrs on Wednesday – around peak solar time – when rooftop solar was supplying 36 percent of all electricity generated, and other renewable sources were providing another 19 percent.
There is the possibility that the review will result in a fairer deal for people feeding electricity into the grid, particularly if they do so at times of peak demand. The government’s policy of subsidising domestic batteries to complement rooftop solar may provide a competitive nudge to the electricity corporations to offer higher feed-in tariffs, when households have the opportunity to direct their own supply to their own needs.
Meeting emissions targets
The government is too unambitious, and the Coalition has sentenced itself to irrelevance.
Next month the government will have to announce 2035 emission reduction targets, on the way to net zero by 2050.
Writing in The Conversation, Anna Malos and Anna Skarbek of Monash University claim that Australia can hit an 85 percent emissions cut by 2035 – if government and business seize the moment. They explain that this is considerably more ambitious than the 75 percent cut the Climate Change Authority seems to be considering, but they refer to modelling done by the CSIRO and Monash University showing it is achievable. This modelling relies strongly on a rapid reduction of emissions in transport, manufacturing and agriculture, and on conservation measures elsewhere.
The Clean Energy Council reports that 2024 saw strong growth in clean energy investment in the electricity sector, adding 2 GW of large-scale renewable capacity. But according to Sophie Vorrath of Renew Economy, renewable investment fell off a cliff in the first half of this year. That’s probably explained by political factors: until the polls started to turn in February and March investors would have been factoring in the economic risk of the election of a Coalition government.
Rather than learning from its terrible election loss, the Coalition is tearing itself apart over renewable energy targets. Before the election they were at least trying to put forward an energy plan, even if it was based on absurdly unaffordable nuclear energy. But the post-election political stoushes within the Coalition parties have nothing to do with tonnes of carbon dioxide, gigawatt hours of capacity, price per KWh of electricity or other matters to do with energy policy. As Paul Sakal writes in The Age and Sydney Morning Herald (Right-wing group targets “weakling” Liberals, as Hastie pushes Ley to dump net zero), and as Mike Seccombe writes in the Saturday Paper (Barnaby Joyce: “He’s not hunting ducks. He’s hunting David Littleproud.”) it’s all about “leadership” tensions in the Coalition parties.
The only mention of energy policy in right-wing circles is in relation to the supposed aesthetic impact of panels, transmission lines and wind turbines on our rural landscape – as if we can turn a blind eye to land clearing, overgrazing, eutrophication of waterways through overuse of fertilizers, soil erosion, and a proliferation of junkyards of abandoned farm equipment and buildings. More responsible farmers know they have a vital stake in reducing emissions.