In 2008, the Garnaut Climate Change Review ranked Australia as the highest per capita emitter of greenhouse gases of any OECD country and amongst the highest in the world. One of the reasons for the country's high carbon footprint is its reliance on coal for electricity generation – 54 percent of it, according to the Australian Coal Association. But a new study by Bloomberg New Energy Finance (BNEF) points to a cleaner energy future with the claim that unsubsidized renewable energy is now a cheaper option for electricity generation than new coal- or gas-fired power stations.

According to the BNEF study, electricity can now be supplied from a new-build wind farm in Australia for AUD$80/MWh (US$83), while the cost of electricity supplied from a new coal plant is AUD$143/MHh (US$148) and AUD$116/MWh (US$120) for new baseload gas plants. While these figures include emission taxation under Prime Minister Julia Gillard’s carbon pricing scheme that was introduced last year, the report says that, even without a carbon price, wind energy is still 14 percent cheaper than new coal and 18 percent cheaper than new gas.

The prices are the continuation of a downward trend for renewables in Australia. Since 2011, wind energy costs have fallen by 10 percent, while photovoltaic (PV) solar has decreased by 29 percent. Conversely, fossil fuel energy generation costs have trended upward, motivated by high financing costs linked to Australia's "big four" banks charging substantial risk premiums for potential reputation damage associated with investments in technologies that emit high levels of greenhouse gases. A massive expansion of Australia's liquefied natural gas (LNG) export market in the Asia-Pacific region has also pushed local prices up and the carbon tax has added to the costs of new coal and gas facilities.

“The perception that fossil fuels are cheap and renewables are expensive is now out of date,” said Michael Liebreich, chief executive of BNEF. “The fact that wind power is now cheaper than coal and gas in a country with some of the world’s best fossil fuel resources (Australia is the world's second largest coal exporter after Indonesia) shows that clean energy is a game changer which promises to turn the economics of power systems on its head."

BNEF analysts believe the construction of new fossil fuel-fired power stations in Australia is unlikely. This is because the country isn't expected to require new baseload capacity until after 2020, by which time renewable energy will be even more cost-competitive than coal and export-priced natural gas. It's also anticipated that new technologies will have solved the intermittency problems of solar and wind by this time.

However, in the interim, clean energy investment will continue to be spurred by Australia’s Large-Scale Renewable Energy Target (LRET), a government scheme intended to complement the carbon price and speed up the adoption of renewable energy technologies with aim of ensuring the equivalent of at least 20 percent of Australia’s electricity comes from renewable sources by 2020.

Despite the push for renewables, coal is not exiting Australia's energy stage any time soon. Old Australian coal plants built in the 1970s and 1980s are still the cheapest options for electricity generation because of the depreciation of their original construction costs.

Rest of the world

Rising electricity demands from emerging nations means coal's slice of the global energy mix is also set to grow over the next few years. According to a recent forecast made by the International Energy Agency in its Medium-Term Coal Market Report (MCMR), coal’s global share will continue to rise and, by 2017, will come close to surpassing oil as the world’s top energy source. The IEA expects coal demand will increase in every region of the world except in the United States, where natural gas is undergoing a sort of "golden age." Emerging giants such as China and India will lead the growth in coal consumption over the next five years. The report predicts China will surpass the rest of the world in coal demand during the outlook period. India, in its turn, could become the largest seaborne coal importer and second-largest consumer, even beating the United States.

Parallel to higher coal demand, wind-powered electricity generation is expanding and becoming more competitive in other markets, too. A recent statement by the American Wind Energy Association asserts last year was the U.S. wind energy industry’s strongest year ever in that country. In 2012, a record 13,124 megawatts (MW) of wind energy generating capacity was installed, taking it to a cumulative total of 60,000 MW. It said this is enough to power 15 million homes, or all households in the states of Colorado, Iowa, Maryland, Michigan, Nevada, and Ohio.

The International renewable Energy Agency (IRENA) recently said one of the reasons that wind power has become competitive with fossil fuel-fired electricity is that turbine prices have started to fall again after a temporary spike. That trend is likely to continue as low-cost manufacturers from emerging economies enter the global market. In the U.S., the cost of generating wind power at the best sites can be as low as US$0.04 to US$0.05/kWh, which makes it competitive with gas-fired electricity.

China has also increased its wind generation capacity. According to the latest data from the Global Wind Energy Council, in 2012 China was producing 77 GW of wind power, the largest capacity in the world. That amount accounts for around two percent of the country’s net electricity generation.

While wind turbines can be 50 to 60 percent cheaper in China than in North America, and in recent years the Chinese government has enacted a series of policies to facilitate wind power development, wind power still costs roughly twice as much as coal.

According to Reuters, Chinese grid operators can buy wind power for government-dictated prices of 0.51-0.61 yuan (US$0.08-US$0.10) per kilowatt-hour (kWh), while electricity from coal-fired power plants sells for as little 0.3 yuan (US$0.05). However, Beijing has signaled plans to implement a quota system that would require grid operators to source 5 to 15 percent of their electricity from wind farms.

At this stage, there are no clear signs as to when renewables will reach grid parity with fossil fuels on a global level. However, clean energy specialists seem to be convinced that technology and temporary government policies will take us there, at least in some specific markets.

“As renewable energy technologies become more cost-competitive, the importance of government subsidies is set to decrease to create a sustainable growth platform for both developed and emerging markets, as well as manufacturers,” predicts Ernst & Young’s Cleantech Leader, Gil Forer.

Sources: BNEF, IEA, IRENA (PDF), Ernst & Young