Renewables are cheap. So why isn’t your power bill falling?

Power prices are set to go up^[1] again even though renewables now account for 40% of the electricity in Australia’s main grid – close to quadruple the clean power we had just 15 years ago^[2]. How can that be, given renewables are the cheapest form of newly built power generation?

This is a fair question. As Australia heads for a federal election campaign likely to focus^[3] on the rising cost of living, many of us are wondering when, exactly, cheap renewables will bring cheap power.

The simple answer is – not yet. While solar and wind farms produce power at remarkably low cost^[4], they need to be built where it’s sunny or windy. Our existing transmission lines link gas and coal power stations to cities. Connecting renewables to the grid requires expensive new transmission lines, as well as storage for when the wind isn’t blowing or the sun isn’t shining.

Notably, Victoria’s mooted price increase^[5] of 0.7% was much lower than other states, which would be as high as 8.9% in parts of New South Wales. This is due to Victoria’s influx of renewables – and good connections to other states. Because Victoria can draw cheap wind from South Australia, hydroelectricity from Tasmania or coal power from New South Wales through a good transmission line network, it has kept wholesale prices the lowest^[6] in the national energy market since 2020.

While it was foolish for the Albanese government to promise^[7] more renewables would lower power bills by a specific amount, the path we are on is still the right one.

That’s because most of our coal plants are near the end of their life. Breakdowns are more common and reliability is dropping^[8]. Building new coal plants would be expensive too. New gas would be pricier still. And the Coalition’s nuclear plan would be both very expensive and arrive sometime in the 2040s, far too late to help.

Renewables are cheap, building a better grid is not

The reason solar is so cheap and wind not too far behind is because there is no fuel. There’s no need to keep pipelines of gas flowing or trainloads of coal arriving to be burned.

But sun and wind are intermittent. During clear sunny days, the National Energy Market can get so much solar that power prices actually turn negative^[9]. Similarly, long windy periods can drive down power prices. But when the sun goes down and the wind stops, we still need power.

This is why grid planners want to be able to draw on renewable sources from a wide range of locations. If it’s not windy on land, there will always be wind at sea. To connect these new sources to the grid, though, requires another 10,000 kilometres^[10] of high voltage transmission lines to add to our existing 40,000 km. These are expensive and cost blowouts have become common. In some areas, strong objections^[11] from rural residents are adding years of delay and extra cost.

So while the cost of generating power from renewables is very low, we have underestimated the cost of getting this power to markets as well as ensuring the power can be “firmed”. Firming is when electricity from variable renewable sources is turned into^[12] a commodity able to be turned on or off as needed and is generally done by storing power in pumped hydro schemes or in grid-scale batteries.

In fact, the cost of transmission and firming is broadly offsetting the lower input costs from renewables.