The counterfactual policy scenario: are renewables cheaper?

Electricity prices across Europe, North America and Asia-Pacific surged following the outbreak of the Russia-Ukraine war, driven by severe spikes in LNG and coal prices. In Australia, average household electricity tariffs in the National Electricity Market were ∼23c/kWh in 2021. By 2025 tariffs had increased by 33% to ∼30c/kWh, and provides an interesting case study of predictable policy aftershocks. Australians were told renewables would be cheaper, yet electricity bills had risen sharply. Are renewables cheaper? In this article, we focus on the wholesale market component of retail electricity tariffs in Australia and examine a counterfactual policy scenario – a world where market entrants over the past two decades were constrained to coal- and gas-fired generation, rather than renewables. We compare these results to the NEM's transitioning plant stock, with ever-rising levels of wind, utility-scale and rooftop solar, along with the emergent firming fleet, viz. batteries, pumped hydro and new entrant gas turbines. Our counterfactual policy scenario would result in wholesale market costs and prices ∼30-50% higher. Coal and gas were once unambiguously the NEM's lowest cost entrants. That period has ended. Structurally high coal plant costs and export-linked gas prices means renewables and firming assets represent the dominant new entrants to meet demand growth, and supply gaps created by aging coal plant closures.