Solar, onshore wind and gas backup is (still) the cheapest way to power Australia: new report

What’s the cheapest way to power Australia? Every year, CSIRO researchers and modellers seek to answer this very large question in their GenCost report.

On one level, the answer in the draft 2025–26 report is unsurprising: solar and wind are the cheapest form of generation.

However, this report has gone further by modelling the cheapest cost across the grid, including different power generation options, energy storage, transmission lines and gas backup. Here, solar and wind still come out on top for generation, with batteries to play a larger role than previously estimated, given plunging prices.

In Australia, large-scale battery prices fell 20% over 2024–25 and a further 15% is anticipated over 2025–26. Surging electricity demand to support electrification and to power AI data centres means costs have spiked for anything to do with turbines – coal, gas and nuclear – and delays are long.

If renewables reach 82% of grid generation by 2030 as the government plans, the report suggests this would result in wholesale power costs of A$91 per megawatt hour – about a third lower than today’s $129/MWh. Both figures are in current dollars. By 2050, prices would head back to levels a bit higher than present day ($135–148/MWh) to cover the cost of retiring coal plants, building new transmission lines and energy storage.

The 2050 figures should be viewed as current best estimates based on prudent assumptions, rather than committed forecasts. Modelling power prices a quarter of a century in the future depends on many variables.

CSIRO’s report concludes natural gas generation is the best form of backup, even though it produces emissions. This is because other forms of backup would be more expensive than cutting the same volume of emissions elsewhere in the economy.

What changed this year?

One of the most interesting things about this report is what it rules out. On price alone, CSIRO concludes three things are unlikely to feature in Australia’s future grid.

1. Offshore wind

The plight of offshore wind may be surprising, given offshore wind farms dot the North Sea and off the coast of China. Costs had begun rising due to pandemic-era supply chain issues. But the major change this year has been political. United States President Donald Trump has moved to scrap many huge offshore wind projects, even when half-built. Meanwhile prominent activists have run effective misinformation campaigns.

To date, Australia has no offshore wind farms. Developers have pulled out of many projects amid the uncertainty, though the giant Star of the Sea project in Victoria is still in progress.

2. Carbon capture and storage

Earlier this century, governments and coal and gas power plant owners were exploring ways of using carbon capture and storage to separate carbon dioxide from exhaust plumes and bury it. In Australia, most coal plants are instead heading for the exit. By contrast, China is expanding use of the technology as it will need to rely on coal for longer.

Instead, carbon capture and storage is likely to be most useful in Australia to store emissions from industry and manufacturing.

3. Nuclear

Ahead of the last federal election, the Coalition pitched a nuclear-powered vision of the future. Last year’s GenCost report poured cold water on this idea on cost grounds, finding nuclear would be double the cost of renewables.

This year, there’s been renewed international interest in small modular reactors as a way to meet AI data centre energy demand. But most reactor designs are years away from reality. The GenCost report suggests nuclear remains much too expensive an option for Australia.

Building backup

This year’s GenCost report suggests wholesale electricity costs will fall substantially by 2030 if the government meets its 82% renewable target, before rising again by 2050.

It’s very optimistic to give 2050 estimates with any certainty. But our research at the Grattan Institute does match CSIRO’s early estimates of falling costs.

We would also expect power system costs to rise again, given most of the new transmission lines needed to connect renewables to the grid haven’t been built yet and much more energy storage will be needed. These costs will be passed on to consumers, which is why GenCost modelling suggests 2050 power prices are likely to be similar to prices today.

One of the challenges with greening the grid is how much backup to build for rare periods of low wind and sun spanning large areas. This month, Australia’s energy market operator updated its grid planning, which envisages 14 gigawatts of gas capacity by 2050, slightly up from current capacity. These plants would only fire up as a backup.

New transmission lines must also be built to ensure renewables can funnel power across the grid, though CSIRO estimates these costs at just 7% of consumer bills. In its latest draft plan for the integrated system, Australia’s energy market operator has dialled back transmission ambition, due to factors such as higher costs, rural pushback and backsliding in Queensland.

The future role of natural gas generation is still in question. Some gas plants are ageing and will have to be replaced. When gas peaking plants fire up at present, they command a very high price for their power. But in a grid with a very high level of renewables, they may be required less often, be even more valuable, and demand a higher price. It’s unclear how these backup plants can be financed as insurance against rare but challenging events.

CSIRO’s GenCost report is widely recognised as the key reference for future costs of power generation. These reports are frequently weaponised by politicians, and the agency itself can suffer blowback. But the solid analysis and modelling in these reports should withstand such buffeting.