Gene costs started as a simple research exercise: a way to explore how electricity generation and storage technologies were changing, and what those shifts meant for Australia’s future energy system. When the first CSIRO-led cost forecasts were published in 2017, the work was based on stable global conditions and predictable technology trends.
Paul Graham is CSIRO’s chief energy economist and head of GenCost, and he remembers those early days well.
“It was a fairly simple exercise at the time because the global environment was relatively stable and we could concentrate almost entirely on how technologies were improving,” Mr. Graham recalls.
Wind, solar and battery costs fell year after year, and the challenge was simply to predict how far and how fast they would continue to fall. At the time, GenCost was primarily concerned with understanding the inherent characteristics of technologies: how production scale, learning rate, and implementation would determine future costs.
But the world changed.
Over the past five years, GenCost has weathered an extraordinary series of global shocks: the pandemic and the inflation crisis that followed, the war in Ukraine, the war in Iran, and the sudden surge in global demand for gas turbines powered by data centers. “We’ve had one crisis after another,” says Graham. “It is one of the most unstable periods in a long time.”
The project that once focused primarily on technological advancement suddenly found itself grappling with the growing influence of geopolitics, disrupted supply chains, global markets and competing visions of Australia’s energy future.
The early years: when technological changes were predictable
In the late 2010s, wind, solar and batteries were in the midst of a decade-long cost decline, driven by production scale, pace of learning and rapid global deployment. The question was not whether costs would fall, but how quickly.
Solar energy and batteries in particular defied conventional expectations.
“They didn’t behave like other technologies,” Mr. Graham reflects. “Their costs continued to fall at an astonishing rate even as their market share increased.”
Their modularity – from rooftop systems to solar farms and large-scale batteries – made them uniquely adaptable. And the dominance of China’s manufacturing sector kept prices low even as global demand surged.
These technologies continued to deliver cost savings well beyond the point at which mature technologies would normally stagnate.
During this period, GenCost could largely focus on the inherent characteristics of different technologies: learning curves, production efficiencies and implementation trends. Global conditions were so stable that these factors remained the main drivers of future costs.
In retrospect, it was the calm before the storm.
The age of instability: five years of global shocks
From 2021 onwards, the energy sector entered a period of volatility not seen in decades. A succession of black swan events has reshaped the global energy market. The pandemic caused a global inflation event; the war in Ukraine caused gas prices to soar; the war in Iran created even more uncertainty in the supply chain; and the rapid rise of data centers created a new, urgent source of electricity demand that few expected.
Yet these rare, high-impact events did not affect every technology equally.
“We now have a two-track world,” Mr. Graham explains. “One set of technologies is getting more expensive every year, and another set is still getting cheaper.”
Solar energy and batteries continued to see their costs decline, supported by China’s resilient manufacturing base and growing production capacity. In contrast, wind power, gas turbines and many conventional technologies became increasingly exposed to inflation, supply chain disruption and production constraints, driving up costs and extending delivery times.
The contrast became increasingly clear in the global deployment. While solar and batteries continued to expand rapidly, wind energy growth slowed significantly as higher costs and pressure on the supply chain increased.
The boom in data centers brought a new twist.
“In boom areas like the United States, data centers have grown very quickly – and they require a lot of energy,” says Graham. The fastest way to build new dedicated generation capacity in the US is with gas turbines, and global order books have been filled virtually overnight.
“No one was prepared for the production capacity you would need to meet this new source of demand,” he says. As a result, gas turbine prices have risen sharply – and are expected to remain high for the foreseeable future. The surge in demand has also raised doubts about Australia’s ability to secure new gas turbines as the United States continues to dominate global orders.
For GenCost, these developments changed much more than a handful of cost assumptions: they fundamentally changed the way the project approached forecasting. Early editions could focus on the inherent qualities of technologies themselves, but increasingly the team also had to consider how unpredictable global events could impact technology costs.
“We can be scientific about inherent qualities,” says Graham, “but world events are harder to predict.”
Australia’s turning point: from crisis to resilience
The global shocks were felt acutely in Australia. The war in Ukraine pushed gas prices to unprecedented levels, putting extraordinary pressure on the National Electricity Market (NEM). At one point, conditions became so unstable that market participants were forced to suspend normal mechanisms and manage the system manually.
Gas generators, faced with extreme fuel prices, often chose not to operate because selling gas elsewhere was more profitable than generating electricity.
Electricity prices rose to $189 (USD131)/MWh in 2022 – the highest level in decades.
But the system did not collapse. Instead, Australia began to absorb the shock and adapt to it in ways that would prove structurally significant. In just a few years, the country has deployed 6 to 8 gigawatts of batteries, transforming the dynamics of the evening peak.
“Basically we were saved by solar and batteries,” says Mr Graham.
Batteries began to compete directly with gas and set prices instead of following them. Over the past year, electricity generation prices have fallen rapidly, to levels not seen since the war in Ukraine: around $60-$80/MWh.
The conflict in Iran caused a new wave of volatility in global gas markets, but its impact on Australia’s electricity system was much more muted.
“We have lower demand for gas at a time when there are oil and gas constraints,” Mr Graham explained. “Transport is outside the scope of GenCost, but in terms of the electricity system, Australia has hardly noticed the war in Iran.”
Retail prices are now also starting to respond. The standard market supply has fallen by approximately 10%, due to the gradual pass-through of lower wholesale prices as a result of the increased use of batteries.
The Australian electricity system is therefore becoming increasingly less sensitive to global fossil fuel price movements. It is increasingly determined by the domestic deployment of technology, especially solar energy and batteries.
Looking ahead: what could the next decade bring?
This year’s GenCost findings strengthen the long-term trajectory. The futures markets indicate that generation prices are likely to decline further through 2030, around $80-$90/MWh. Solar, wind and batteries remain the cheapest technologies that can support Australia’s net zero targets.
Coal, while similar in costs in some models, does not meet net-zero requirements and has not been a growth technology for nearly two decades.
Gas is expected to continue to play a small but important role in the electricity system – accounting for roughly 3-7% of generation – but its future is increasingly determined by global demand pressures and rising turbine costs.
Australia’s energy transition is well underway, shaped by years of sustainable investments in onshore wind energy, solar energy and batteries and reinforced by global production trends.
Meanwhile, a third group of technologies – including nuclear power, carbon capture and storage, solar thermal, offshore wind, ocean energy and fuel cells – remains much more difficult to assess.
Without commercial deployment at a network scale in Australia, the costs remain difficult to determine with certainty. These technologies still face significant, unique technical, social and cost hurdles, meaning reliable Australian cost estimates may not emerge until the projects are built.
Offshore wind is the notable exception. With developments planned in Victoria, this is expected to provide a much stronger evidence base in the 2030s as projects move from planning to operation.
Australia’s energy transition is now well underway, shaped by years of sustainable investments in onshore wind, solar and batteries and reinforced by global manufacturing trends.
As Mr Graham puts it: “We are now a long way towards low-emission electricity – more than half way – and that is partly because of the choices we have made here and partly because of what has happened in China’s manufacturing system.”
What eight years of GenCost have taught us
Eight years later, GenCost has evolved from a project focused on relatively predictable technological learning curves to one that must take into account a world shaped by volatility and disruption.
Despite that shift, one underlying pattern has remained remarkably consistent: solar and batteries have continued to deliver cost savings and helped Australia build an energy system that is increasingly resilient to global shocks.
Looking back, GenCost has performed strongly in predicting the technologies whose costs are still mainly determined by technological knowledge and production scale, such as solar energy and batteries.
Where predictions varied most were in technologies exposed to global disruptions. Rising inflation, supply chain constraints, and geopolitical events pushed costs higher than early models could reasonably have anticipated—not because the technologies themselves had fundamentally changed, but because the world around them had.
The GenCost project will continue to provide transparent, scientific projections for Australia’s energy future, now with a deeper appreciation of how global events, production systems and emerging technologies interact. The past decade has shown us that while technological advances can often be modeled with confidence, the world around these technologies remains much harder to predict: a lesson that will shape GenCost’s work for years to come.
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Author: Ruth Dawkinsrepublished with permission from the CSIRO.
