What is the Cheapest Source of Energy? An Engineer Reviews the Options

Learn what is the cheapest source of energy for producing electricity, coal, gas, solar or wind.

The December 2007 Climate Change convention in Bali, Indonesia, has put the issue of global warming back on the political agenda. One of the key requirements of the political negotiations is to put an appropriate price on the carbon dioxide being emitted. This price will be expressed in the form of either a carbon tax, or a payment for the cost of reforestation to remove the gas from the atmosphere.

So before the carbon price is set, how well do the cost of new renewable energy sources compare to the traditional sources of power from coal and gas?

The short answer is, it varies, depending on your location. Different locations have different fuel prices, average wind strengths and days of sunshine. For the purpose of my analysis, however, I have reviewed the statistics for my local region, the east coast of Australia.

Australia sources 90% of all its electricity from coal fired power stations. Being a resource rich country, coal has always been considered the cheapest form of energy. So what are the economics of operating a power station? For this simply analysis I am only going to consider the cost of construction and fuel, and assume plant maintenance costs are the same across all systems.

Firstly, we must consider the units. In my calculations I have given all costs in Australian dollars. At the time of writing, one Australian dollar purchases around ninety US cents. The megawatt (MW) is a unit of power and is equal to 1000 Kilowatts ( KW). Most microwave ovens operate at about 1 KW. The megawatt hour (MWh) is a unit of energy. One MWh equates to 3600 mega joules (MJ).

Coal Power

The infrastructure required to generate coal fired power is enormous. The new 750MW super-critical (high efficiency) Kogan Creek coal fired generator in Queensland has a reported construction cost of $A 1.2 billion ( $US 1.08 Billion). The average cost of black coal to supply the station is around $A 50 / tonne When all the energy efficiencies are considered, the station generates electricity at around $A 15 per MWh for coal.

The cost to build the station is thus around $A 1.6 million /MW. The cost per MW over a 15 year period for the unit running non stop at full load, would be $A 3.57 million/MW.

Natural Gas Power

A gas fired power station has a much lower construction cost, but higher operating cost then a coal fired power station. The new 660 MW Colongra gas fired open cycle power station, to be constructed on the Australian East Coast in 2009, has a $A 400 million budget. This equates to a capital cost of around $A 0.68 million /MW. The cost of gas however, is around $A 120 per MWh.

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10 Responses to “What is the Cheapest Source of Energy? An Engineer Reviews the Options”
  1. Warwick Says...

    On January 17, 2008 at 6:09 pm

    Your cost of gas is way off. At $3/GJ, the current market price in Qld at least, you’re looking at about $38/MWh. Which is why there’s so many new peaking gas power stations popping up there. They can make money selling power at $50/MWh.

  2. Welsummer Says...

    On January 23, 2008 at 5:59 am

    Thanks for your feedback on the Qld gas price. I should have been more specific in the article, my local region is the central coast of NSW, Australia. The Queensland gas turbines are blessed with cheap gas from the local coal seam gas fields. Gas prices are much higher in NSW, as we have to import it from Victoria, and supply is limited by the size of the supply main. This means local prices are higher and the $A 120/MW is about right in our region.

  3. Stefany Says...

    On September 13, 2008 at 1:18 pm

    I am also researching these sources. One thing I find hard to follow in your article is your back and forth with A and US currencies. You began by stating you would use Australian, but there are times you only use US.

  4. Andrew Says...

    On November 5, 2008 at 8:34 pm

    I am 10 and am doing a background paper on wind power. Your article provided the most info of all the sites I went to. You info is helpful, athough sometimes I think you should tell us the average prices, not just the prices of which are in Austrailia.

    Thanks again for all this info

    Fusion MK

  5. Ron Wagner Says...

    On July 13, 2009 at 5:58 am

    Great article. I would like to see a site that showed updated figures for all areas. It would help in arguing for clean power.

    Ron Wagner
    Decatur, IL

  6. Saki Says...

    On October 19, 2009 at 8:12 pm

    wonderful research work material…

  7. shodan Says...

    On November 20, 2009 at 8:03 pm

    bogus numbers to fit the reality you would like
    sorry but the cheapest, by a long shot is lignice followed by sub-bituminous coal , then butiminous coal, anthracite, no 6 fuel oil , natural gas, no 4 fuel oil , somewhere close to here would be nuclear, then hydro electric then wood and biomass then geothermal , then maybe wind but I’m skipping sources here, and dead dead last would be photovoltaic that never breaks even in it’s useful expected lifetime

  8. Jay Says...

    On May 3, 2010 at 1:13 pm

    Bogus numbers… wind is not even in the top 2 for cheapest.

    Unreliable… expensive to build. they only last 10-15 years and need to be replaced. Usually by that time the gov’t subsidies end and they just end up rotting there on that hilltop.

    Wind takes 45 times more land to produce the same amount of energy as a nuclear plant. Wind takes 3 times more concrete and 3 times more steal than a nuclear plant. Wind is also costly to convert the energy to useable electricty. In Texas the largest wind state in America and #3 in the world…. the wind blows most reliably in the winter not in the summer when they actually need the electricity.

    The only way wind works is w/ gov’t money…but then again the politicians are all full of hot air…so no wonder they want wind power.

  9. UNKNOWN Says...

    On May 14, 2011 at 7:46 am


  10. Coal Seam Gas Says...

    On October 18, 2012 at 7:32 am

    Great research. For Australia, coal is the most efficient source of energy. It is  a very lucrative and environmental  friendly gas, and Australia is the leading producer and exporter of this gas.  

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