The renewables honeymoon is over

Energy Minister Chris Bowen has once again claimed “renewables are the cheapest form of energy” and warned that without them, Australians “could be paying upwards of 50% more for our electricity.”

But the question remains, if wind and solar energy is so cheap, why is the government having to provide ever-growing taxpayer subsidies and underwriting to renewables investors?

A new Centre for Independent Studies paper, The Renewable Energy Honeymoon: starting is easy, the rest is hard, answers this question.

As capture prices for renewables in the NEM have continued to fall in recent years — solar now 50% below weighted average wholesale price, wind 60% below average — these investments have become less and less attractive to investors.

It’s no wonder new large-scale solar and wind project financial commitments have fallen off a cliff in 2025. Investors are simply responding to a very clear signal from the market.

Just because a project is ‘low-cost’ doesn’t mean it’s worth building if it is also ‘low-value’.

But rather than questioning the value of building more wind and solar capacity, the government has doubled down on committing whatever untold billions are necessary to meet its renewables targets.

The principal example of this is the Capacity Investment Scheme (CIS), which provides guaranteed revenue to solar, wind and battery investors.

It locks in high electricity prices for consumers for the next two decades; either through high wholesale prices or, if prices fall, a greater tax burden as taxpayers must top up revenues for investors above a certain threshold.

In essence, the scheme represents the government’s last-ditch attempt to keep its dying energy transition on life support. As Professor Ross Garnaut said recently, “There are now virtually no new investment commitments for solar and wind generation that do not have CIS [Capacity Investment Scheme] or other government underwriting.”

What the government has failed to acknowledge is that such schemes won’t have the intended effect of lowering energy bills, because the lion’s share of additional costs come not from intermittent renewables themselves but the additional infrastructure required to support them.

The extra transmission and previously-unneeded storage and synchronous condensers drive substantial increases in consumer bills, as recent history has borne out.

Declining wind and solar capture prices, increasing government intervention in energy markets and rising power bills are some of the key signs that the ‘renewable energy honeymoon’ is over.

The renewables honeymoon period, as set out in our paper, is the period at the start of a renewables buildout in which it is relatively easy to add wind and solar capacity to the grid. However, once wind and solar penetrations hit around 20-30%, costs begin escalating rapidly and grid stability challenges become increasingly prevalent.

Standing at around 33% wind and solar penetration, the Australian grid’s renewable energy honeymoon is well and truly over. Consumers are feeling the effects of the post-honeymoon period as rooftop solar feed-in tariffs fall and bills continue to rise.

Other signs of the end of the honeymoon include the recent doubling in transmission costs, diminishing returns for wind sites, coal retirement dates being pushed back, and the scramble for synchronous condensers to stabilise the grid.

None of this should come as a surprise. No country has achieved very high levels of wind and solar without suffering from higher electricity prices.

Germany, sitting on over 40% wind and solar, has the highest electricity prices in the world and is now facing what major industrial players have called “the worst industrial crisis since World War II”. Denmark now has around 70% wind and solar — the highest in the world — and topped the price chart in 2023.

Claims of high renewable penetration in other countries overwhelmingly rely on generous hydro endowments (Norway, Paraguay, Brazil, Canada, Bhutan), or on large amounts of biomass (Uruguay) or imports (Luxembourg).

Some nations with high wind and solar endure routine blackouts (Lebanon). The fact remains that no modern economy has achieved wind and solar shares of more than 40%, let alone 82% (the government’s target for 2030), without substantial price hikes.

These price hikes are predictable when we consider the intermittent nature of wind and solar energy. Since wind and solar output cannot be controlled, there will be a point in the renewables buildout at which the saturation point is exceeded, i.e., supply exceeds demand at a certain time but still falls short for most of the day.

Once the saturation point is hit, there are three options, often used in combination: energy is either curtailed, moved through space or moved through time. All these options increase costs for the system.

Curtailed energy means poorer utilisation of solar and wind capacity, increasing generation costs. Moving energy through space means building more transmission lines to strengthen interconnections between far-flung areas with different weather patterns. Moving energy through time means adding storage to the system in the form of batteries or pumped hydro.

With the NEM having well and truly exceeded the saturation point, it is no surprise consumers are facing repeated bill increases and the tax burden of the energy system is growing as expensive battery storage, several multi-billion-dollar transmission projects, a now-$20 billion Snowy 2.0 and unknown billions for the CIS all get added to system costs.

The question now is whether Australian policymakers are willing to accept the evidence at home and abroad that renewable energy is not cheap, and that the renewables honeymoon is well and truly over. Things will only get much, much harder from here on out.

Zoe Hilton is a Senior Policy Analyst in the Energy Program at the Centre for Independent Studies.