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Cost of Wind Power

Cost of Wind — Kicks Coal’s Butt, Better than Natural Gas (& Could Power Your EV for $0.70/gallon)

Photo via clarkmaxwell

What’s the cost of wind power? Well, of course, it depends on where you are and who you ask. But I’m going to do my best here to share some reliable information and put it in a useful context for you. Overall, wind costs have dropped significantly in recent years, and while wind is at least cost-competitive with coal and natural gas these days, looking at its true costs indicates it is much cheaper.

How to Measure Cost

There are a few different ways you can measure electricity cost. For example:

  1. Levelized Cost of Electricity (LCOE) — the utility way (the average cost over the lifespan of the project, initial investments plus operation and maintenance costs, not including externalities).
  2. Wholesale price — hard to get complete numbers on this; many sources will not divulge them.
  3. “All In” — taking into account externalities such as health and environmental costs (yes, these are real costs that we pay but which are not included in the price of electricity).

The figures you normally see and which are provided in most cases below are according to LCOE, which artificially makes the cost of coal and gas cheaper than it should be. But don’t worry, I get into the “all in” cost in a bit, as well.

Now, a lot of people may bring in the issue of subsidies here. Taking subsidies into account, wind would fair even better, as total historical subsidies and current subsidies heavily favor fossil fuels. For more on this matter, check out this video of AWEA CEO Denise Bode being interviewed on FOX News.

Wind versus Coal — Costs

Without even taking the above externalities into account, wind is already beating coal (despite what most think).

cost of wind versus cost of coal

Wind has gotten cheaper and cheaper while coal is getting more expensive (and that trend isn’t expected to change) — but people seem stuck in the past with regards to their cost perceptions (no surprise if they haven’t seen updated information).

Wind Costs Compared to Coal & Natural Gas

The American Wind Energy Association (AWEA) announced at the beginning of the year that wind power was cost-competitive with natural gas in the United States.

“Wind’s costs have dropped over the past two years, with power purchase agreements being signed in the range of 5 to 6 cents per kilowatt-hour recently.” Elizabeth Salerno, AWEA Director of Industry Data & Analysis, said. “With uncertainty around natural gas and power prices as the economy recovers, wind’s long-term price stability is even more valued. We expect that utilities will move to lock in more wind contracts, given the cost-competitive nature of wind in today’s market.”

More recently, AWEA told investors at a wind finance workshop the same thing as well as the fact that wind is now beating coal in this category and a little more on why and what’s expected in the near future (generally).

AWEA figures show that the average wind PPAs are now being priced at about 6 cents per kilowatt-hour, the same price for energy procurements from a combined cycle natural gas plant. The group says wind is actually about 2 cents cheaper than coal-fired electricity, and more projects were financed through debt arrangements than tax equity structures last year, a possible sign that wind deals are winning more mainstream acceptance from Wall Street’s banks….

[AWEA chief economist Elizabeth] Salerno credits the breakthrough in cost to improved turbine design and performance, higher towers and longer blades, which have boosted the reliability and performance of wind power generation. Equipment makers can also deliver products in the same year that they are ordered instead of waiting up to three years as was the case in previous cycles, she said, calling it a sign of a mature supply chain.

The group estimates that 5,600 MW of new installed capacity is under construction in the United States, more than double the number at this point in 2010. Thirty-five percent of all new power generation built in the United States since 2005 has come from wind, more than new gas and coal plants combined, as power providers are increasingly enticed to wind as a convenient hedge against unpredictable commodity price moves, AWEA said.

While the above statements concern wind power in the US (the lowest-priced wind power market), the trend is the same worldwide.

Here’s more on the wind-natural gas situation from Chris Varrone from a September 2012 wind energy webinar:

1. While wind power hit grid parity in recent years, a sharp drop in the cost of natural gas took that away.

Note that the figure on the right should be $25-40/MWh (not kWh), and that while wind was cheaper than natural gas for several years but got undercut by rapid drops in the cost of natural gas a couple years ago, the price of wind has gone down again and it is at or below grid parity in many markets in 2011.

2. The price of natural gas is expected to rise pretty sharply again in the near future (see graph underneath point #3).

And, combining that with continued improvements in wind turbine technology, wind power should be cheaper than natural gas again before too long, perhaps getting down to 3.5-4 cents/kWh.

3. However, Chris mentioned that we should realize that the most promising and growing markets are in the developing the world. There, wind is not competing with the low cost of natural gas in the US, but is competing with coal, nuclear, and diesel (which are easier to compete with). But even in the US, the cost of natural gas is projected to be an easier and easier competitor (see the projected increases in price below).

Also, Chris advises us that natural gas can sometimes be a friend of wind rather than a foe, especially in the US. Natural gas, due to its quick-ramping capabilities, can help us transition to wind, solar, geothermal, a smarter grid, and cheaper energy storage options. This is something to consider. (I’ve been considering it for quite awhile, from a policy point of view, and am still on the line, but lean towards agreeing with Chris on the matter.)

Now, another factor in cost is subsidies. It is clear that clean energy as a whole (and wind energy as one piece of that) aren’t getting nearly the subsidies fossil fuels and nuclear have gotten (and still get). If it were an even playing field, I think it’s fair to say that wind would be creaming these other options.

historical energy subsidies nuclear oil renewable energy

energy subsidies

Wind Power Costs, Prices Dropping Worldwide

“Prices have dipped below €1m per MW for the first time since 2005, according to the latest edition of Bloomberg New Energy Finance’s Wind Turbine Price Index,” Bloomberg New Energy Finance wrote in February, 2011. For us Americans, that translates to about $1.48 million per MW.

The cost of electricity generated from wind is now at record lows: several projects in high resource areas (US, Brazil, Sweden, Mexico) display a levelised cost of energy – excluding the impact of subsidies but after including the cost of capital and maintenance – below EUR 50/MWh ($68/MWh). This compares to current estimated average costs of $67 per MWh for coal-fired power and $56 per MWh for gas-fired power.” (In $/kWh, the figures would thus be less than $0.068/kWh for wind, $0.067/kWh for coal, and $0.056/kWh for gas-fired power.)

Important Note: While LCOE is widely used to compare various sources of energy, it has weaknesses beyond the fact that it ignores externalities.

For example, LCOE for wind projects are often based on a 20-year lifetimes for wind turbines. The oldest installed commercial wind turbines in the world, at Altamont Pass in California, were just replaced after 30 years of operation, and the reason for it is a legal suit regarding endangered bird deaths — NextEra Energy Resources LLC, the company that owns the project, is replacing them with much more efficient turbines in order to reduce the number of turbines significantly.

The Department of Energy, which seems to use this 20-year assumption, found the price of electricity from new wind farm plants ranged from 4 to 9 cents per kilowatt-hour in 2009, which is competitive with other new power plants and essentially the same as AWEA reported above. However, if a 30- or 40-year lifespan were used for the projects, the costs would be much lower, as the huge majority of a wind project’s costs are from the initial investment (wind, the ‘fuel’, is of course free, and there are minimal operating and maintenance costs).

Wind is MUCH Cheaper than Coal & Natural Gas (if You Know How to Add)

Now, as I hinted at the top, if you take the full health costs and environmental costs of various energy sources into account, wind comes out looking even better. A recent study out of Harvard found that if one adds in the hidden costs of coal then its actual price in the U.S. is more like 9-27 cents higher per kilowatt hour. The authors write:

Our comprehensive review finds that the best estimate for the total economically quantifiable costs, based on a conservative weighting of many of the study findings, amount to some $345.3 billion, adding close to 17.8¢/kWh of electricity generated from coal. The low estimate is $175 billion, or over 9¢/kWh, while the true monetizable costs could be as much as the upper bounds of $523.3 billion, adding close to 26.89¢/kWh. These and the more difficult to quantify externalities are borne by the general public.

This makes the true, “all-in” cost of coal electricity somewhere between 17 cents and 35 cents per kWh. You pay 8 cents or so per kWh on your electricity bill and then quite a bit more than that in healthcare costs, health insurance premiums, and with your tax dollars. Wind? It’s sticking to its original 4 to 9 cents per kWh.

As far as natural gas, I’m not aware of anyone doing a full cost accounting of it, or even counting in the health costs. It may not be as bad as coal when it comes to global warming emissions, but it definitely emits more than wind. Additionally, water quality problems are a huge issue with natural gas, and since we are just discovering this (or it is just coming out into the open and the mainstream), I’m sure quantifying those costs is a huge task. However, again, you can be sure that there are significant costs and that there isn’t the same issue with wind power.

Cost of Powering Our Cars with Wind

This is an interesting side note I thought I’d add. According to AWEA, based on the current cost of wind expressed in above sections, powering your electric vehicle with wind power would be several times cheaper than fueling up with gas now. “By powering our electric cars using wind, Americans can pay the equivalent of 70 cents a gallon at the pump,” AWEA stated. Interesting.

I don’t know how AWEA came to that conclusion — I haven’t seen the calculations. If you have more info on this or want to try your hand at doing your own calculations, feel free to do so and shoot us your findings!

Google: Wind is Just a Good Investment, Cheap

While Google is known for its enthusiasm for clean, renewable energy now, something not often mentioned is that it is not only a clean energy leader because of its altruistic tendencies, but also because it just makes good financial sense. Catch this recent admission from one of Google’s higher-ups:

One of the main incentives for Google is financial returns. Rick Needham, Google’s green business operations manager, told me last year the North Dakota wind farms were an attractive deal for Google on the basis of the returns alone.

Wind power purchase agreements (wind is the cheapest utility-scale clean power out there) can set wind power rates around six cents a kilowatt hour for a 20-year contract, depending on location. It can sometimes cost even less with federal subsidies. As Lux Research analyst Ted Sullivan told me in an interview last year, “That’s pretty cheap.”

Wind Power is Making Electricity Cheaper (Exxon: Wind to be Cheapest Source of Electricity)

Photo via aja

Following up on the above, here’s a little discussion on some more intricate matters related to wind power. (And don’t worry, for those concerned about the “intermittent nature of wind,” there’s more on that below.)

Wind Power is Making Electricity Cheaper in Texas & Europe

Is the rapid growth of wind power in Texas actually making electricity cheaper?

Yes, says Bernstein Research in a recent report, “Will Wind Power Blow Texas Generators Away?,” a follow-up to their own prior effort. The idea is that wind power is steadily replacing more expensive forms of power generation, essentially natural gas

Yes, that’s actually from an article in the Wall Street Journal.

There’s more to it than the fact that wind power is cheap, but we’ll get to that in a moment. First, let’s note that the same thing is happening in Europe.

‘Wind Energy and Electricity Prices’, a comprehensive assessment of studies of the impact of wind energy on electricity prices, was carried out by the independent consultancy Pöyry AS on behalf of EWEA. It brings together, for the first time, the findings of case studies in Germany, Denmark and Belgium.

The report finds that in the studies reviewed by Pöyry, electricity prices were reduced by between 3 and 23 €/MWh depending on the amount of wind power. It concludes that the studies “essentially draw similar conclusions” and that “an increased penetration of wind power reduces wholesale spot prices.”

“It has already been well-established that wind reduces CO₂ emissions,” said Christian Kjaer, EWEA’s Chief Executive. “But now we have stronger evidence than ever before that wind power also reduces electricity prices for consumers. The message is clear – if you want affordable CO₂-free electricity, increase the amount of wind power in your electricity mix.”

How Does Wind Power Drive Down Electricity Costs?

Aside from the fact that wind power is cheap, there is another important factor at play here — merit order pricing.

Wind (and solar) have no fuel costs and low operating and maintenance costs (O&M). That means that once the systems are up and connected to the grid, they can afford to sell their power for very little money. In the case of wind, the O&M cost is about $0.01/kWh.

Check out this graph from the International Energy Agency (via Jerome de Paris/The Oil Drum):

When the call goes out for electricity, wind can sell it’s power for about a penny and not loose money (at that moment). And, with a $0.018 feed in tariff (FIT), wind can actually give its energy away and still make money! That means that wind is always going to be able to underbid any fuel-burning producer.

What actually happens is that a call goes out for X units of electricity. The least expensive providers get picked up first — that would be wind, then hydro might be next, followed by nuclear and coal. If wind, hydro and nuclear can provide all X units, coal gets left out. And same could go for nuclear if wind and hydro can cover it all.

Alternatively, coal and nuclear, which can’t be turned on and off quickly, might have to sell at a loss for that time block in order to be up and running when they can sell for a profit. I think this is what could eventually push coal, at the least, off the grid (and turn the energy tables even further).

What this effectively does, as well, is it lowers the price of electricity. This is a key reason why Texas, Europe, and other places with a lot of wind power are seeing reductions in the price of electricity (and people’s electricity bills).

Read much more on this topic in the following articles and reports:

 

The Future

As mentioned above, wind has no fuel costs. That is an advantage today, but with peak coal coming in the not-too-distant future, this is likely to make wind increasingly cheaper than coal. (Of course, if we just cut our coal use now, we wouldn’t even have to run into peak coal, but it seems that we aren’t so foresighted.)

Natural gas has become much cheaper of late due to hydraulic fracturing (aka ‘fracking’ or ‘fracking horrible idea’), but there are numerous cases showing that this seriously threatens water supplies and, increasingly, projects are being put on pause as a result. Where this goes no one knows — some predict natural gas will continue to stay cheap and will boom (more than it already has), others postulate that new regulations and environmental costs will reverse the trend. Of course, wind will remain free.

As Jerome de Paris notes, there are numerous reasons to shift more to wind power and numerous reasons why it would help create a more secure, brighter future:

the reality is that you get cheaper electricity with wind – and oh by the way, wind requires no imports of fast-depleting fuels from unstable countries, spews no carbon and provides lots more domestic jobs. And it’s a perfect investment for our pension needs – safe, low risk, stable, decent long term returns…

It is just a policy decision, one very strongly opposed by powerful fossil fuel companies and their politicians, including, essentially, the entire Republican leadership/Congressmen at the moment .

Will wind be one of the top electricity sources of the future? I hope so. Fossil fuel Congresspeople would have to do a lot to stop it now.

ExxonMobil: Wind Cheapest Form of Electricity Generation

Now, to close out, from ExxonMobil’s yearly review of energy statistics and trends, Energy Outlook: A view to 2030, here’s an interesting chart (via European Tribune):

click to enlarge

This 2025 prediction shows wind power being much cheaper than any other electricity source if a price is put on carbon (something that should obviously happen sooner rather than later, but which is being stalled in the U.S. by fossil-fuel-funded politicians — again, mostly the GOP — in Congress).

Even if a price were not put on carbon, though, wind remains one of the most economical choices. And this conclusion comes to us from an ExxonMobil report!

 

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