Cost of Producing Wind Energy

In this entry I will describe how the cost of generating energy is computed, compare the cost of alternative sources of generating energy, and provide estimates for cost per kWh of energy from distributed wind projects of size 1MW to 3MW.

The debate about comparing costs of energy can become heated. People with vested interests in a project naturally want to predict lower cost per kWh for their favorite generation method and predict higher cost per kWh for the rest. In this article we will present a range of costs for comparison purposes. WECC understands wind energy and is very familiar with the various wind energy project costs; we rely on independent sources for costing information about non-wind projects.

A March 29, 2009 New York Times article quoted a Black & Veatch study that compared the cost of energy from new installations: “A modern coal plant of conventional design, without technology to capture carbon dioxide before it reaches the air, produces at about 7.8 cents a kilowatt-hour; a high-efficiency natural gas plant, 10.6 cents; and a new nuclear reactor, 10.8 cents. A wind plant in a favorable location would cost 9.9 cents per kilowatt hour.”

If the penetration of wind energy is high in a grid, then additional natural gas generators are needed to serve loads when there is no wind. So in these situations the article further states that … “But if a utility relied on a great many wind machines, it would need to back them up with conventional generators in places where demand tends to peak on hot summer days with no breeze. That pushes the price up to just over 12 cents, making it more than 50 percent more expensive than a kilowatt-hour for coal.” In the US such a situation has not arrived yet, because wind in less than 2% of the total energy generation.

This article elicited a response from Joseph Romm. According to him, the cost of nuclear power from a newly constructed plant would be in the range of 15c to 25c per kWh, and a new coal plant will produce electricity at 11c per kWh (with no cost of emitting CO2).

Moving along to the second source, a January 2009 article in WindPower Monthly compared cost of energy in Europe and USA. For Onshore wind farm installations at a total installed cost of 1,300 Euros/kW (or $1,690 /kW), the cost of wind energy is in the range of 0.105 Euros per kWh with wind speed at 6m/s, 0.078 Euros per kWh with wind speed of 7m/s, and 0.060 Euros per kWh with wind speed of 8m/s. All wind speeds are at a 50m elevation. In comparison according to this article the cost of coal is 0.060 Euros/kWh plus 0.020 Euros/kWh of CO2 cost (for countries that have a carbon emissions tax); cost of nuclear generated energy is 0.045 Euros/kWh; cost of natural gas generated energy is 0.045 Euros/kWh plus 0.012 Euros/kWh of CO2 cost. The article mentions that the cost of nuclear power has been underestimated.

The third source of wind energy cost data is from NREL: $0.085/kWh in areas with class 3 wind (6.4 to 7m/s at 50m); $0.075/kWh in areas of class 4 wind (7 to 7.5m/s at 50m). These costs exclude the cost of transmission and integration into the grid or connection behind the meter, and the benefits of Production Tax Credit (PTC), grants and other tax credits.

The final source of wind energy cost data is from us, WECC. For distributed wind projects of size of 1MW to 3MW that are typically installed at a school, municipality, factory or other facilities the cost of electricity is typically in the range of: $0.090/kWh to $0.107/kWh with wind speed of 7m/s. The assumptions for this cost estimate are: total installed cost of $2,600 per kW; $0.010/kWh for O&M cost; 0.75% of total install cost for annual sinking fund. For the above computations three turbines were used: Vergnet 1MW, Vensys 1.5MW and Fuhrlander 2.5MW. These computations assume no incentives and no tax credits. So the cost estimates are true cost numbers from which incentives like PTC of 2.1c may be subtracted.

In conclusion, in most class 3 areas, the cost of wind energy is lower than the retail rate of electricity for most consumers in the US.

As a footnote, let me explain cost of energy. In the electric generation industry cost of energy is defined in terms of Levelized Cost Of Energy (LCOE). A more detailed description of LCOE including a formula, are presented in http://en.wikipedia.org/wiki/Levelised_energy_cost. In the case of a wind project, LCOE takes into account the total installed cost of project, the recurring O&M costs and other administrative costs, and the amount of annual energy production along with appropriate discount rate. To further elaborate, LCOE does not depend on tariffs, incentives, taxes, equity/loan structure, interest rates, etc.

Article written by Dr. Pramod Jain

Email Pramod at pramod@frombeginningtowind.com

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