“Wind, an expensive energy resource, becomes more expensive (uneconomical) when costs are added for an apples-to-apples comparison to conventional generation. With natural gas prices at $4.00/MMBtu, and long-term cheap gas contracts available to anchor new power generation, wind power projects are typically uneconomic on a variety of grounds.”
A study by the National Renewable Energy Laboratory (NREL), the 2011 Cost of Wind Energy Review, estimated the cost of wind-generated electricity at $0.o72/kWh. This estimate is nearly 20 percent lower than the U.S. Department of Energy’s Energy Information Administration (EIA) estimate of about $0.087 per kWh.
But as I argue in a new study for the Institute for Energy Research (IER), Assessing Wind Power Cost Estimates (October 2013), adding wind power to the power grid involves a number of other costs.
Adding in these costs, I came to four major conclusions:
- The levelized cost of energy for wind is $0.109/kWh, more than 50 percent higher than NREL’s estimate.
- NREL’s cost estimates exclude key categories of costs such as the cost of transmission and grid balancing for far-away, intermittent wind sources.
- PTC-subsidized wind power projects distort electricity markets because they can bid as low as negative $0.035/kWh and still profit through the federal Production Tax Credit (PTC).
- Adding wind power on PTC economics cannot reduce the overall cost of power to the economy — it merely shifts costs to taxpayers.
Background
The federal government devotes substantially more financial resources to subsidize the production of wind power than it does to study wind power. Indeed, the Government Accounting Office counted over 80 separate federal programs offering economic support to wind power producers, though the largest program by a wide margin is the Production Tax Credit.
State and local governments offer additional special support, over and beyond what oil, gas, or coal receive.
Disproportionate, sizable government subsidies for wind power—even exceeding the wholesale price of power–raises hard questions concerning costs relative to benefits associated with renewable energy policy. Thus, apples-to-apples comparisons between rival energies is necessary.
Surprisingly given the extent of federal policy support for wind power, little systematic effort has been made to calculate the overall net benefit (or cost) of public policies toward wind. [1] Given the importance of understanding the costs associated with wind power policies, this paper examines and assesses the most significant of the wind power cost estimates produced by the federal government.
Getting to Full-Cost Wind
NREL’s levelized cost of energy (LCOE), assessing both average capital costs and operating costs, are too low. Below, I use NREL’s methods and data for calculating LCOE, with adjustments for reasons described in the paper.
For capital costs, I up NREL’s installed capital cost estimate for wind power to $0.088/kWh (from $0.061/kWh) by:
· Assuming a 33 percent capacity factor for wind power rather than NREL’s assumption of 38 percent yields an estimate of $0.069/kWh rather than $0.061/kWh for installed capital costs.
· Assuming a 10 percent discount rate for evaluating investments instead of NREL’s assumption of 8 percent adds a little more than $0.01/kWh more to the estimated LCOE.
· Assuming a standard depreciation rate for tax purposes instead of NREL’s use of 5-year Modified Accelerated Cost-Recovery System (MACRS), an accelerated depreciation method, raises the cost by about 10 percent.
For operating costs, I increase NREL’s estimate to $0.021/kWh (from $0.011/kWh). A bit of this comes from (again) assuming a 33 percent capacity factor. But most of this increase is derived from the Berkeley Lab Wind Technologies Market Report from which NREL drew data.
Berkeley Lab admitted that its operating cost survey was limited in scope and may undercount costs. Notably, the two wind power projects for which Berkeley Lab has the most complete information showed annual operation costs averaging over $0.021/kWh, which I use.
So, summing $0.088/kWh capital costs and $0.021/kWh operating costs yields a new LCOE for wind power of $0.109/kWh.
My study also notes a number of additional costs associated with wind power: transmission costs, grid integration costs, costs imposed on other generators, and potential environmental costs.
These costs can vary widely given the location of the project, the status of the transmission grid the wind project connects to, and other factors. Where available the report describes per MWh cost (1,000 kWh) estimates for some of these factors, but no specific average cost is endorsed given the diverse range possible.
Summary
Wind, an expensive energy resource, becomes more expensive (uneconomical) when costs are added for an apples-to-apples comparison to conventional generation. With natural gas prices at $4.00/MMBtu, and long-term cheap gas available to anchor new power generation, wind power projects are typically uneconomic on a variety of grounds.
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[1] For one exception, see George Taylor and Tom Tanton, The Hidden Costs of Wind Energy (American Tradition Institute: 2012). Their estimate of $0.15/kWh is not evaluated here.
Source: http://www.masterresource.org/2013/10/11-cents-kwh-wind/
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