Wind farms are cheaper than most alternatives

Wind power is a lot cheaper than it once was, but a lot of people are stuck in the past.

In the USA in 2013, purchase power agreements for wind farms averaged 2.5 cents per kilowatt hour. That’s a very cheap price, cheaper than anything else on the grid. It was helped along by the production tax credit of 2.3 cents per kilowatt hour for ten years, meaning an average of 1.15 cents over the 20 year purchase power agreements. And some new transmission had to be built which cost maybe a cent per kilowatt hour over the same period. That means newly built wind power in the USA is averaging under five cents per kilowatt hour all in.

In Brazil, wind power has been really successful. It’s won the majority of all of the competitions for new generation that have been run for the past couple of years. It’s been so hot actually, that Brazil had to create new competitions that excluded so something else could win. That’s important because a diversified energy mix is a useful thing for stability and too much of anything is a bad thing usually. Those agreements were coming in at just over 5 cents USD per kilowatt hour.

A Lawrence Berkeley National Laboratory (LBNL) study and a joint Queens University / Michigan Technical University study predicted this a couple of years ago and they were bang on, or even overly cautious.

To translate, while critics claim 20%-30% capacity factors, real capacity factors are in the 35%-47% range. In fact, wind farms in the USA and Brazil are seeing 50% capacity factors and the US average was 41% for new wind farms in 2013.

This isn’t surprising. When the California Energy Commission published “Comparative Costs Of California Central Station Electricity Generation” in 2009, the full-lifecycle analysis of costs including regulatory and zoning costs, insurance costs, construction costs, financing costs, maintenance costs and fuel costs over 20 years found that wind energy was very competitive with most forms of energy without any specific subsidies.

Another key factor is that in many jurisdictions, markets for energy favour energy sources with low marginal costs such as wind, which is close to a zero marginal cost when the wind is blowing.  This depresses the effective rate that everyone is paid. This is known as the merit order effect.  In one study, consumers in the midwestern USA might see a $63-$200 annual reduction in their electricity bills due to market forces.

In Australia, this could be saving consumers money as well, about $7 per year with very little penetration of wind energy if those savings were passed on to consumer.

What does this mean?

Well, according to the US NREL in 2014, they expect wind power and solar to both be so cheap by about 2025 that without any incentives or subsidies and burdened with all extra costs, they will still be cheaper than all of the legacy forms of generation currently running. All of those other generation types have permanent tax code breaks of a variety of types.

And that’s the conservative projection.