Economics of Wind Power

I know a lot more about solar than I do about wind, having worked in the solar industry. However, I reported on wind energy for BCC Research in several published (and still available) reports, so here goes.

To my mind, solar has several big advantages compared to wind. First, sunshine is much more reliable than wind. Second, panels last twice as long as turbines, maybe more–a lot of panels are still producing well long past their sell-by date. Third, wind turbines require far more maintenance than solar. Other factors to consider are attractiveness (people have fewer objections to being next door to a solar array than a wind turbine), footprint, noise, bird kills, etc.

But wind power is still a potent entry into the field, manufactured by very large companies for sale to very large companies. (Which is something else that puts me off–with residential solar it’s a consumer product, requiring consumer satisfaction and with higher levels of competition working to lower prices). So why is wind such a popular choice by governments, utilities and manufacturers?

First off, wind power stays on the right side of the meter. It’s still owned by the utility and the power it produces is sold to consumers. True, there are large solar plants that fit the same description, but most solar is on your home’s rooftop.

Second, when the wind is blowing, turbines can push a lot of electrons our way. They have more oomph than solar when conditions are propitious, producing more energy for the buck. It is easier to build a wind farm than a large solar array, especially if you’re using CSP (concentrated solar power) for the solar.

Other problems with wind are those they share with solar power–intermittency makes wind impossible to rely on for baseload production of electricity. You have to have another generator primed and ready to take up the slack when the wind stops. That means leaving the spare generator operational, burning fuel and emitting CO2. (Same is true for solar.) As these are frequently cited in climate conversations, I won’t go into that further.

About 75% of lifetime costs of a wind turbine are upfront–construction, installation, siting and transportation. As is the case with solar, the fuel is free.

One way of analyzing the economics of all energy sources including wind is by calculating the ‘Levelized Cost Of Energy’, or LCOE.

The DOE EIA defines that as, “Levelized cost of electricity (LCOE) is often cited as a convenient summary measure of the overall competiveness of different generating technologies. It represents the per-kilowatthour cost (in real dollars) of building and operating a generating plant over an assumed financial life and duty cycle. Key inputs to calculating LCOE include capital costs, fuel costs, fixed and variable operations and maintenance (O&M) costs, financing costs, and an assumed utilization rate for each plant type.3 The importance of the factors varies among the technologies. For technologies such as solar and wind generation that have no fuel costs and relatively small variable O&M costs, LCOE changes in rough proportion to the estimated capital cost of generation capacity. For technologies with significant fuel cost, both fuel cost and overnight cost estimates significantly affect LCOE. The availability of various incentives, including state or federal tax credits, can also impact the calculation of LCOE. As with any projection, there is uncertainty about all of these factors and their values can vary regionally and across time as technologies evolve and fuel prices change.”

Bear in mind the last sentence there. People game LCOE calculations, which is why every time you see them they are different.

That said, here’s what Worldwatch Institute put forth as LCOE in 2013:

the-development-of-the-renewable-energy-market-in-latin-america-and-the-caribbean-7-638

Compared to other renewables, wind looks pretty good. The NREL makes the case that wind has never been cheaper:

wind-lcoe-at-all-time-low-500x415

However, I do trust the EIA numbers a lot more. Here’s what they say LCOE is before subsidy:

Table 1. Estimated Levelized Cost of Electricity (LCOE) for New Generation Resources, 2019

Plant type Total system LCOE
Dispatchable Technologies
Conventional Coal 95.6
Integrated Coal-Gasification Combined Cycle (IGCC) 115.9
IGCC with CCS 147.4
Natural Gas-fired
Conventional Combined Cycle 66.3
Advanced Combined Cycle 64.4
Advanced CC with CCS 91.3
Conventional Combustion Turbine 128.4
Advanced Combustion Turbine 103.8
Advanced Nuclear 96.1
Geothermal 47.9
Biomass 102.6
Non-Dispatchable Technologies
Wind 80.3
Wind-Offshore 204.1
Solar PV2 130
Solar Thermal 243.1
Hydro3 84.5

So if we were doing this all based on LCOE we would start digging for geothermal everywhere.

On land, wind doesn’t look horribly awfully bad. Offshore it seems horrendously expensive.

The other thing to remember is variation in price by geography. In China and India, installed costs run $1,300 per kw. In the U.S. it’s $2,000. So maybe wind makes more sense in the developing world. But it’s still far more expensive than coal, which is why they’re using so much of it.

13 responses to “Economics of Wind Power

  1. Thanks Tom, these summaries on the economics of renewables are helpful.

    Living in “wind country”, I hear a lot of talk about installed cost per kilowatt and I always have to ask, are they talking about capacity or yield? If someone is building a windmill capable of producing 1,000 kw, it is reasonable to expect a yield 300 kw. The problem is, promoters like to conflate the two.

    An aside, I live in southern Minnesota and in the winter with the bare trees, our horizon pulses in almost all directions with turbine lights. In winter, a wind farm is visible for 30 miles. That means, if my high school math is correct, it is visible over 2,827 square miles. When it is all around you, it affects the quality of life. People speak of windfarms in the same terms as pig barns.

    • Sounds pretty annoying. Still, it has to be better than living near a coal plant–or does it? I honestly don’t know.

      • I honestly do not know about living near a power plant either. I imagine the rising vapors from cooling towers and the lights on the stacks are visible for quite a ways.

        A power plant only occupies one point in the compass though, in many places windmills stretch from horizon to horizon. They industrializes the landscape, forcing people to plant trees to block the views that they once valued.

      • How close is close in regards to a power plant?
        In Romania I was living in the POrt of Constanza and the soot fromthe power plant maybe two miles away would make specks on my clothing and the furniture. My office in Houston is three miles froma modern power plant and you have to remind yourself what the facility is. Except for the cooling system steam it is completely unobtrusive and homes are on the perimeter of the facility- good homes.

    • AI,
      In Texas power from wind mills is rated about 16% of stated output capacity.
      ERCOT, the Texas utility grid manager/regulator, deceives the public at every opportunity about how wind is doing.

  2. In reality, the wind power industry requires subsidies to survive. So in a “wide boundary analysis”, the wind industry actually consumes more energy than it produces. That’s because all economic costs can be traced back directly or indirectly to some form of commercial energy. Since the wind industry’s only economic product is energy itself, if it actually produced more energy than it consumes, it would make money in an unsubsidized free market.

    In a “narrow boundary analysis”, which looks only at direct energy costs, the Energy Return on Investment (EROI) of the wind industry is about 2:1. But in this kind of analysis, an energy source must have an EROI of at least 10:1 to power a modern economy. The fossil fuel industry makes money, pays taxes, and powers modern economies, because its EROI is about 20:1.

    • That’s a damned interesting analysis, Mike. I wonder if one can compute the energy cost of a subsidy… I suppose one could take the amount of energy consumed by and economy and divide it by the GDP then “levelize” the cost of wind.

  3. LCOE measures can be misleading for wind in another way. The higher the proportion of wind is, the greater the need for expensive storage and backup. Nuclear does not have this problem.

  4. This post comprehensively discusses the true costs of wind electricity:
    http://judithcurry.com/2015/05/12/true-costs-of-wind-electricity/#more-18717

    • Yeah, I read that this morning. Planning Engineer provided a lot more detail in arriving at basically the same conclusions I did. Wind is more expensive. It’s good for utilities. Not so much for consumers.

  5. Tom,
    This excerpt from that amazing article regarding “Transmission” could have said “infrastructure”, and possibly given you more insights into why rate payers are paying infrastructure fees:
    “ERCOT also illustrates clearly the wind impact on transmission planning. Much of the wind capacity is in northern Texas, whereas the demand is in Dallas and Houston. ERCOT’s ‘CREZ’ wind driven grid capacity expansion added/upgraded 3600 miles of transmission lines at a cost of $6.9 billion over 3 years. That compares to $26 billion of cumulative (YE2014) investment in Texas wind generation. Annualized over 30 years at 6.5% and spread over ERCOT’s 36.1 million MWh of 2014 wind generation, CREZ adds wind LCOE of $6.44/MWh. That is 6.7% of EIA’s wind LCOE. EIA’s own incremental transmission estimate is 4%–yet again biased substantially low. The ‘true’ system LCOE of ERCOT wind is ($140+$6) ~$146/MWh, not anywhere near the general EIA estimate of $96/MWh — it is off by half.”
    This also should give two insights:
    The wind industry depends on not only subsidy, but untruths as well.
    That media is actively participating in the untruths being used to distort this important issue.
    How else can one explain why an issue that costs consumers and tax payers billions in high fees and tax costs is not heavily reported on?
    The only people profiting from the wind power status quo are wealthy insiders receiving the operating rigged prices and tax credits.
    Wind is a disaster and has at best trivial positive impact on environmental concerns. Wind’s negatives- huge landscape destruction, new power line easements, dubious CO2 impact, should have shut down this failed effort long ago.

  6. What percentage of these mega turbines are made by companies that make or service nukes? 95% or 100%?

  7. The output of a turbine increases with tower height up to a point. Other than that, there are only diseconomies of scale.

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