How Low Can Wind Energy Go? 2.5¢ Per Kilowatt-Hour Is Just The Beginning

August 23rd, 2014 by Tina Casey

The tubes have been buzzing over a new Department of Energy report on the US wind energy market, which came up with the low-low average cost for wind energy of $25 per megawatt-hour for a certain type of electricity purchase agreement (more on that later). According to some of our friends on the Internets that works out to 2.5¢ per kilowatt-hour, which certainly seems to spell doom for the long term prospects of coal, nuclear, oil, and even that “other” low cost fuel, natural gas.

Before you break out the pom-poms, though, the aptly named 2013 Wind Technologies Market Report contains some important caveats about that $25 figure as well as other findings. We covered the report’s wind tech export angle in brief earlier this week, so now let’s pick apart the cost angle.

The Average Cost Of Wind Energy

First off, the report repeatedly cautions that the 2013 sample size is small compared to previous annual wind energy reports. The 2013 sample size is also significantly smaller than this year’s crop of wind turbine installations, which will make up the 2014 report.

Looking first at the installed cost per MW (megawatt, not megawatt-hour) for wind turbines, the report comes up with an average cost of $1,630 per kW (kilowatt, not kilowatt-hour). That’s an impressive $300 drop from the 2012 annual report, and a whopping $600 drop from the 2010 average.

But, notsofast on that $1,630. Here’s the key qualifier included in the report:

With just 11 projects totaling 650 MW, however, the 2013 sample size is limited, perhaps enabling a few projects to unduly influence the weighted average.

The report goes on to note that the 2014 sample will be much larger, at 16 projects totaling more than 2 GW (gigawatts). Based on that sample, the report puts the 2013 average closer to $1,750 per kW. That’s still pretty impressive, but the small sample size is a red flag.

As the report emphasizes, wind conditions also vary from region to region, so when you start to break the average down you’re going to see that regional variation affect the cost of individual projects, with costs trending upwards once you get out of the nation’s high-quality wind interior.

Power Purchase Agreements And The Cost Of Wind Power

Power purchase agreements (PPAs) are quickly becoming the financing deal of choice for wind as well as solar power. The report notes that PPAs for wind energy reached a new low on 2013, pegging the figure at $25 per MWh or 2.5¢ per kWh. However, once again the report cautions that the 2013 sample size is small. On top of that, most of the projects in the sample are located in the aforementioned high-quality wind interior, where costs are lower. Here’s how the report expresses it:

After topping out at nearly $70/MWh for PPAs executed in 2009, the national average levelized price of wind PPAs that were signed in 2013 (and that are within the Berkeley Lab sample) fell to around $25/MWh nationwide — a new low, but admittedly focused on a sample of projects that largely hail from the lowest – priced Interior region of the country.

On the other hand, the report notes that within the low-priced Interior, new turbines are more likely to be installed in lower-quality wind areas. Since the cost of PPAs is nevertheless continuing to drop, this indicates that the latest generation of wind turbines is on a technology trend that enables a continued decline, even in less than optimal wind areas (see page 58 of the report for a more detailed discussion).

So, How Low Can Wind Energy Go?

Okay, so we cheated a bit with that headline. If the national average cost for PPAs is $25 per MWh, then it’s a given that in a number of places, costs are already lower.

If you guessed the Interior, that would be correct. The report pegs the average PPA at $22 per MWh in that region.

Even with the caveats, the report is confident that wind PPAs will give natural gas a run for the money over the next 25 years, at least in the Interior (see p. 60 for a detailed discussion):

Based on our sample, wind PPA prices are most competitive with wholesale power prices in the Interior region. The average price stream of wind PPAs executed in 2013 also compares favorably to a range of projections of the fuel costs of gas-fired generation extending out through 2040.

We’re going to go out on a limb and say that even if the national average cost of wind energy does not continue its recent track record of significant decline, technology improvements are still going to enable some downward movement in the national average, and wind will beat the pants off other fossil fuels in some regions.

In that tech category we’re going to include tweaks to wind turbine towers that will drive down shipping and construction costs, as illustrated by the new GE Space Frame turbine tower.

That’s not even counting the addition of offshore wind energy to the mix, which will be happening anydaynow despite some roadblocks to Atlantic Coast wind development that can be traced to the Koch brothers (yes, these Koch brothers).

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