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Wind power cost competitive with natural gas, study finds

Alternative Energy
Wind power cost competitive with natural gas, study finds

( —The costs of using wind energy and natural gas for electricity are virtually equal when accounting for the full private and social costs of each, making wind a competitive energy source for the United States, according to a new study on the federal tax credit for wind energy.

Just released by researchers at Syracuse University and the University of California, the analysis shows that wind energy comes within .35 cents per kWh when levelized over the 20-year life of a typical wind contract, compared on an equivalent basis to the full costs for -fired energy, according to Jason Dedrick, associate professor at Syracuse University’s School of Information Studies (iSchool).

“The true cost of electricity from wind power and natural gas are effectively indistinguishable, yet because the cost of carbon emissions is not included in the market price of gas, wind has not been a competitive form of energy use in most of the United States, without government pricingsupport,” Dedrick said.

The analysis starts from the U.S. Department of Energy (DOE) estimates of the lifetime “levelized” cost of electricity from a new wind farm, and also from an advanced combined cycle gas plant. The analysis develops a new metric that incorporates long-term factors which are not included in the DOE numbers. Accordingly, the study also reveals that the recently-expired Production Tax Credit for wind makes up for the lack of any mechanism to make fossil fuel generators pay for the cost of carbon emissions, Dedrick noted.

Researchers for the study, “Visualizing the Production Tax Credit for Wind Energy,” in addition to Dedrick, are Kenneth L. Kraemer, research professor, University of California, Irvine; and Greg Linden, senior research associate at the University of California, Berkeley.

Gas Appears Cheaper

Current national-average estimates from the DOE are 8.7 cents per kilowatt-hour (kWh) for wind and 6.6 cents for gas-fired energy—making gas appear as a much cheaper alternative, Linden noted. Incorporating the new metric into the analysis, however, shows that the “is actually compensating for a market failure to price the future cost to society of carbon emissions,” Linden explained. “In the absence of a , the PTC can serve as a stand-in to make the market reflect the true costs of energy.”

The study incorporates these aspects:

Future costs of carbon dioxide emissions are added to the price of gas (using the government’s most recent Interagency Working Group average of $43 per metric ton)—at a cost of 1.6 cents per kWh.

The cost of supply intermittency (the cost to utilities to compensate for wind stoppages and variations) is added to the price of wind—estimated at 0.5 cents per kWh.

The cost of correcting natural gas price volatility for 20 years (the length of time for which wind prices are typically fixed) is added to the price of gas— estimated at 0.65 cents per kWh.

Adding these costs together finds that the adjusted levelized cost of electricity for wind is 9.2 cents per kWh, versus 8.85 cents per kWh for gas.
(See accompanying chart, above)

The components of the adjusted levelized cost, reported here as averages, are actually estimates that fall in a range, Linden noted. “The result is even more favorable for wind if you consider some of the larger possible values for carbon emissions,” he added. Further details can be found in a brief working paper available at .

Dedrick noted that while the amounts discussed here are averages, the costs of wind and gas vary considerably across the U.S. The price difference between wind and gas power is actually less than 1.6 cents per kWh in many regions of the country, “and that is where the PTC will have its impact,” he concluded.

Support for PTC?

The question of whether the federal government should support has been debated by Congress for more than two decades, at least since the PTC was created in 1992, according to Kraemer. He said the credit has been implemented in an on-again/off-again fashion, expiring five times since then. Until now, the tax credit has always been renewed for another year or two. This year, Kraemer said, President Obama’s proposed budget for the Department of Energy calls for permanently extending the PTC, at a cost of $19.2 billion over the next 10 years.

“Effectively Indistinguishable”

Dedrick suggested that “Since the levelized value of the PTC happens to be very close to the average estimated cost of carbon from a natural gas plant, a long-term extension of the PTC would have a similar effect to a carbon tax in terms of the relative price of electricity from wind and gas.” He continued, “Given the ranges of the estimates for each of the costs involved, our research shows that the true cost of electricity from wind power and natural gas are effectively indistinguishable. Yet, because the cost of carbon emissions is not included in the market price of gas, wind is not competitive in most of the U.S. without government support. An alternative would be to create a pricing mechanism for , either through a carbon tax or cap-and-trade scheme. However, neither of those options seems likely in the current U.S. political environment,” Dedrick added.

14 Comments on "Wind power cost competitive with natural gas, study finds"

  1. yellowcanoe on Thu, 27th Mar 2014 1:49 pm 

    As the price of natural gas in North America is almost certainly going to increase, wind power will look even better in the future.

  2. Davey on Thu, 27th Mar 2014 1:55 pm 

    Untill the economy corrects and there is little. Apex for AltE and power demand declines with negative growth

  3. Arthur on Thu, 27th Mar 2014 3:08 pm 

    Cost equality, long before NG runs out, that is.

    Here another American source stating that the US can very well run it’s economy on renewable energy:

  4. Boat on Thu, 27th Mar 2014 3:28 pm 

    yellow canoe
    Most of our lack of drilling for Nat Gas is because there is to much of it in the US. The market is expanding rapidly but demands are easily met.It takes time and billions to expand the pipeline network to access new customers. If we don’t export our resources away I think this will continue for a long time.

  5. Aaron on Thu, 27th Mar 2014 3:30 pm 

    The title is wrong. It should say, “Subsidised wind power cost competitive with natural gas, study finds”.

  6. GregT on Thu, 27th Mar 2014 4:17 pm 

    “Here another American source stating that the US can very well run it’s economy on renewable energy:”

    And here is a comment on that same article that hits the nail squarely on the head:

    “could make the necessary transition to an electricity generation system comprising 100 per cent renewable energy over a few decades.”

    We don’t have a few decades, peak oil is here … And the resources to build this new energy system will not be available as investment capital disappears.
    And the wind-water-solar combination will not efficiently translate into transportation energy. Oil is just too energy concentrated to replace.

    Think food production and most forms of transportation.

  7. rockman on Thu, 27th Mar 2014 4:25 pm 

    Arthur – True. Here are some facts about wind power in Texas. But also
    bear in mind that if we didn’t develop the wind power other sources,
    such as coal and NG, would have to be expanded along with the
    transmission system. Texas expects to have a 30% increase in electricity
    demand over the next couple of decades thanks to our growing
    economy. But also bear in mind what wind power has to compete
    against in Texas: we produce about 3 X to 4X as much NG as the next
    largest state and have some of the lowest prices in the country. So even
    with all those external costs wind is still booming here. BTW we’re also
    burn more coal for electricity than any other state. So pick your poison.
    LOL. From:

    Texas in 2011 was home to more than 10,000 megawatts of installed
    wind capacity, which is nearly three times that of any other state. Texas
    has more installed wind power capacity than all but five countries

    Consumers pay a number of incremental costs associated with wind energy, including the costs of extra backup power because wind turbines can quit suddenly when the wind stops blowing. Wind energy also receives taxpayer-supported subsidies and Texans are on the hook for billions of dollars in wind-related transmission projects.

    The wind blows free, which means that wind generators can sometimes bid into the wholesale spot energy market at very low prices. Because of federal tax credits, wind generators sometimes bid their energy into the spot market at negative prices. This sometimes reduces overall spot market prices for electricity In Texas

    ERCOT initially estimated the cost of transmission lines to serve the state’s growing wind fleet at $4.9 billion. Those projected costs were understated by nearly $2 billion. All told, every customer within the areas of the state’s principal power grid is on the hook for more than $1,000 to pay for the transmission lines.

    Because of the variability of the wind, fossil-fueled power plants are needed to provide replacement power. These plants are typically fueled by natural gas. This means that wind power can periodically displace the use of fossil-fuel plants, but with current technology cannot completely displace the construction of them.

  8. Arthur on Thu, 27th Mar 2014 5:50 pm 

    Greg, you are right, we are too late for a smooth transition. My remark only has validity in the very long term, with a ‘little disaster’ in between.

    Rockman, yes I know, Texas is THE energy state in the US, fossil and wind. I grew up watching

  9. J-Gav on Thu, 27th Mar 2014 9:05 pm 

    Rockman – “This means that wind power can periodically displace the use of fossil fuel plants etc …” Exactly. Do you really believe that some future technology will change that situation?

  10. rockman on Thu, 27th Mar 2014 9:23 pm 

    J-Gav: the only place I think any wind turbine would have sustainable and perpetual wind is in the D.C. area. LOL.

  11. ghung on Thu, 27th Mar 2014 9:44 pm 

    Arthur: “I grew up watching”

    Thanks Art. That explains a lot. Kind of like me growing up watching Hogan’s Heros. (I know nothing!)

  12. Kenz300 on Thu, 27th Mar 2014 11:23 pm 

    The cost of coal, oil natural gas and nuclear will keep rising.

    The price of wind and solar have dropped by 50% in the last 5 years and continues to fall.

    The energy transition tipping point is here – SmartPlanet

  13. rockman on Fri, 28th Mar 2014 2:47 am 

    Ken – Texas and a few other states have begun moving in the right direction. But we’re at a “tipping point”? Not hardly in IMHO.

  14. Nony on Fri, 28th Mar 2014 3:31 am 

    When you see aluminum smelters using wind mill farms and solar fields than I will believe they’re low cost competitive…

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