Just a decade ago putting the cost of generating electricity from fossil fuels up against the cost of producing the same power from wind would have been like suggesting a title match between Mike Tyson and Martha Stewart. Not much of a fight.
Today though, that fight would be much closer, and in some cases wind would score the TKO. The cost of producing electricity from wind has so dramatically declined recently that some states are relying on it for a large portion of their total energy supply.
Wind energy is one of the most affordable forms of electricity today, with utility executives taking note.
Wind prices are extremely competitive right now, offering lower costs than other possible resources”
- David Sparby, president & CEO of Xcel Energy’s Northern States Power announcing 600 MW of new wind power contracts on July 16, 2013.
Advancements in turbine technology, improved techniques to find the best locations for wind resources, and decreasing costs of materials and construction have all influenced the cost of wind energy over the last decade.
The Department of Energy chart below dramatically shows how the reduction in cost of producing energy from wind, a decrease in cost of more than 90% since the early 1980s, has led to an exponential growth in production of energy from wind resources.
There are three main factors that drive the cost of generating electricity from wind: Capital/Construction costs, capacity/wind resources, and operating costs.
The cost of the wind turbine is the single largest cost component, making up more than 70% of the cost for a land-based wind project. Recent reductions in capital costs have been primarily driven by significant reductions in wind turbine costs.
The strength and quality of the wind at a potential site will determine how much electricity a wind project can produce, which in turn impacts the final cost of delivering that electricity. Advancements such as taller wind towers and longer and lighter blades have allowed wind farms to harness the available winds better and improve the ultimate performance of the turbines.
As a renewable source of power generation wind farms have no fuel cost. Once a wind project is operational it is expected to work for 20 years or longer, only requiring monitoring and maintenance from specialized wind technicians and operators. For electricity consumers and utilities this mean that electricity rates can be locked in for 20 to 30 years without fear of dramatic and unexpected changes in fuel costs.
According to a study by the investment banking firm Lazard, the cost of utility-scale wind energy is as low as 1.4 cents per kilowatt hour if energy subsidies are included, and 3.7 cents without subsidies. In comparison, natural gas comes in at 6.1 cents per kilowatt-hour and coal at 6.6 cents on the low end.
“It is really quite notable, when compared to where we were just five years ago, to see the decline in the cost of these technologies,” said Jonathan Mir, a managing director at Lazard, which has been comparing the economics of power generation technologies since 2008.
Now let’s give fossil fuels their time in the energy ring.
Fossil fuels have no reliable price point. Traded on the international open-market, and susceptible to any number of uncontrollable factors – shortages, wars, accidents, political decisions – the cost of using them as fuel source can literally change overnight. No one can reliably predict their future prices or supply, although many stock brokers and hedge-fund managers try.
Even the historical averages don’t bode well for the future costs of traditional energy sources, using oil as an example. The average price of a barrel since 1946 is $41.76, since 1980 is $53.08, and since 2000 is $63.57. In other words, over time, regardless of the swings in prices, the average cost of oil is increasing steadily.
To summarize our headliner fight between fossil fuels and wind for the ringside judges here are the final scores.
Once you build a very expensive traditional power plant you must constantly feed it a non-renewable fossil fuel, the prices of which can vary on a daily basis, creating operational costs that will increase throughout the lifetime of the plant.
Once you invest in a modern utility-size wind farm and have the wind turning the turbines, your fuel supply requirements are done for the lifetime of the facility. The cost of the fuel will not change tomorrow, next month, or a decade from now. If there’s wind there will be electricity.
Sounds like a unanimous decision for wind energy.