The Cost of Wind Energy in the U.S.
Wind energy is one of the most affordable forms of electricity today, with utility executives noting “Wind prices are extremely competitive right now, offering lower costs than other possible resources”.
Recent improvements in turbine technology have reduced the cost of wind energy, allowing electricity consumers and utilities to lock in low, affordable electricity rates through 20 to 30 year contracts.
The Wall Street firm Lazard reports in its latest Levelized Cost of Energy Analysis that wind energy is now one of the most affordable options for new electricity generation. Wind's unsubsidized costs are competitive with conventional generation in certain regions of the country, ranging from $30/MWh to $60/MWh in 2017, with pricing lowest in the Interior region of the country.
Source: Lazard's Levelized Cost of Energy Analysis - Version 11.0
Wind energy has zero fuel cost, which allows utilities and corporate customers to sign long-term contracts called power purchase agreements (PPA) with known electricity costs for 20 to 30 years. The Department of Energy’s Wind Technologies Market Report demonstrates wind energy's cost reductions in recent years, which translate to affordable electricity rates for consumers.
- The 2016 Wind Technologies Market Report finds "a clear decline in PPA prices since 2009 - 2010 ... After topping out at $70/MWh for PPAs executed in 2009, the national average levelized price of wind PPAs within the Berkeley Lab sample has dropped to around $20/MWh." Wind PPAs signed during 2016 are lowest in the Interior region of the country, where most wind capacity has been built in recent years.
The following chart depicts actual PPA prices for wind energy over time, showing pricing variation across regions of the country as well as project size.
The primary drivers that determine the cost of electricity from wind energy are capital costs, capacity factor and operating costs. Wind turbine technology is improving including lower cost wind turbines, increased performance, and advanced operations, causing the cost of wind electricity to decline significantly in recent years.
Capital costs: The cost of the wind turbine is the single largest cost component, and can make up 70% or more of the entire cost of a land-based wind project. The cost of installation, such as construction, makes up the remaining capital costs. Recent reductions in capital costs have been primarily driven by significant reductions in wind turbine costs.
- The 2016 Wind Technologies Market Report reports that “The capacity-weighted average installed project cost within our 2016 sample stood at roughly $1,590/kW. This is down $780/kW from the apparent peak in average reported costs in 2009 and 2010."
Wind resource/capacity factor: The strength and quality of the wind resource at a wind project site will determine how much electricity a wind project can produce, impacting the costs of the wind electricity. Advancements in technology, such as taller wind towers and longer and lighter blades, have allowed for capture of better wind resource, which improves the production performance of wind turbines.
Operating costs: Once a wind project is delivering electricity to the power grid, it is expected to operate for 20 years or longer, requiring monitoring and maintenance to optimize performance from specialized wind technicians and operators.
Other: Wind costs are also impacted by financing costs, siting and permitting, site-specific characteristics, availability and cost of skilled labor, transportation and logistics, among other factors.
Declining Cost of Wind Energy Over Time
Advanced technology, improved siting techniques, and learning across all sectors as the industry scales up have all influenced the cost of wind energy over time. The Department of Energy depicts the cost reduction in wind energy below alongside U.S. wind energy deployment, showing a decrease in cost of more than 90% since the early 1980's.
As wind energy prices continue to decline and technologies continue to improve, utilities and electricity consumers increasingly find wind to be one of the most cost-competitive forms of electricity today.
Electric utilities across the country are noting the affordability of wind energy:
- “Wind prices are extremely competitive right now, offering lower costs than other possible resources, like natural gas plants. These projects offer a great hedge against rising and often volatile fuel prices." - David Sparby, president & CEO of Xcel Energy’s Northern States Power announcing 600 MW of new wind power contracts on July 16, 2013.
- "The latest addition of 150 megawatts of low-cost wind energy provides AECC with a hedge against fluctuating natural gas energy prices […] We will continue to pursue energy options that allow AECC’s member cooperatives to provide reliable electricity at the lowest possible cost.” - Duane Highley, president & CEO of Arkansas Electric Cooperative Corporation after signing a 150 MW contract July 22, 2013
- “From September 2011 through June 2012, fuel costs to Arkansas customers were approximately $1.2 million lower because of the incorporation of Crossroads into OG&E’s generation fleet. OG&E estimates that fuel savings to Arkansas customers from September 2011 through December of 2012 will be in the range of $2.2 million. Total Company production cost savings for the first five years of operation are estimated to be $268 million. Over the expected twenty-five year life of the asset production cost, the savings are estimated to be $2.3 billion." - Oklahoma Gas & Electric. Arkansas Public Service Commission. Docket 12-067-u-Doc. 1.
When assessing new sources of electricity generation, utilities also consider risk, such as fuel price risk or future environmental regulations. When considering both of these factors, wind energy provides a low cost and low risk option for electricity consumers and utilities.
The 2016 Wind Technologies Market Report illustrates the low-risk advantage of current wind prices. As shown below, real costs for actual wind contracts signed over the last several years tend to decline over time as inflation reduces their fixed cost, while natural gas prices are expected to increase by a large but uncertain amount over time.
Electric utilities have noted this value of wind energy, with Xcel Energy CEO Ben Fowke noting “These projects will lower customer costs by at least $800 million over their lives and will provide a valuable hedge to rising and volatile fuel prices for well into the future."