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What is the cost of Wind Energy?
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”.[1]
Recent improvements in turbine technology has reduced the cost of wind energy, allowing electricity consumers and utilities to lock in low, affordable electricity rates through 20 to 30 year contracts.
GO TO: Cost of Wind Energy: PPA, Capital Cost, and Performance
GO TO: Comparative Cost of Wind Energy: How Wind Energy Stacks Up
GO TO: Hedging Value of Wind Energy: Valuing Risk and Cost
Cost of Wind Energy [top]
As a renewable resource, wind energy has no fuel cost, allowing electricity consumers and utilities to lock-in known electricity rates for 20 to 30 years through contracts called Power Purchase Agreements (PPAs).
As provided by the Department of Energy’s Wind Technologies Market Report, a summary of these public PPA contracts demonstrates the reduction of wind energy costs in recent years, with wind energy costs delivering affordable rates to electricity consumers.
The DOE Wind Technologies Market Report 2012 finds that “[T]he average levelized price of wind PPAs signed in 2011/2012—many of which were for projects built in 2012—fell to around $40/MWh nationwide, which rivals previous lows set back in the 2000–2005 period.” Power purchase agreements signed for wind energy projects during 2012 range from $31 to $84 per MWh, compared to a ranges of $44 to $99 per MWh in 2010. [2]
PPA Price for Wind Energy Projects, over time, by region
The following chart depicts actual long-term contract power purchase agreement prices for wind energy projects over time, showing the variation in pricing across regions of the country as well as project size.
PPA Bubble Chart 2012
Note: the size of the bubble is proportionate to project capacity
The cost of electricity can be reported in dollars per megawatt-hour ($/MWh) or cents per kilowatt-hour (c/kWh) as commonly seen on residential electricity bills. For example, $50 per MWh = 5 cents per kWh. An average U.S. home uses 11,000 kWh or 11 MWh each year.
Drivers of Wind Energy Costs
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 Department of Energy finds that “Among a large sample of wind projects installed in 2012, the capacity-weighted average installed cost stood at nearly $1,940/kW, down almost $200/kW from the reported average cost in 2011 and down almost $300/kW from the reported average cost in both 2009 and 2010.” [3]
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: the cost of electricity from a wind project are also impacted by financing costs, siting and permitting, site-specific characteristics, availability and cost of skilled labor, transportation and logistics, and 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, below, depicts the cost reduction in wind energy alongside U.S. wind energy deployment, showing a decrease in cost of more than 90% since the early 1980's. [4]
Declining Cost of Wind from DOE Revolution Now
Comparative Cost of Energy: How Wind Energy Stacks Up [top]
As wind energy prices decline, and electricity consumers and utilities are faced with choices about new electricity generation, wind energy is increasingly a competitive choice of power. With improving technology and siting techniques, wind energy is increasingly becoming one of the most affordable 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.
Cost of New Generation Resources
The Energy Information Administration (EIA), the statistical arm of the Department of Energy, finds wind energy to be one of the most affordable options for new electricity generation, alongside new natural gas units.
EIA Cost of Energy AEO 2013
Data Source: EIA, Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013
Hedging Value of Wind Energy: Valuing Risk and Cost [top]
When assessing new sources of electricity generation, utilities also consider risk , such as fuel price risk or future environmental regulations, as well as cost.
When considering both of these factors, wind energy provides a low cost and low risk option for electricity consumers and utilities.
Electric utilities have noted this value of wind energy with CEO of Xcel Energy, 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.”[5]
Relative Cost and Risk of New Generation Resources
CERES Wind Hedge Chart
Chart Source: CERES, Practicing Risk-Aware Electricity Regulation, 2012
[1] David Sparby, president & CEO of Xcel Energy’s Northern States Power announcing 600 MW of new wind power contracts on July 16, 2013.
[2] DOE Wind Technologies Market Report 2012
[3] DOE Wind Technologies Market Report 2012
[4] DOE Revolution Now The Future Arrives for Four Clean Energy Technologies. September, 2013.
[5] Wall Street Journal, Xcel Energy plans to grow wind power by 30 percent. July 30, 2013.
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”.[1]
Recent improvements in turbine technology has reduced the cost of wind energy, allowing electricity consumers and utilities to lock in low, affordable electricity rates through 20 to 30 year contracts.
GO TO: Cost of Wind Energy: PPA, Capital Cost, and Performance
GO TO: Comparative Cost of Wind Energy: How Wind Energy Stacks Up
GO TO: Hedging Value of Wind Energy: Valuing Risk and Cost
Cost of Wind Energy [top]
As a renewable resource, wind energy has no fuel cost, allowing electricity consumers and utilities to lock-in known electricity rates for 20 to 30 years through contracts called Power Purchase Agreements (PPAs).
As provided by the Department of Energy’s Wind Technologies Market Report, a summary of these public PPA contracts demonstrates the reduction of wind energy costs in recent years, with wind energy costs delivering affordable rates to electricity consumers.
The DOE Wind Technologies Market Report 2012 finds that “[T]he average levelized price of wind PPAs signed in 2011/2012—many of which were for projects built in 2012—fell to around $40/MWh nationwide, which rivals previous lows set back in the 2000–2005 period.” Power purchase agreements signed for wind energy projects during 2012 range from $31 to $84 per MWh, compared to a ranges of $44 to $99 per MWh in 2010. [2]
PPA Price for Wind Energy Projects, over time, by region
The following chart depicts actual long-term contract power purchase agreement prices for wind energy projects over time, showing the variation in pricing across regions of the country as well as project size.
PPA Bubble Chart 2012
Note: the size of the bubble is proportionate to project capacity
The cost of electricity can be reported in dollars per megawatt-hour ($/MWh) or cents per kilowatt-hour (c/kWh) as commonly seen on residential electricity bills. For example, $50 per MWh = 5 cents per kWh. An average U.S. home uses 11,000 kWh or 11 MWh each year.
Drivers of Wind Energy Costs
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 Department of Energy finds that “Among a large sample of wind projects installed in 2012, the capacity-weighted average installed cost stood at nearly $1,940/kW, down almost $200/kW from the reported average cost in 2011 and down almost $300/kW from the reported average cost in both 2009 and 2010.” [3]
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: the cost of electricity from a wind project are also impacted by financing costs, siting and permitting, site-specific characteristics, availability and cost of skilled labor, transportation and logistics, and 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, below, depicts the cost reduction in wind energy alongside U.S. wind energy deployment, showing a decrease in cost of more than 90% since the early 1980's. [4]
Declining Cost of Wind from DOE Revolution Now
Comparative Cost of Energy: How Wind Energy Stacks Up [top]
As wind energy prices decline, and electricity consumers and utilities are faced with choices about new electricity generation, wind energy is increasingly a competitive choice of power. With improving technology and siting techniques, wind energy is increasingly becoming one of the most affordable 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.
Cost of New Generation Resources
The Energy Information Administration (EIA), the statistical arm of the Department of Energy, finds wind energy to be one of the most affordable options for new electricity generation, alongside new natural gas units.
EIA Cost of Energy AEO 2013
Data Source: EIA, Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013
Hedging Value of Wind Energy: Valuing Risk and Cost [top]
When assessing new sources of electricity generation, utilities also consider risk , such as fuel price risk or future environmental regulations, as well as cost.
When considering both of these factors, wind energy provides a low cost and low risk option for electricity consumers and utilities.
Electric utilities have noted this value of wind energy with CEO of Xcel Energy, 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.”[5]
Relative Cost and Risk of New Generation Resources
CERES Wind Hedge Chart
Chart Source: CERES, Practicing Risk-Aware Electricity Regulation, 2012
[1] David Sparby, president & CEO of Xcel Energy’s Northern States Power announcing 600 MW of new wind power contracts on July 16, 2013.
[2] DOE Wind Technologies Market Report 2012
[3] DOE Wind Technologies Market Report 2012
[4] DOE Revolution Now The Future Arrives for Four Clean Energy Technologies. September, 2013.
[5] Wall Street Journal, Xcel Energy plans to grow wind power by 30 percent. July 30, 2013.