What is the real cost of renewable energy? (part 3)

Gail Rajgor

Which energy technology really is the most economical, cost-effective solution for the long term? Gail Rajgor continues her foray into the real costs of renewable energy – looking closer at wind power.

For part 1 of this series - is it possible to compare technologies on a truly like-for-like basis. And if so, what do we need to bear in mind?

For part 2 of this series - Renewable energy cost examples, LCOE and the importance of taking risk into account.

Part 3: Closing in on the grail of grid parity - wind

The cost of wind power may vary from region to region, but the best onshore wind farms in the world already produce power as economically as coal, gas and nuclear. And within less than five years, almost all of them will.

There have been a flurry of studies recently extolling the falling cost of some renewables compared to traditional fuel sources. At the same time, as the previous article in this series highlighted, counter claims abound. Renewables – notably wind power – are commonly cited as a key cause for rising electricity bills for consumers.

Such claims are “a fallacy” however, according to Rick Eggleston, Managing Director of wind turbine manufacturer REpower UK. He says wind only accounts for 1% of average household fuel bills.

And figures just published by UK energy regulator Ofgem in the Renewables Obligation (RO) annual report for 2010/11 support this. They show that onshore wind added just £4.68 to household energy bills last year. When factoring in costs for offshore wind, Ofgem's figures show a total annual price per consumer of £7.74 for wind. Supporting all renewables under the RO – including offshore wind, wave, tidal, biomass and landfill gas – costs consumers £15.15 each, it reports.

By comparison, the rising cost of imported gas added around £120 to energy bills last year, according to Ofgem's December 2011 Electricity and Gas Supply Market Report, a point picked up on by renewables firm Ecotricity. It notes that this increase in the cost of gas added more than 10% to energy bills, while support for onshore wind added less than 0.05%. “There has been a massive campaign of misinformation over the last 6 months by the media and lobbyists for the gas and nuclear industries, all taking aim at wind energy for some reason,” says the company's Founder, Dale Vince.

The latest figures from Ofgem set the record straight, he suggests. “Supporting onshore windmills and making use of our indigenous energy supplies cost each household less than a fiver last year. This is an investment, not just in clean energy, but in energy security, reducing our reliance on imported gas.”

Vince also points out that in January this year, coal took over from gas as the major provider of electricity in Britain. “The high price of importing gas caused the ‘Big Six' energy companies to mothball gas power stations,” he says. “That's the reality. It's gas that we can't afford, not onshore wind.”

Levelling up the costs

Of course, not every country has to import gas. No two countries have the same energy profile, and none pay identical rates for their electricity. Electricity generation and supply costs are highly sensitive to domestic conditions in terms of various factors including local typography, domestic fuel sources, industrial capability and policy.

This make generic cost comparisons difficult, a point highlighted by the work of the International Energy Agency's (IEA) task force looking at wind energy costs, which found that across 7 countries profiled, unsubsidised levellised cost of energy (LCOE) for onshore wind range from €61/MWh (US$85/MWh) in Denmark to €120/MWh (US$167/MWh) in Switzerland based on 2008 figures.

Even so, as REpower's Eggleston stresses, reality is that the overall cost of wind power generation is falling all the time as new technologies are developed to improve efficiency. “A single onshore wind turbine can now produce more power than 10 of the type first installed in the UK,” he says. “And the industry is doing all it can to cut costs.” REpower, he claims, has already reduced material costs of its MM92 turbine by 25% over the last 3–4 years.

Closer to parity

Significantly, according to UK Government figures, wind power will help cut future consumer bills by nearly £100 compared to largely relying on non-renewable sources, he continues. “At the same time, fossil fuel prices are on the up – as far as cost efficiency is concerned,” he says. “According to Bloomberg New Energy Finance, the two could achieve parity as soon as 2016.” And he adds: “In the case of nuclear, the decommissioning costs alone far exceed the cost per MW of a wind installation.”

Bloomberg's research, published in November 2011, shows that “the cost of electricity from onshore wind turbines will drop 12% in the next five years thanks to a mix of lower-cost equipment and gains in output efficiency”. Critically, the best wind farms in the world already produce power as economically as coal, gas and nuclear generators, it adds.

“The public perception of wind power tends to be that it is environmentally-friendly, but expensive and intermittent,” says Justin Wu, Lead Wind Analyst at Bloomberg New Energy Finance. “That is out-of-date in the best locations, where generation is already cost-competitive with fossil fuel electricity, and that will be the case for the majority of new onshore turbines installed worldwide by 2016.”

The manufacture of onshore wind turbines, Bloomberg says, displays a 7% “experience-curve”. This means there is a 7% cost reduction for every doubling of installed capacity as economies of scale and supply chain efficiencies reduce costs. Global average turbine prices have fallen in real terms from €2.0 million/MW in 1984, when global installed wind capacity stood at just 0.3 GW, to below €0.88m/MW in the first half of 2011, the firm notes. By the end of 2011 there was over 240 GW of wind installed worldwide.

“At the same time as turbine costs have been falling, the power output achieved by each turbine as a percentage of nameplate capacity – the so-called capacity factor – has been rising steadily,” says Bloomberg. “This has been driven by the long-term move to bigger and taller turbines, better aerodynamics, better controls and gearboxes, as well as improved electrical generation efficiency.” These improvements, it says, have increased capacity factors by 13 percentage points to 34% over the past 27 years.

Similarly, operations and maintenance cost of wind farms has also decreased in real terms. They have fallen, on average over the lifetime of a project, from €50/MWh in the 1980s to €11/MWh today, as operators have become more experienced and the quality of turbines has improved. “As a result of all these improvements, each Megawatt of wind capacity built on land in the 1980s could be expected to deliver 1800 MWh of electricity per year,” says Bloomberg. “One Megawatt of today's more efficient and taller wind turbines can be expected to deliver 2900 MWh each year.”

Critically, and in the case of Bloomberg, this all translates into significant improvements in the cost of energy from onshore wind, otherwise know as the all-important levellised cost of energy [see Part 1, ed.] – and in Bloomberg's figures this is before any subsidies or support mechanisms are applied. “Taking these factors together, the [unsubsidised] levellised cost of energy produced from onshore wind turbines has fallen by 14% for every doubling of installed capacity between 1984 and 2011,” explains Bloomberg. “So the levellised cost of energy from onshore wind has fallen in 2011 real terms over this time period from €200/MWh (US$261.33/MWh) to €52/MWh (US$67.95/MWh). This is only €6/MWh (US$7.85/MWh) more expensive than the average cost of a combined-cycle gas turbine plant in 2011.”

Moreover, the figure for gas-fired power, Bloomberg notes, excludes the cost of carbon emitted. “If that were included, wind would already be at grid parity.”

Notably, the Bloomberg figure comes in lower than the €60/MWh cited by the European Wind Energy Association (EWEA) in the first article of this series. Since publication of that article, EWEA has revised its levellised cost for onshore wind to around €50/MWh too, a figure determined by its electricity cost calculator – an online tool to calculate and project the levellised cost of electricity generated taking into account the fuel and carbon cost components – by new gas, coal, nuclear, on- and offshore wind power plants.

In part 4 coming soon: U.S. take on onshore wind costs.

About the author: Gail Rajgor is a writer working across the energy & environment sector. She is the former publisher of Sustainable Energy Developments magazine.


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Energy efficiency  •  Energy infrastructure  •  Policy, investment and markets  •  Wind power