According to the report, average costs for landfill gas are under $60/MWh, ranging from $35 to $100 per megawatt hour. Hydro comes next with an average of around $60/MWh, but there are very large variations from this figure, depending on plant capacity factor, regional location and the difficulties of construction at different sites. Similar caveats apply to geothermal, which has an average cost of around $70/MWh, dependent on the steam's temperature and accessibility.
The average cost of onshore wind is rated at around $80/MWh, ranging from $50/MWh to about $230/MWh. Various types of photovoltaics and solar thermal generation, plus biomass gasification come next, before offshore wind, with an average cost of $220/MWh. The range is put at around $135/MWh to $330/MWh. Wave and tidal energy are the most expensive renewable-energy sources, with the average costs put at $500/MWh and $450/MWh, respectively. The data results are similar to those reported by the International Energy Agency, reinforcing the message that wind costs are now in the same range as those from gas and coal-fired generation.
India stands out as cheapest for build
The same report shows India can be the cheapest place to build onshore wind farms with capital costs of between $1,080/kW and $1,250/kW. Assuming capacity factors of 15-33%, the cost of energy is put at $47/MWh to $113/MWh. China is a very close second: its slightly higher capital and operating costs push wind-energy costs to between $49/MWh and $113/MWh. Installed costs are highest in Italy, Spain and Romania, and the high capital costs combine with low capacity factors to push energy costs to $90-100/MWh (see chart, below).
The WEC report shows significant global variation for generation costs from conventional fossil-fuel sources. The US, for example, delivers the cheapest gas-fired generation, at $61-69/MWh. That is about half what it costs in Japan. These variations mean the competitive position of wind also varies between regions and states.
The cost estimates are based on a standard test interest rate of 10% on the life of the plant.
Long deal spreads nuclear cost for UK
The WEC report has little to say about nuclear power, noting that "little price discovery is available on many nuclear plants, and ...
projects can be subject to significant cost overruns". It suggests capital costs range from $3,570/kW to $6,520/kW, and generation cost from $91/MWh to $147/MWh. The top end of the range roughly coincides with the long-awaited announcement from the UK government that agreement has been reached, in principle, for construction of a nuclear power station.
The so-called strike price is £92.5/MWh, a fraction under $150/MWh, payable for 35 years. The length of the contract is justified on the basis that it equates to roughly 60% of the life of the plant, projected at 60 years, although no commercial electricity-generating reactor has yet operated for this length of time, and the design chosen has yet to be proven in practice. But by offering a contract for 35 years, it has been possible to bring the strike price down to below £100/MWh ($160/MWh), the level proposed for onshore wind.
A £10 billion loan guarantee removes a substantial element of risk, and the developer is able to proceed on the basis that the internal rate of return will be 10%. In the absence of a loan guarantee, the internal rate of return would be higher. Even an additional percentage point would increase the required strike price by around £10/MWh. If nuclear liabilities were not capped at £1 billion, that would further add to the insurance cost and so to the operation and maintenance costs.
Commentators have drawn attention to the fact that the energy payments are indexlinked, whereas the majority of the outgoings are not. The operation and maintenance costs may be index-linked, and possibly the fuel costs, but, once the plant is built, the capital repayments are not index-linked. This means that the contract is likely to become steadily more profitable with the passage of time.
In the light of these cost distortions, it seems illogical to compare nuclear and wind costs, but that is precisely what the UK government — and the nuclear industry — are doing.