The increasingly competitive position of wind as an electricity-generating source has been highlighted in Windpower Monthly for some time, but in 2013 a number of influential international organisations, such as the International Energy Agency and the World Energy Council, also reflected this view. The exact position of wind vis a vis cost comparison varies, depending on the price of competing fuels, but the debate over the relative economics of wind and nuclear power has acquired clear evidence over the past 12 months that wind is cheaper than nuclear.
Even in the UK, where the newly announced strike price for nuclear — price that energy producers have been guaranteed by the government, and should the market price for energy fall below that price they will receive subsidies - appears lower than the generation cost for wind, in practice wind is cheaper. Closer inspection revealed that nuclear's price is somewhat artificial, given that the premium price is stretched out over a much longer period than wind's strike price.
The downward trend in costs of onshore wind turbines and complete installations continued throughout 2013, while a clearer picture emerged of offshore wind project costs. The range of costs for onshore wind fell marginally during the year, with the average now about EUR 1,500/kW. The upper bound has been reduced from EUR 2,000/kW to EUR 1,800/kW, while the lower bound has been cut from EUR 1,300/kW to EUR 1,200/kW.
Offshore, recently announced contracts provide evidence that the average price - now about EUR 3,700/kW — has a firm basis, has steadied and may be on a downward trend. From last year's figures, the variation in costs have shifted, with the lower bound estimate of installed costs moving upwards — from EUR 2,400/kW to EUR 3,300/kW. The upper bound cost has become more difficult to judge as some recent offshore projects incurred cost overruns. An estimate of EUR 4,300/kW as the top cost figure encompasses most of the projects likely to be commissioned in the near future.
Looking at competing fuels, prices for the most part have moved slightly upwards, although the shale gas boom in the US means that gas prices there are the lowest anywhere in the world. In Europe, they are roughly double that of US, and in Japan they are triple.
In new markets, wind-energy generation costs have, in the past, often been higher than average costs globally. But that trend is now less obvious as seen in South Africa, where contract prices in the last round of renewable energy independent power producer purchase programme in November were sold at an average of ZAR 737/MWh, which converted to a highly competitive EUR 54/MWh. This is comparable with wholesale electricity prices in many parts of Europe, but higher than those in South Africa. Since that procurement programme allocation the South African Rand has been losing value, and at the time of going to press, the ZAR 737/MWh average price had fallen to the equivalent of EUR 50. This will also have a bearing on import costs.
Perhaps the most serious challenge to the competitive position of wind in the medium term will come from photovoltaics (PV). Module prices have been falling rapidly, and some projections of future generation costs suggest they will be on a par with wind in a few years. That clearly depends on location. Some of the best locations for solar energy, such as much of equatorial Africa, may not be particularly attractive for wind energy as wind speeds are generally low. This give PV the edge.
Generation costs in comparison
The cost of building conventional coal and gas plants came down slightly in 2013. With a slight rise in average gas prices, and coal prices remaining more or less the same, average generation costs recorded last year are very similar to 2012. Across the world, generation costs vary significantly, largely through fuel price variations particularly for gas. The International Gas Union reports that gas prices are at or below $4 per million Btu in North and South America, most parts of the former Soviet Union, Africa and the Middle East. They are 75% higher in Central Asia, more than double US levels in Europe, and nearly three times higher in Asia Pacific.
The most dramatic change in the costs of technologies that are in competition with wind was seen in photovoltaics, where prices for utility systems fell by 15% between the third quarter of 2012 and the third quarter of 2013, according to the Solar Industries Association. These systems now average around EUR 1,450/kW. Generation costs, as with wind, depend on the availability of the resource. With a 10% load factor, or capacity factor — achievable in the UK and other regions at similar latitude — generation costs are around EUR 190/MWh. With a 20% load factor, achievable in regions such as California, generation costs are around EUR 95/MWh.
Onshore wind still undercuts photovoltaics in sunny climes (minimum costs) except at low wind speeds. Offshore wind only undercuts photovoltaics in less sunny climes, where the generation cost approaches EUR 200/MWh. Low-priced wind on good sites can compete with coal, even without any allowance for the cost of carbon, but wind struggles to compete with low-price gas. Onshore wind - even at the upper bound price of EUR 1,800/kW - down to wind speeds of about 6.5 metres per second (m/s) is cheaper than nuclear, providing the latter is priced commercially. At EUR 3,300/kW and a 9m/s site, offshore wind levels with nuclear (see chart further doen).
There has been a steady downward trend in wind turbine prices since they reached a peak around 2009. This is reflected in a downward trend in onshore wind farm costs, as noted earlier. Offshore, the position is more complex mainly because progress has been sluggish and there have been problems on some projects. Despite this, the expectation is that offshore costs will fall in the medium term.
The chart above shows a number of projections for onshore and offshore wind, a comparison with utility-scale photovoltaics and a projection for gas-fired generation. The latter excludes the "cost of carbon", which would add about EUR 22/MWh in the UK in 2020. The UK "carbon price floor" is likely to be significantly higher than the European carbon price and so has not been included. The differing estimates may not be exactly comparable, due to differences in the assumptions about productivity, discount rates and depreciation periods. Although generation costs for UK onshore and offshore wind appeared to be significantly higher than elsewhere, this is largely due to the assumption of a 10% discount rate that is built into estimates by the UK government's Department of Energy and Climate Change (Decc). The UK and Danish generation cost estimates are likely to be more closely matched later this year, when the remuneration arrangements are expected to be altered on completion of the UK electricity market reforms.
The three curves shown for onshore wind all suggest that by 2030 generation costs will fall by around 10% and the trend is expected to continue after that. The implicit assumption, in all the projections, is that there will be no major surge in commodity prices of the kind that triggered wind turbine price rises from around 2006.
For offshore wind, data on projected installed costs from the Danish Energy Agency has been used to derive generation cost estimates that suggest costs will fall from EUR 105/MWh at the present time to around EUR 85/MWh by 2020. The study by Fichtner and Prognos for the German Offshore Wind Energy Foundation, which included key developers and wind turbine manufacturers, indicate that generation costs may fall from around EUR 132/MWh to around EUR92/MWh by 2023. More cautious projections have come from the UK's energy and climate change department; these suggest that generation costs will fall by about 16% between 2014 and 2020. Their absolute levels are higher than those quoted by other studies, largely because they are derived using a 10% interest rate.
A recent analysis by the UK system operator, National Grid, included a number of scenarios that may be realised in the electricity market, depending on the rate of offshore wind energy deployment, plus the costs of technology and fuel. In nine of the 11 scenarios, the wholesale price of electricity rises fairly steadily along the trajectory shown in the graph. The data shown in the graph represent an approximate average of the estimates in these nine scenarios. The wholesale price of electricity rises from EUR69/MWh in 2015 to EUR 73/MWh in 2020 and EUR 83/MWh in 2025, after which it stays broadly constant.
The only two scenarios that deliver significantly lower wholesale prices are if there is high offshore deployment or if fossil-fuel prices are low. Although comparisons must be made with care between UK wholesale electricity prices and the wind generation costs from the various authorities shown on the graph, the indications are that onshore will become competitive with gas-fired generation shorly after 2020. Gas-fired generation will attract a carbon tax in the UK, the so-called carbon price floor, and this is built into National Grid's modelling. There is currently some uncertainty about the appropriate levels of carbon tax in the rest of Europe.
Projections for nuclear are not shown on the graph, simply because of the high degree of uncertainty that surrounds this form of energy generation. The new reactors currently under construction in Finland and France are running behind schedule and over budget, and are therefore unlikely to deliver realistic generation costs. The new power station proposed for the UK will probably not be completed before 2023, and final details of the contract have yet to be agreed. Consequently there is insufficient data from which to construct a future price trajectory.
Solar is now wind's principal competitor among low-carbon technologies. The projections shown in the graph on page 28 come from the respected Fraunhofer Institute in Germany and may be pessimistic as they were published just over a year ago. Fraunhofer produced sensitivity analyses showing how the generation cost from PV might fall up to 2025 and the figures plotted represent an approximate mean value.
They suggest generation costs that fall from their current value of around EUR90/MWh to around EUR 80/MWh in 2020 and EUR 70/MWh in 2025. Although comparisons with the wind projections must again be made with care, this suggests that PV will become competitive with wind between 2020 and 2025. The Fraunhofer Institute's analysis also suggests that generation costs from concentrating solar power — where the sun's rays are focused by mirrors on to a central collection point, where water is boiled to produce steam that is then fed through a steam turbine - could also fall to around EUR 69 in 2025. It must be stressed that there are considerable variations about the mean values in all the technologies.
The chart above highlights the very wide variation in wind energy generation costs, according to location and wind speeds. Wind costs range from under EUR 60/MWh in the best circumstances onshore to more than three times that mark for the most expensive offshore projects.
Onshore wind shows a slight fall in cost compared to last year's figures, but offshore costs have risen significantly. This reflects a number of large and complex developments in deeper waters and further from land that have suffered time and cost overruns for reasons that include the expensive disposal of munitions on the seabed.
The cost of offshore wind is particularly difficult to gauge at the best of the times because the relatively few number of projects in development provides insufficient information for a comprehensive database, but the sharp rise of 2013 looks more like a blip than a steady trend.
In overall terms wind struggles to compete with low-price gas, but low-price wind on the better sites can compete with coal even without any allowance for the cost of carbon. However, onshore wind, even at the upper bound price of EUR 1,800/kW and with wind speeds down to about 6.5m/s, remains cheaper than nuclear if the latter is priced commercially. At the lower bound installation cost of EUR 3,300/kW and operating on a 9m/s site, offshore wind levels with nuclear.
Onshore wind still undercuts photovoltaics in sunny climes except at low wind speeds. Offshore wind only undercuts photovoltaics in less sunny climes where the generation cost approaches EUR 200/MWh.
Rate of exploitation
Within the broad pattern of increasing worldwide competitiveness of wind energy there are significant regional variations. However, the rate of exploitation of wind energy depends not only on the economic climate, but also on the enthusiasm with which individual governments pursue policies designed to counteract climate change.
In any one region, there will be substantial variations in the wind resources between coastal and inland regions, lowlands and highlands. Whereas the solar resources are easy to characterise - the best are near the equator and they fall away towards the poles — wind characteristics are much more disparate.
The map above gives a broad overview of how wind fares in comparison with the fossil sources of energy and photovoltaics. The availability of low-cost wind turbines in China and India has made them both attractive locations in recent years for wind development, and in each location there is a wide range of wind speeds, so competitive generation costs can be realised despite low fossil fuel prices.
In many locations the prospects for wind are good, but there is no single region where the prospects are outstanding.
The data for the competing sources of power given on the map above is geared toward grid-connected applications, but there are numerous other locations where alternative means of generating electricity involve the transport of diesel fuel. Antarctica is a good example; wind speeds are good and electricity generating costs are high.
COST BREAKDOWN — HARDWARE MAKES UP MORE THAN HALF OF ANY WIND PROJECT COST
The cost of wind turbines is still the single most important factor that influences the price of both onshore and offshore wind projects. Onshore, the cost accounts for about 61% of the total installed cost.
For a typical wind farm, with total installed costs of EUR 1,500/kW, that accounts for just over EUR 900/kW. The price has been steady for the last two to three years, having fallen from its peak in 2009. The National Renewable Energy Laboratory in the US suggests the current range is from EUR 700/kW to EUR 960/kW. Big orders attract the lowest prices, but the estimates often include an operation and maintenance contract for up to ten years.
Offshore wind turbines account for about one third of the total installed cost. Assuming this to be EUR 3,700/kW, this suggests that the prices of turbines for the offshore market is about EUR 1,220/kW, some 30% higher than the cost of an onshore wind turbine.
The higher price is accounted for by numerous factors, particularly the need to "marinise" the turbine so that it is equipped to handle the corrosive influence of salt spray. In addition, offshore wind turbines generally operate in regions where the mean wind speed is higher than onshore and so they need to be more robust.
After turbines, foundations are the next most costly item. Offshore foundations are particularly expensive; as the chart suggests, they account for about 22% of installed costs, or about EUR 814/kW, more than double the cost of onshore foundations.
Although considerable efforts are going into devising ways of reducing this cost, anchoring or locating of wind turbines to the seabed is never going to be easy. This is especially true further offshore in deeper waters, where may of the UK's Round 3 projects are being planned. Wind speeds usually increase with distance from shore and so, generally, do water depths, but not always. Floating turbines are moving from concept to reality and that may aid access to the deep water sites where the wind resources are good.