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Wind Economics: Wind beats cheaper sources on potential

EUROPE: To facilitate an informed debate on the functioning of EU energy markets the European Commission has commissioned a study to quantify the extent of public interventions in these markets in all 28 member states.

Its interim report, Subsidies and costs of EU energy, was published last October, inviting stakeholders, academia and member states to comment.

The report includes three sets of data: energy subsidies (interventions), external costs, and estimates of generation costs for all the principal electricity-generating technologies. External costs are those that are not reflected in market prices, such as costs of environmental and health impacts and the impact of climate change.

These are difficult to calculate accurately and have a high degree of uncertainty, as the report notes. The external cost of coal-fired electricity, for example, does not include costs attributable to damage to buildings due to the harmful acids that may be deposited from the combustion process.

Subsidies

The results show that in 2012, the total value of public subsidies for energy in the EU28 was between €120 billion and €140 billion. The largest amount went to renewables, including solar (€14.7 billion), onshore wind (€10.1 billion), biomass (€8.3 billion) and hydropower (€5.2 billion).

Among conventional power-generation sources, coal's subsidies in 2012 were the highest, matching wind's at €10.1 billion, followed by nuclear (€7 billion) and natural gas (about €5.2 billion). The figures look somewhat different, however, when they are put on a basis of the subsidy per unit of electricity generated.

Across the EU, the subsidy for coal was €6/MWh, slightly ahead of gas at €5/MWh. As nuclear is only used in 11 member states, the EU average subsidy figure is unrepresentative, but amounts to €10/MWh in the Netherlands and Spain and €40/MWh in the UK. Among the renewables, geothermal and hydro support amounts to €10/MWh, onshore wind €30/MWh and offshore wind €60/MWh. Solar attracts the most support at €110/MWh.

External

Some studies include subsidies as an element of external costs, but this report deals with the two separately. There are many components of the external costs of energy sources, grouped by this report under headings such as climate change, the impact of particulates, impacts on human health and on agricultural activities. Coal-fired generation produced the highest external cost, with an average value of €95/MWh across the EU. Natural gas has an external cost of €34/MWh and nuclear €18/MWh. Of the renewable technologies, utility PV's external cost is €14/MWh, onshore wind's €4/MWh and offshore wind's €2/MWh.

Generation

The report also presents figures on the generation costs of the different power generation technologies, using standard techniques to work out the levelised cost of energy. The two cheapest technologies were hydro power at €30/MWh and geothermal at €63/MWh. Coal-fired generation is next at €75/MWh, followed by onshore wind at €80/MWh. Note that these are all EU-wide average figures and the fossil generation costs do not include the cost of carbon. Natural gas then comes in at €95/MWh and nuclear at €100/MWh. Utility-scale PV, at €100/MWh is a fraction more expensive than nuclear and offshore wind is the most costly at about €123/MWh.

If all three elements are added together — standard generation cost, external cost and subsidy cost — it is possible to obtain estimates of the overall cost to the consumer of the energy sources that were examined. This is the basis of the chart, below. Based on these calculations, what may be termed these overall costs show that hydro (at €41/MWh) and geothermal (at €86/MWh) are still the cheapest technologies.

However, it is generally accepted that further exploitation of hydro on any significant scale is unlikely in the EU as it has a very limited additional resource. Geothermal is also limited as the most attractive costs are attached to locations where hot water or steam comes close to the surface, and the number of locations where this occurs is small. This leaves onshore wind as the cheapest generating technology with significant potential at €114/MWh, slightly cheaper than nuclear at €118/MWh.

Gas and coal come next and then offshore wind at €187/MWh. Because solar PV attracts considerable subsidies, its overall cost is the highest at €224/MWh, although its generation cost is actually less than that of offshore wind.

AT A GLANCE — THIS MONTH'S REPORT CONCLUSIONS

Subsidies and costs of EU energy, an interim report by Ecofys, for the European Commission, October 2014 Analysis of generation costs, subsidies and external costs for all thermal and renewable sources of electricity generation. There are wide variations between member states, but when EU-wide averages of all costs are added together, and growth potential is considered, onshore wind delivers electricity at a competitive price.

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