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Wind Economics: Parity on costs with gas in UK and US

WORLDWIDE: Two reports this month discuss the prospects for parity between electricity costs from wind and from natural gas.

Published in April by RenewableUK, the Onshore Wind Cost Reduction Taskforce report concludes that large wind farms on good sites and medium-sized wind farms on sites with average winds both have the potential to deliver electricity at EUR88-90/MWh. It notes that this would be competitive with electricity from combined cycle gas turbines, which are expected to deliver at EUR90-104/MWh. Even small wind farms on low wind-speed sites might be expected to deliver electricity at EUR95/MWh, in the middle of the range for combined cycle gas turbines.

Fluctuating gas prices

A report from Make Consulting, North American Wind Power Outlook 2015, puts the unsubsidised cost of wind in 2015, on average, at around $59/MWh (EUR55.5/MWh).

The Make analysis suggests that the average cost of electricity from wind will fall to about $52/MWh (EUR49/MWh) by 2020, and that would be competitive with gas-fired electricity if the price of the gas resource was around $4/million Btu (around EUR12.8/MWh). That is higher than the current gas price, but lower than the average gas price in 2014. The US Energy Information Administration suggests gas prices may rise towards $5/million Btu (around EUR16/MWh) by 2020, pushing gas-fired electricity costs to around $60/MWh (EUR56/MWh) and that would mean wind, at EUR49/MWh, would be significantly cheaper.

Once a wind farm is built, however, the electricity price is more or less fixed, but the prices required by gas-fired stations depends on the prevailing price of the fuel.


Low cost difference for 100% renewables

The French Environment and Energy Agency (Ademe) looks further ahead and concludes that an electricity system powered 100% by renewable sources would cost only slightly more than the nuclear/40% renewables mix envisaged by the government. The "100% renewable" scenario would comprise 63% wind, 17% solar, 13% hydro and 7% renewable heat. The study estimates that onshore wind would cost EUR65/MWh in 2050 and offshore wind EUR80/MWh.

A range of other generating costs are estimated, see diagram. Only geothermal energy (with a limited resource) and photovoltaics in the south of France are cheaper than onshore wind.

The study collates data from a number of sources that project future prices for onshore wind from 2010 to 2050; the (conservative) estimate that is used for the study suggests that the cost for onshore wind energy in 2020 will be about EUR77/MWh. This is less than the estimate used in the UK report, and is most likely due to the fact that the weighted average cost of capital (WACC) in the UK tends to be higher than elsewhere in Europe. The French report uses a WACC of 5.25%. If an 8% cost of capital were used, the cost of energy would be about EUR90/MWh - close to the UK figures - rather than the EUR77/MWh suggested in the report. This suggests that the two reports are using similar assumptions for capital and other costs.

The UK report identifies a number of areas where there is potential for cost reduction. The biggest opportunities are linked to small wind farms on low wind speed sites, where they may be able to reduce the cost of energy from EUR124/MWh to EUR95/MWh, see table below.


Onshore Wind Cost Reduction Taskforce report Cost parity between wind and gas is likely to be achieved by 2020. Electricity from medium and large projects with reasonable wind will cost EUR88-90/MWh, competitive with combined cycle gas turbines at EUR90-104/MWh.

Make Consulting, North American Wind Power Outlook 2015 Cost of energy from wind will fall to about $52/MWh by 2020, and gas-fired prices may rise to around $60/MWh, giving cost parity.

L'Agence de l'Environnement et de la Maitrise de l'Energie (Ademe). April 2015. Participe a la Vers un mix electrique 100% renouvelable en 2050. Sourcing 100% French electricity from renewables would cost only slightly more than government's planned 40% renewables/nuclear mix

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