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Wind Economics: US turbine and project prices are falling

WORDLWIDE: US wind turbine prices have been falling steadily since around 2009, according to the 2014 Wind Technologies market Report, published by the Lawrence Berkeley National Laboratory.

The 2014 average price for orders ranging from 5MW to 100MW was $1,174/kW, some 23% below the 2010 price (see chart).

The report, published in August, contains a wealth of detail on US installation trends, technology development, performance and cost trends.

While it shows that there was a slight upward trend in turbine prices in 2014, the authors caution that this is not not necessarily significant on account of the small sample size in 2013 — giving little weight to a corresponding upswing in project costs.

Looking at the longer period between 2010 and 2014, there is actually a reduction in project costs of 26% — from $2,294/kW to $1,707/kW in 2014 - slightly higher than the reduction in turbine prices, perhaps indicating that small reductions have been made in balance of plant costs. There was a wide spread of project prices in 2014 — from $1,400/kW to $3,000/kW

More significant drop

Although it is customary to quote turbine prices based on dollars /kW, this can be misleading if, as is the case, the relationship between the turbine's rated output and the blade's swept area (the specific rating) has changed with time. In 2010 the specific rating of wind turbines installed in the US was 320W per square metre, but by 2014 this had fallen to approximately 250W/m2. So purchasers in 2010 paid $489/m2 compared with $293/m2 in 2014 - a 33% reduction. This is a more meaningful measure of the way that costs have fallen.

The price data shown for wind turbines applies to orders between 5MW and 100MW; prices for smaller orders were higher - typically by around 10% - and prices for larger projects were lower. The lowest price in the database was $874/kW, for a large order placed in March 2014.

The report also shows that operation-and-maintenance (O&M) costs have fallen slightly over time, from $10/MWh for projects built in the 2000s, to $9/MWh for projects built since 2010.

The average capacity factor of US wind projects has improved slightly over the last five years — from approximately 32% in 2010 to 34% in 2014. The reduction in specific ratings will have boosted the figure, but this has been offset by a movement towards lower wind-speed sites. The amount of curtailment has also been reduced in the last few years.

The cost reductions have been reflected in lower power purchase agreements (PPA), which, in the sample data that was available, averaged $23.5/MWh for projects signed in 2014. It should be noted that this figure is net of income from the production tax credit (PTC), which now stands at $23/MWh.

The report compares the PPA price with the price of electricity from natural gas - around $38/MWh. Looking to the future, the report suggests the price of electricity from gas may rise to around $46/MWh by 2020. The current cost of wind energy is roughly the sum of the PPA price plus the PTC, equalling $46.5/MWh. So only a small reduction in the cost of wind energy is needed for it to achieve parity with gas by 2020.

Offshore and gas

According to a BVG Associates report, there is also a clear path for offshore wind to be competitive with gas-fired generation early next decade. The Offshore Wind: Delivering More for Less report was, commissioned by Norwegian utility Statkraft, reviewed a number of contributions that will help offshore wind to become more competitive, including technology innovation, a maturing supply chain and a reduced cost of capital.

A lower cost of capital is likely to come about as a result of reduced risks that come with a maturing industry. UK gas prices are higher than those in the US and so the mid-range generation cost for gas in 2020 is around £80/MWh (about $125/MWh), over twice the level projected for the US.

By 2020 repowering of some of the early offshore wind farms is likely to begin, the report says, thus further contributing to the prospects for cost reduction.

The report suggests that, by 2025, the average cost of energy from offshore wind may be competitive with gas-fired generation, even with the lowest gas price projections.

At a glance — This month's report conclusions

2014 Wind Technologies Market Report, by Lawrence Berkeley National Laboratory, August 2015 US wind turbine prices fell 33% between 2010 and 2014, from $489/m2 to $293/m2. O&M costs fell from $10/MWh for projects built in the 2000s, to $9/MWh for post-2010 projects. Gas prices will be $46/MWh by 2020, and current cost of wind is $46.5/MWh, so parity is close.

Offshore Wind: Delivering More for Less, by BVG Associates, July 2015 Offshore wind may be competitive with gas by 2020-25 as the industry matures and capital becomes cheaper.

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