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United States

Wind cheaper than gas in United states

From Dave Bradley, Buffalo, New York, US

The situation in the US regarding the cost of electricity from wind power and from gas is the opposite of what you describe in your cover story ("Annual power cost analysis: wind has only gas left to beat," January 2002). Electricity from wind is cheaper than the fuel cost of plants using natural gas and oil, even combined cycle ones where the fuel efficiency is 55%. This is especially true for areas of moderate wind speeds, such as the Great Lakes shoreline and near-shore regions, where our average wind speed is 7-8 m/s at turbine hub heights of near 80 meters.

The natural gas price is around $4.80 to $5.40 per MBtu, before adding the transportation cost of $1.30/MBtu or more. The overall fuel cost is near or greater than $6/MBtu. This translates to $0.0372/kWh for a 55% efficient plant, or $0.05121/kWh for a single cycle plant with a 40% efficiency. Other costs, such as maintenance, insurance, operations, capital depreciation and costs associated with financing these plants, are not included.

Look at the worst performers on the stock market this year -- they tend to be companies who were going to "make a bundle" on converting natural gas to electricity. Instead, they are now the scum of the market, assuming that they are not in bankruptcy (Enron, NRG Energy, PG&E's NEG). Wind generated electricity from 7 m/s winds can be made for as low as $0.032/kWh as long as financing costs are similar to municipal bond rates. Even at twice these rates, the total production cost is near $0.047/kWh. Obviously, faster wind speeds lead to lower production costs.

This means that using natural gas to generate electricity is a sure fire way to lose lots of money, especially since there are very few locations in this country at this time of year where electricity is sold at more than $0.05/kWh (excluding distribution costs, taxes, etc ). The order of cheapness in the US for electricity now appears to be: 1) hydropower (cheapest ); 2) coal with co-gen; 3) coal; 4) geothermal; 5) wind; 6) oil and gas combined cycle with co-gen; 7) oil and gas combined cycle; 8) oil and gas single cycle; 9) other.

As oil prices rise, so does the price of natural gas. The idea that the cost of natural gas is the cost to get it out of the ground, treat it, compress it, send it to the market, and in some cases, store some of it, plus tacking on a reasonable profit, is not applicable to the present scene. The price of natural gas now seems to be how much the sellers can get for it before customers switch to competing energy sources (coal, wind, oil, biomass, etc ) or become more efficient and use less of it. Of course, this can rapidly change if a glut of oil develops. Even the US Department of Energy, however, seems to think that gas prices in the $4 to $5 per MBtu are going to be the norm for the next couple of years -- and the same goes for the futures markets on the NY Mercantile Exchange. As a result, coal seems to be the biggest source competition for gas in the electrical generation business at present time.

But for those without the huge investments needed for a modern coal fired plant (and these investments could be real shaky if an oil glut develops and gas prices drop drastically), wind seems to be the way to go. A remarkable turn of events, to say the least.

It will be interesting to see how the wind industry can play this current bout of economic good fortune and avoid getting caught up in a "market fix" that the well connected folks in the gas fired generation business and their "friends" will no doubt try and arrange. It is a tried and true method that they can employ to save their businesses from going the way of Enron. Judging by the stock price declines of Mirant, Dynergy, Duke Power, AES and a few others, these folks and their businesses are in some precarious positions, but these are some pretty resourceful (pardon the pun ) people with about $100 billion of investments and financial speculation at stake.

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