WindEconomics: Cost comparisons from the UK and US

UK/UNITED STATES: The UK Department for Business, Enterprise and Industrial Strategy (BEIS) has released estimates of electricity generation costs that show onshore wind is the cheapest option.

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The studies cover conventional fossil-fuel technologies as well as renewables and how these might develop up to 2030.

Levelised costs depend on estimates of capital and operating costs, fuel costs (where appropriate) and the weighted average cost of capital. 

For each technology, therefore, there is a range of generating costs. The data applies to the year 2020, except in the case of nuclear, where the reference date is 2025.

Comparing central estimates, onshore wind appears to be the cheapest technology, at £63/MWh ($78/MWh), and undercuts combined-cycle gas turbines, at £66/MWh ($82/MWh).

However, on closer inspection, the latter includes a £19/MWh ($24/MWh) carbon cost, which is quite substantial. If the carbon price were lower than anticipated in 2020, gas-turbine technology would be the cheapest.  

Onshore wind is cheaper than nuclear, although offshore wind is more expensive (£100/MWh or $124/MWh in 2025, compared with £95/MWh or $118/MWh for nuclear, again looking at central estimates). But given the recent low prices in tenders for Danish and Dutch wind farms, it is likely that offshore wind costs will fall significantly in the next few years.

The report also includes estimates of generating costs to 2030.  The central estimates are shown in the top chart. After 2020, onshore wind is the cheapest technology and costs fall slowly, down to £60/MWh ($74/MWh) by 2030.

By that time PV, which falls faster, costs the same. Offshore wind falls steadily, to £96/MWh ($119/MWh) by 2030, possibly higher than nuclear, at £78/MWh ($97/MWh), although the caveat about recent European offshore projects still applies. 

Despite the activity in developing carbon capture and storage technologies, the estimate for gas with CCS in 2030 is £111/MWh ($137/MWh) and the figure for coal (not shown) is similar.

American research

Shortly before the British report was published, the US Energy Information Administration published a similar report, although the reference date for the technologies was 2022, rather than 2020.  

As the American estimates are for 2022, they are likely to be slightly lower than the UK estimates but, in practice, the differences are quite large. 

The central estimate of generating cost for US onshore wind, for example, is around 26% cheaper ($58/MWh compared with $78/MWh in the UK). 

Prices for PV, combined cycle gas turbines and biomass are also lower, but the minimum prices for nuclear are almost identical ($104/MWh in the UK and $100/MWh in the US).  Only offshore wind is more expensive in the US, largely due to the lack of experience there.

The US report also looks to the future, but only for 2040. The generating cost estimate for wind is $44/MWh, 60% of the UK estimate for 2030, but the estimate for PV is $64/MWh, which is only 14% lower than the UK estimate.

The lower US prices for renewable technologies are probably due to differences in financing assumptions. The weighted average cost of capital in the US report is 6%, whereas the UK report uses "technology-specific" rates. 

Averages rates are 8% for onshore wind, 10% for offshore wind and around 12% for nuclear.  Technology-specific lifetimes are also used, mostly in the range 20-25 years.  The American report uses a standard lifetime of 30 years.


At a glance — This month’s report conclusions

Electricity Generation Costs. UK Department for Business, Enterprise and Industrial Strategy, November 2016 Tabulates generation costs for renewable and fossil technologies up to 2030, with onshore wind the cheapest when carbon costs are factored in.  

Levelised Costs and Levelised Avoided Cost of New Generation Resources in the Annual Energy Outlook 2016 Similar to the UK report, showing onshore wind almost on a par with gas in 2022, without any carbon cost.

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