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WindEconomics: Studies put wind and PV ahead of the rest

UNITED STATES: There is now little doubt that onshore wind and utility-scale solar photovoltaics are generally cheaper than the conventional sources of electricity generation -- coal, gas and nuclear.

Photovoltaic generation costs come close to onshore wind in many locations, but two reports this month suggest wind may be slightly cheaper.

Financial advisory firm Lazard published the 11th version of its Levelised Cost of Energy Analysis in November.

Although mainly relevant to the American market, much of the data applies internationally, and it suggests onshore wind is in a strong position. With a weighted average cost of capital of just under 8%, Lazard puts the levelised costs of onshore wind at $41/MWh, slightly lower than utility-scale PV at $43/MWh.

Nuclear going up

Combined-cycle gas-turbine (CCGT) costs are significantly higher at around $55/MWh.

Coal is more expensive again, at $90/MWh, and nuclear is the highest-cost fossil-fuel technology, at $123/MWh.

These figures represent the average of the high and low estimates for levelised costs of energy. Lazard's figure for nuclear is broadly consistent with the contract price for the UK's Hinkley Point C power station that is now being built.

It is interesting to note that wind has moved to being the cheapest technology since last year, when solar PV occupied that position. Both prices have fallen since the 2016 edition, when wind was at $58/MWh and PV at $47/MWh. The figure for nuclear has moved up since 2016, when it was $100/MWh.

The Lazard analysis does not mention tidal, wave energy or hydro, which suggests that the first two are not expected to play a significant role in the near term. The omission of hydro perhaps indicates that further resources in the US may be modest.

The study quotes a range of costs for geothermal ($77-117/MWh) and for solar thermal ($98-181/MWh), neither of which is a challenge to wind.

Neck and neck

Although there is now little doubt that onshore wind can undercut gas and coal in many locations, the differences between onshore wind and photovoltaics are too small to warrant definitive statements about which is the cheaper.

The International Energy Agency's Renewables 2017 analysis of trends in average auction prices suggests that for projects commissioned in 2019 and later, PV will undercut wind. Wind projects to deliver electricity from 2020 come in at $40/MWh, and average PV auction prices are a little over $30/MWh.

The way prices have moved since 2010 has been tabulated in Wikipedia, and the data is shown in the chart (below). The data is sourced from the Annual Energy Outlook of the US Department of Energy's Energy Information Administration (EIA) and in particular illustrates the rapid change in the cost of energy from PV — from $400/MWh in 2010 to $74/MWh in 2017.

US offshore

Since 2011 the cost of offshore wind has also fallen quite substantially. A recent contract price for offshore wind — for 2021 — comes from the Maryland Public Service Commission, which announced in May that it had awarded contracts to two projects, totalling 368MW, (one of 248MW, one of 120MW).

They will receive $132/MWh, commencing in January 2021. The energy price reflects the relative youth of the US offshore market, in comparison to the European one.

The capital costs — $5,544/kW for the larger project, and slightly more for the smaller one - are higher than European estimates, which are in the $2,500-$4,000/kW range, although there are wide variations.

As the American market matures, it is likely that costs will fall further as has been the case in Europe recently. In addition, increased investor confidence will bring down the cost of capital.

AT A GLANCE — THIS MONTH'S REPORT CONCLUSIONS

Lazard's levelised cost of energy analysis - version 11.0, Lazard, November 2017 Evaluates the cost of energy for renewable and conventional generating technologies, includes historic trends and the influence of the cost of capital. Shows onshore wind and solar prices have fallen since last year, with wind being slightly cheaper

International Energy Outlook 2017, Energy Information Administration, US Department of Energy, September 2017 Examines likely trends in world energy and electricity consumption to 2040

Renewables 2017, International Energy Agency, October 2017 Charts renewable energy developments in 2016 and includes projections to 2022. Suggests PV may undercut onshore wind for projects comissioned from 2019

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