The price of oil in a key American market fell to zero in April, and the price of gas is also at an all-time low. The picture in Europe is similar. According to the US Energy Information Administration, the natural gas wholesale price in late April was hovering around $1.7/million Btu (MMBtu), which corresponds to around $6/MWh.
While European gas was 50% more expensive, at around $9/MWh, this is still the lowest it had been for some time.
Allowing for a markup between the gas-trading hub and power stations, gas at $6/MWh corresponds to an electricity generation cost of around $25/MWh. The generation cost for gas at $9/MWh corresponds to around $30/MWh. In the absence of support, wind struggles to compete at these prices.
However, both the American and European markets expect gas prices to rebound, although prices in the US will probably remain low.
The futures market in the US in late April was expecting the price to recover to around $2.3/MMBtu in the next three months, which roughly corresponds to the "high oil and gas supply" (low price) projection in the Department of Energy’s Annual Energy Outlook, which then shows it rising slowly in subsequent years.
European futures rise steadily and reach about $3.8/MMBtu in the coming winter. That corresponds to a generation cost of around $36/MWh, at which point onshore and possibly some offshore wind becomes competitive without support.
Carbon prices are fluctuating, but on 21 April, the EU Emissions Trading System (EU ETS) price was €25/tonne of CO2, which would add about $11/MWh to the electricity price from a gas-fired power station. At $47/MWh, wind becomes more competitive.
Delays cause uncertainty
The competitive position of wind is probably secure in Europe, but in the US the position is more complex. In the short term, the production tax credit (PTC) should safeguard most of the projects in the pipeline, but if completion is delayed beyond the end of this year, the finances may be uncertain. The American Wind Energy Association is lobbying for Congress to enact suitable measures to protect the $43 billion of investments currently in the pipeline.
The reason for the slump in oil and gas prices is straightforward. With large parts of the world in "lockdown" due to the Covid-19 pandemic, demand for transport of all kinds has slumped and parts of industry are shut down, so demand for oil, gas and electricity has plummeted.
To illustrate the point, the daily peak demand in England and Wales declined from around 40GW at the beginning of March to below 30GW by the end of the month after the UK went into lockdown on 23 March. Electricity system operator the National Grid estimates that the energy demand will be 13-20% lower during the day while the country is in lockdown.
With weather that has at times been both windy and sunny, one "side effect" has been that the combined contribution from wind and solar generation has been as high as 60%. The contribution from wind peaked at 42% during the night of 20/21 April when, of course, demand was low.
Life after coronavirus
Although reduced carbon dioxide emissions from power systems are a welcome bonus, it is difficult to gauge whether wind will emerge from the crisis strengthened or weakened.
The disruption to wind-turbine manufacturers and their suppliers is likely to lead to increased costs. Depending on how long economies across the globe take to recover, reduced energy demands may mean that less generating plants are required.
The increasing commitments of (some) governments to the energy transition and the strong competitive position of wind will, we hope, ensure its continuing development.
