By Daniel M. Kammen 12/11/07

At a recent Capitol Hill hearing I was surprised to learn that it was far from common knowledge just how competitive wind power has become. As a result, a bit of a data and price update memo may be of use, even to those who follow the industry. In addition, I will summarize the data on a few of the least cost wind farms in the nation.

Wind energy in the
United States has continued to grow, and represented 19 percent of the new nameplate capacity added to the electrical grid in 2006 . With a total cumulative U.S. capacity of 11,575 MW (1 percent of total
U.S. nameplate capacity) at the end of 2006, wind energy is now often directly cost competitive with fossil-fuel generation, and at times is a least-cost supply option.

Representative Wind Project and Wind Power Costs

Lawrence Berkeley National Laboratory (LBNL) recently examined the estimated installation and power costs for twelve recent wind projects, finding that 2007 wholesale power prices for these projects range from 2.5 cents/kWh to 6.4 cents/kWh. Six of the projects provide wholesale power at less than 3 cents/kWh. These prices reflect available state and federal incentives, such as the Production Tax Credit, and any value from Renewable Energy Credits.

As shown in Figure 1, also developed by Lawrence Berkeley National Laboratory, average wind power prices have trended downward over time, notwithstanding a more recent increase in those prices. Even with the increase, however, wind power is found to be competitive with wholesale power prices and with the cost of operating new natural-gas power plants. This is especially true if the production tax credit is maintained.

Factors Affecting Costs and Future Cost Trends

As the LBNL findings show, the cost of wind projects can vary by a factor of three or more. The reasons for these are varied but include: installation and material costs (turbines purchased in 2004 and 2005 are less expensive than those purchased in 2006 and 2007), relative wind resources (Class 5 wind sites result in higher capacity factors than Class 4 or 3 wind sites), and developer/owner (i.e. experienced developers such as FPL Energy may be able to develop and construct projects at lower cost).

Wind power prices have trended up over the last couple years as shown in Figure 1, and as confirmed by Figure 2, a reflection of increasing installed project costs. This trend is now seen across all capital-intensive energy technologies. Reasons for these increasing costs include: weakness in the dollar; rising materials costs; the move towards increased manufacturing profitability; and a shortage of manufacturing components.

Although many of these cost drivers are global, higher costs for wind in the
U.S. are also attributable to limited U.S.-based manufacturing of wind-turbines.
U.S. turbine manufacturing remains somewhat limited due to uncertainty about demand and the continuation of the Production Tax Credit. New manufacturing plants are being built in the U.S. (for example, the Clipper Windpower plant in Iowa and the Suzlon plant in
Minnesota), albeit not at the same pace as in other parts of the world. Some of the 2006 wind power prices reflect lower turbine costs locked in 18-24 months earlier.

In 2007, wind project and power costs are likely to trend higher as they will reflect increasing turbine costs. The increasing cost of wind turbines is partially mitigated by improvements in wind project performance. Increases in project capacity factors have been primarily driven by higher turbine heights, improved siting, and technological advancements. As noted earlier, however, these cost trends are affecting other forms of electricity generation as well and, as Figure 1 shows, wind power remains competitive with wholesale power prices and with the cost of operating new natural-gas power plants

Global Wind Energy Costs

The U.S. has the third-largest cumulative wind capacity globally, lagging only behind Germany and
Spain. Both Germany and Spain have more sizeable national support programs for wind energy (such as guaranteed feed-in tariffs) as compared to the
U.S. In Germany, grid operators must pay wind energy providers .0836 €/kWh (.12
US$/kWh ) for turbines installed in 2006 for at least the first five years of operation. This starting tariff decreases by 2 percent annually.

In recognition of increasing turbine costs,
Germany recently reduced the annual tariff degression from 2 percent to 1 percent per year. Germany will also pay a bonus of € 0.007/kWh (.01
US$/kWh) for wind turbines that are more compatible with the needs of the grid.
Germany manufacturers report explosive job growth for the wind energy sector and the creation and influx of technology firms to support the wind energy industry. All told, job growth in the roughly 25 percent of the German energy sector devoted to renewable energy was in 2006 equal to job growth in the entire rest of the energy generation sector.

As cumulative wind capacity increases in Germany and
Spain, both countries are revising their rules regarding price support for wind energy.
Spain has draft rules to establish maximum, as well as minimum, prices to be paid to wind farm operators. Under Spain's draft rules, for the first five years of operation, a wind farm operator will receive a maximum of .084 €/kWh (.12 US$/kWh) and minimum of .068 €/kWh (.099
US$/kWh). The tariff levels decline over the duration of the plant's operation.

Both Germany and Spain, as well as
Denmark and other nations that have supported the development of significant wind energy industries, have documented significant job growth in the clean energy sector. Export orders for wind turbines in Germany, Spain, and
Denmark have now resulted in significant new job creation.

Green-Biz Editor-at-Large Daniel M. Kammen is the Class of 1935 Distinguished Professor of Energy at the University of California. He co-directs the Berkeley Institute of the Environment (http://bie.berkeley.edu) and is founding director of the Renewable and Appropriate Energy Laboratory (http://rael.berkeley.edu). Kammen has served as a lead author for the Intergovernmental Panel on Climate Change, which shared the 2007 Nobel Peace Prize. He has appointments in the Energy and Resources Group and the
Goldman School of Public Policy.