Cost Of Wind Energy Trending Toward An All-Time Low

North American Wind Power • Posted: Monday, February 6, 2012

The levelized cost of wind energy (LCOWE) is headed toward an all-time low – approaching approximately $0.03/kWh in the bestwind resource sites, finds a new report by the National RenewableEnergy Laboratory (NREL) and Lawrence Berkeley National Laboratory (LBNL).

The levelized cost of wind energy (LCOWE) is headed toward an all-time low – approaching approximately $0.03/kWh in the best wind resource sites, finds a new report by the National Renewable Energy Laboratory (NREL) and Lawrence Berkeley National Laboratory (LBNL).

The report notes, however, that these numbers are dependent on the continuation of current federal tax incentives, such as the production tax credit, which is set to expire for wind energy at the end of this year

When only capital cost and capacity factor trends are considered, the LCOWE based on current turbine pricing is estimated to be approximately 5% to 26% below the previous low in 2002-2003, depending on the quality of the wind resource. When plausible assumptions for operations and maintenance (O&M), financing and turbine reliability trends are also considered, levelized cost reductions are estimated to be between 24% and 39% since 2002-2003, according to the report.

These trends have been driven primarily by sizable improvements in capacity factors within individual wind resource classes due to hub-height and rotor-diameter scaling, and by the drop in wind turbine prices over the last two years. Longer-term improvements in O&M, reliability and financing are also playing a role, though trends in these factors are less certain, the report notes.

In addition, improvements in low-wind-speed technology have caused the gap between the cost of wind energy in low- and high-wind-speed areas to narrow considerably, opening up new areas of the U.S. for potential development.

According to the report, the amount of land area in the U.S. that can support 35%+ project-level capacity factors has increased by 130% to 270% since 2002-2003 due to improvements in turbine technology. The amount of land area that can support wind projects with costs of under $0.05/kWh (with federal tax incentives) has increased by almost 50% over the same time period.

The LCOWE had increased dramatically between 2002 and 2003 and again from 2009 to 2010 due to turbine price and project cost increases that were not fully offset by performance improvements. However, turbine prices have since declined, while performance improvements have continued, yielding a substantial predicted decline in the LCOWE, the NREL-LBNL report says.

Will it last?

Despite these recent advancements, at least three factors may intervene to raise the LCOWE.

First, prices could increase if the demand for wind turbines begins to catch up with the available supply, or if other external influences – such as higher commodity prices and/or labor costs – are triggered.

Second, a continued trend toward lower-wind-speed sites – prompted by transmission and siting restrictions – has the potential to raise costs, according to the report.

Finally – and perhaps most importantly – a failure to extend federal tax incentives (i.e., production tax credit) beyond 2012 would lead to higher prices. Currently, these incentives reduce the cost of wind energy by nearly $0.03/kWh, according to the report.