Tuesday, January 16, 2007

Comparing the costs of generating electricity from wind, fossil fuels and nuclear

Two major reasons why wind energy is the fastest growing sources of electricity in the world today are: (1) wind is the cleanest way of generating utility-scale electricity and (2) the cost of generating electricity from wind turbines compares favorably with its conventional (and dirtier) competitors coal and natural gas as well as with its other "greenhouse-gas-free" competition, nuclear.

Exactly how well does wind compare with the other energy sources with regard to costs? Well, that depends on when you ask the question. That's not being evasive. The fact of the matter is, energy prices fluctuate, and of late some like natural gas have been doing so rather dramatically.

At the beginning of each year, Wind Power Monthly offers an
annual analysis of power generation costs. A summary of this year's analysis (appearing in the January 2007 issue) follows. (GW)

In a related story, "Banks are urged not to finance coal power" environmentalists are putting the pressure on major banks to "come clean" and stop financing energy projects that emit high levels of greenhouse gases.

Back To Being A Model of Stability

By David Milborrow
Windpower Monthly

Wind power generation costs stabilised last year after their unprecedented leap upwards in 2005. Gas prices dropped slightly, while coal remained the cheapest option, though on a rising trajectory. Nuclear is still anybody's guess. Our annual costs analysis shows that wind plants on good sites with long term power purchase contracts continue to be highly competitive, even when the cost of carbon pollution permits is kept artificially low.

While the price of wind ener­gy remained constant during 2006, the fortunes of all three major generating technologies, gas, coal and nuclear, changed. Gas prices, on the rise since 2002, dropped a little but are not expected to fall much further and may go up again. The price of electric­ity from coal maintained its modest pattern of annual in­creases, but is being pressured by increased recognition of its pollution costs in markets for trade of carbon emis­sion allowances. As for nuclear, there is still no indication of what it might cost in an open market, but it has once again successfully persuaded governments in the West that it should be considered an economic power generat­ing option for the future. Britain, America and Australia all beat the nuclear drum over the past year.

Compared with the volatility of gas prices, wind gen­eration costs are looking ever more stable. They will probably stay level for another year or so, despite in­creases in hardware costs. The increases are being coun­terbalanced by economies of scale in the construction of more and larger wind power stations. Once the pressures of an overheated market for wind technology ease, there is every expectation that wind energy prices will resume their long term downward trend. That gives wind power the edge over carbon emitting fossil fuels.

Nuclear, meantime, is these days looking like wind's most formidable competitor. Over the past year it has benefited from the release of government backed reports in the UK and Australia, each purporting to show that nuclear is significantly cheaper than wind. But analysis of nuclear generation costs in the reports does not hold up under close inspection. A claimed cost for nuclear in Brit­ain of £38/MWh (€57/MWh) is more likely closer to £53/MWh (€78/MWh) once the correct basis for com­parison is used (WINDPOWER MONTHLY, October 2006). Construction in Finland of the West's first nuclear plant for more than a decade is already proving that estimated build schedules for nuclear are optimistic: the 1600 MW Finnish plant is already 18 months behind schedule after the first 18 month construction period. Meantime, the ED has been asked to investigate allegations that the technology suppliers from France are receiving illegal state aid. Both these problems add to the uncertainty over nucle­ar's capital costs. Concerns have also been raised over supplies of uranium, the cost of which has increased by a factor of eight since 2000.

Compared with nuclear, wind's costs are a model of clar­ity. The average installed cost of wind power plant in 2006 was €1175/kW, based on data from about 40 wind farms with a combined capacity of 3400 MW. Av­erage wind farm size was 88 MW.

The average installed cost for 2006 is a drop lower than for 2005, but many of the turbines installed last year would have been ordered before the most recent price rises became evident. Prices reported for some wind farms may not account for "intangible" pre-construction costs, particularly those associated with site permitting, but these are most likely balanced by prices for other wind farms that may overestimate the installed cost as they include two or three years of operation and mainte­nance costs.

The reported prices for wind plant show significant variation around the mean value. Even so, about two-­thirds of the wind farms recorded installed costs between €945 and €1405/kW. Only four wind farms had costs above the top end of this range (three in Britain) and six had costs below the bottom end, in various locations, in­cluding China.

The average wind turbine price in 2006 was €832/kW, with two-thirds of the 3400 MW sample lying be­tween €682/kW and €982/kW. The average price for 2006 is about 4% higher than in the previous year. It may go higher still: some prices towards the end of 2006 moved above € 1 OOO/kW. Given that wind turbine man­ufacturers are basking in the benefits of a "seller's mar­ket," the indication is that they are charging what the markets will bear.


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