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More efficient technology combined with low costs and good wind resources are making wind cost-competitive with some of the cheapest forms of fossil energy in the Midwest.

“In the Midwest, we’re now seeing power agreements being signed with wind farms at as low as $25 per megawatt hour,” said Stephen Byrd, Morgan Stanley’s Head of North American Equity Research for Power & Utilities and Clean Energy at the Columbia Energy Symposium in late November. “Compare that to the variable cost of a gas plant at $30/MWh, the all-in cost to justify the construction of a new gas plant would be above $60/MWh.”

Byrd acknowledged that wind does receive a subsidy in the form of a production tax credit for 10 years at $22/MWh after tax. “But even without that subsidy, some of these wind projects have a lower all-in cost than gas,” Byrd said.

“The trick with both wind and solar is you have very high fixed costs to build these technologies. The ongoing variable cost is close to nil. So you’ve got to cover your capital costs over as many units of power production as you can. Which is why, in the Midwest, a wind farm can produce power at a capacity factor of 50-plus%, that’s a lot of units of power to spread your capital costs over, and that’s why the cost of these agreements are in the $25 range.”

Wind is even going head-to-head with Powder River Basin coal. “In the Midwest, those wind plants are many times of the day competing against efficient nuclear plants and efficient PRB coal plants,” Byrd said. “PRB coal plants have a variable cost of between $20 and $25/MWh, so in the Midwest it’s fairly vicious competition between very efficient wind farms – which are always called on first because they have no variable cost – and coal and nuclear.”

Byrd stressed that the conditions that make wind so competitive in the Midwest  – good wind resources and low costs, both for labor and construction – are not present in other regions. But where wind works, it can make good economic sense. US wind capacity last year grew to 60 gigawatts, in the context of total US capacity of all energy types totaling 1,100 GW.

“I’m not suggesting nation-wide wind is at or below the economics of a gas plant, but we are seeing in the best locations that wind is becoming good business – big business,” said Byrd.

And he expects technology to continue to improve, which could further enhance wind’s competitiveness. “We know the technology is getting better, none of us can exactly forecast how much better.”

Comments

  • Hugh Sharman

    I agree a 50% capacity factor makes wind power a highly economic proposition so what is the need for a PTC? By the way, if this is a picture of a typical mid-West wind farm, wow! what a visual nightmare! Any creature that flies will be minced meat in no time at all!

    • willsarah5639

      A direct price comparison between intermittent wind and base load coal is senseless.

      Baseload power is much more valuable as it is there 24/7 regardless while wind isn’t.

      They talk about the higher cost per Mwh of baseload power in this article. If utilities made capital decisions based on articles like this we would only have power when the sun is shinning and the wind is blowing.

      • RJ

        Well said!

      • GraceAdams830

        This is why we need smart grid electronics and energy storage to integrate wind and solar into the electric grid. We need to cut way down on greenhouse gas emissions to save our farms from global warming. We ought to count the cost of energy storage and smart grid electronics as part of the cost of wind and solar and the damage down by greenhouse gas emissions as part of the cost of fossil fuels.

    • Aquarama

      Fish in Lake Erie are inedible due to the mercury in their tissues. That mercury came from your coal fired power plant.

  • Mark_Richardson

    Let’s not overlook natural gas and nuclear also benefit from subsidies keeping costs artificially low. Intangible Drilling Costs and Percentage Depletion subsidies are estimated to be responsible for about 30% of the drilling in the US according to a leading independent oil man who so testified in the US Senate:

    http://www.finance.senate.gov/imo/media/doc/Hamm%20Testimony1.pdf

  • Glen McMillian

    Wind farms scattered over a wide area are almost always producing useful amounts of power. Willsarah is wrong saying they aren’t doing anything.

    Furthermore the real benefit of wind power is to save the cost of coal and natural gas that otherwise would be burnt to generate the juice produced by wind.

    Heating oil was seventeen cents delivered when I started buying it gasoline was thirty cents.Both are up around four bucks these days.

    Natural gas sells for three times the domestic price on the world market and the people who own it are planning on shipping it overseas to get that price.It won’t stay cheap.

    Delivered natural gas is a pretty expensive proposition compared to the wholesale price in any case.

    Now anybody with the brains to come in out of the rain who has lived long enough to have gray hair can verify the historical rise in oil prices and natural gas prices over the last five or six decades.

    There is less and less left in the ground every year and more and more people wanting it.

    And what is left is going to get more expensive to get out of the ground every year that goes by.

    There is only one place for oil and gas prices to go on average over time and that is up!

    The same holds true for coal but to a lesser extent because there is still a lot of easily accessible coal to last for a few more decades but the world as a whole is running short even of coal as evidenced by the price of it on world markets.

    A wind farm runs basically for nothing once it is built.And every hour it runs that means that your electric utility is able to avoid buying many many tons of coal and many many cubic feet of natural gas.

    No realistic supporter of wind and solar power is saying that wind and solar electricity are going to totally replace coal and gas fired electricity any time soon or even within the next three or four decades.

    But wind and solar are going to pay their own way and leave a huge ”profit ”over because of the amount of coal and gas they save day after day year after year decade after decade.

    This ”profit ” will be in the form of avoided purchases of coal and natural gas if the wind farm belongs to an electrical utility. Other wise it will go to the owner of the wind farm once any fixed price long term sales are finished.

    The wind is always going to be free.

    Gas and coal are only going to go up.

    Wind and to a lesser extent solar farms are the future because they run fuel free and they are getting cheaper to build every year.

    I am still driving an old truck that costs me more in gasoline these days than it cost in payments back in the early nineties when it was new.

    GET THE PICTURE?

    Beyond that every ton of coal and every thousand cubic feet of gas that utilities don’t buy helps keep the price of both fuels down for everybody who needs them for other purposes.A wind farm supplying juice to Chicago is helping keep your gas bill down if you live in New Jersey.

    It is helping me keep my electricity bill down in southwest Virginia because my utility uses mostly coal and wind displaces some coal too.

    And taken all the way around in environmental terms wind farms are as harmless as a Sunday school picnic compared to hundred car accident in the fog on a freeway.

    Somebody here mentioned bird kill and it is a serious problem and a real shame.

    But so far as I have been able to find out wind farms have not put any species of bird in danger of extinction.

    I live within easy driving distance of places where entire mountains are being destroyed and entire valleys next to them filled with the waste to get at the coal under the mountains.

    I can say without a shadow of doubt that not only are the birds gone, so are the squirrels and the deer and all the other wild life including the fish in the streams many miles downstream of the mines.

    There can be no doubt that such coal mining operations kill more wildlife than wind farms ever will in the sense that the habitat for the various original wildlife is basically destroyed by coal mining even with the land being more or less restored after the mines are exhausted. There will be wildlife on restored mines –if they are restored– but it will be much less varied and much less plentiful and many of the original species will be missing.

    There can be no doubt that such mines wipe out many small forms of life that may exist only in the immediate area of the mines and nowhere else.