Tuesday, September 27, 2011

Wind Energy Costs




The cost of wind energy plant fell substantially during the period from 1980 to 2004. Prices in the 1980s were around US$ 3 000/kW, or more, and by 1998 they had come down by a factor of three. During that period the size of machines increased significantly - from around 55 kW to 1 MW or more- and manufacturers increased productivity substantially. In 1992, for example, one of the major manufacturers employed over seven people per megawatt of capacity sold, but by 2001 only two people per megawatt were needed. The energy productivity of wind turbines also increased during this period. This was partly due to improved efficiency and availability, but also due to the fact that the larger machines were taller and so intercepted higher wind speeds. A further factor that led to a rapid decline in electricity production costs was the lower operation and maintenance costs.

With capital costs halving between 1985 and the end of the century, and productivity doubling, it could have been expected that electricity production costs would fall by a factor of four. This general trend has been confirmed by data from the Danish Energy Agency; these suggest that generation costs fell from DKK 1.2/kWh in 1982 to around DKK 0.3/kWh in 1998 (Danish Energy Agency, 1999). Shortly after the turn of the century, the downward trend in wind turbine and wind farm prices halted and prices moved upwards. This was partly due to significant increases in commodity prices and partly due to shortages of wind turbines. Prices appear to have peaked in 2008, with complete wind farms averaging just under US$ 2 200/kW and wind turbines at just under US$ 1 600/kW. Prices may now be falling, based on data available to the autumn of 2009.

Generation costs

No single figure can be quoted for the installed cost of wind farms, as much depends on the difficulty of the terrain, transport costs and local labour costs. Generation costs depend, in addition, on the wind speed at the wind farm site - since this determines the energy productivity - and on the financing parameters. The latter depend on national institutional factors which influence whether wind farm investments are seen as high or low risk. Although there is a broad consensus that wind turbines are now sufficiently reliable to enable depreciation over a 20-year period, the 'weighted average cost of capital' (WACC) may lie between 5% and 11%. (The WACC is a weighted average interest rate that takes into account the cost of both bank loans and equity investments).Typical generation costs are shown in Fig. 12.5, using installed costs between US$ 1 700/kW and US$ 2 600/kW, an 8% interest rate and a 20-year amortisation period. 


Operating costs, which cover the costs of servicing, repairs, management charges and land leases have been set at US$ 32/kW/yr for the lower capital cost and US$ 60/kW/yr for the higher capital cost. The link between wind speed and energy productivity has been established by examining the performance characteristics of a number of large wind turbines that are currently available. Although there is not a unique link between wind speed and capacity factor, the spread is quite small. All wind speeds refer to hub height. The estimates suggest that generation costs at US$ 2 600/kW range from just under US$ 200/MWh at 6 m/s, falling to US$ 84/MWh at 9.75 m/s. At US$ 1 700/kW, the corresponding range is US$ 125/MWh to US$ 53/MWh, respectively.


Renewable energy's share of U.S.

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