- Energy

Wind Energy Development: Economic Factors

While only providing about 1% of U.S. electricity needs, wind power is growing more rapidly than any other energy source. Over 5,000 megawatts of new wind generating capacity was installed in the U.S., in 2007, second only to new natural gas-fired generating capacity. Wind technology has improved extensively over the past two decades; however wind energy still depends on federal tax incentives to compete with traditional energy sources. A large obstacle for grid parity using wind energy is that its production is dependent on when the wind is blowing rather than peak consumer power needs. This variability creates added expenses and complexity for balancing supply and demand on the grid. An additional issue is that new transmission infrastructure will be required to deliver wind-generated power to high density population centers. Because building new transmission lines are expensive and time-consuming, it is difficult to determine how construction costs should be allocated among consumers and which pricing methodologies to use.

To date, U.S. federal wind power policy has centered on the production tax credit The Production Tax Credit is a business incentive to operate wind facilities. However, this credit expired on December 31, 2008. Policy analysts and wind industry representatives have argued that the on-again off-again nature of the production tax credit is inefficient and actually leads to higher costs for the industry.

According to the 2008, CRS Report for Congress, “Wind Power in the United States: Technologies, Economic and Policy Issues,” wind turbines have no fuel costs, and minimal variable operations and maintenance (O&M) expenses. Also, wind power does not have the other costs that come with fossil fuel burning, such as air pollution control equipment. Nor does wind power incur the waste disposal costs associated with other energy generation, such as scrubber sludge disposal for coal plants and waste storage for nuclear plants. However, although wind plants have low variable costs, the fixed O&M costs are high, and wind power plants are capital intensive. Because of these fixed costs, project costs have risen and averaged over $1,700 per kilowatt in 2007. Also, higher input prices (steel, cooper, concrete), a shortage of skilled workers, unfavorable currency exchange, and shortages in key wind turbine components and manufacturing capacity have all contributed to the cost increase.

When wind makes up a large part of a power system’s total generating capacity, perhaps 10% to 15% or more, the system must also bear additional costs to provide reliable backup for the wind turbines. This backup capacity is either fossil fuel, nuclear, or other renewable energy (e.g., hydroelectric, geothermal, and biomass).

Reference

CRS Report for Congress, “Wind Power in the United States: Technologies, Economic and Policy Issues,” June 20, 2008.