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How much does onshore wind power cost?

  • 14 Jun 2012, 13:30
  • Robin Webster

How much does generating electricity from onshore wind cost? Opponents of the technology argue that it is ineffective and too expensive - especially when compared to gas - an argument repeated in a barrage of media coverage over recent months.

In the morass of claims and counter-claims, it can be very hard to tell who is right. But now, it appears that we might be about to get some kind of clarity - or at least a considered assessment - as the UK's Energy and Climate Change Committee (ECC) yesterday launched an inquiry into the cost of generating electricity from the technology.

At the same time, a new Grantham Institute report launched this week aims to " dispel the myths" about onshore wind, mainly by summarising recent research into the costs of energy technologies, which is useful to look at in a bit of detail.

Costs of wind and their impact on energy bills

In the report, the costs of different technologies are compared using a measure known as levelised cost - an approach that attempts to give a full assessment of how much it costs to generate electricity from a particular technology. Levelised cost takes into account not just the capital cost of constructing  a power plant in the first place, but the cost of the fuel, of operating the plant and any costs imposed on emissions of carbon dioxide. (It doesn't include costs involved in connecting renewables to the grid, or backing them up, so bear that in mind.)

The most commonly cited comparisons of levelised costs are sourced from assessments undertaken for the UK's Department for Energy and Climate Change (DECC) and the Committee on Climate Change (CCC), the government's advisors on decarbonising the economy.

The Grantham Institute's new report uses figures sourced from work by the CCC (based on work by consultants Mott McDonald) to compare the levelised costs of different electricity-producing technologies now and in 2030.

It use the numbers in this report to produce this graphic, which shows how the cost of energy generated using different technologies now, and in 2020:

 Energy cost comparison

Although this graph may appear rather bewildering on first glance, it's worth a good look. As expected, it indicates that the levelised cost of onshore wind - shown in dark green in the column on the far left - is currently greater than the cost of unabated gas power plant - that's gas without carbon capture and storage technology (the darker grey columns second from right). If you exclude the impact of the carbon price (the brown columns on the far right), gas gets even cheaper.

By 2030, though, things look different. The cost of onshore wind is predicted to fall, with the cost of gas increasing. In 2030, low-end estimates for the cost of unabated gas with no carbon price (i.e. the cheapest possible form of gas generation) are only slightly lower than the cost of onshore wind, while the high-end estimates for gas are significantly higher.

The calculations are based on DECC's predictions for the future price of fossil fuels, which the report says are broadly consistent with those of the International Energy Agency .

As we've discussed before, predicting the future price of gas is a pretty tricky enterprise as it is subject to international geopolitics, the price of oil, and a host of other factors. DECC's central gas price projection indicates ( p.12) that gas prices, which rocketed from 44p/ therm in 2010 to 63p/therm in 2011, are likely to rise to a maximum of 81p/therm in 2015/16 before falling again to a steady 70p/therm between 2020 and 2030. DECC's high estimate for gas prices, however, sees gas prices rising to 100p/therm between 2020 and 2030.

The report includes the final column - where the carbon price is excluded from the calculation - as a "hypothetical yardstick", to give an indication of how the economics would stack up if the EU-wide cap-and-trade Emissions Trading Scheme (ETS) didn't exist. But, the Grantham report argues against this being seen as a valid comparison:

"Excluding the price of carbon is wrong analytically, as emissions are a real cost to the economy. But even if carbon costs were ignored (that is, if gas were to continue to enjoy a 'carbon subsidy'), the lowest projected cost of gas in 2030 would be only about 20 per cent cheaper than onshore wind."

Finally, the costs in the last two columns also exclude the cost of fitting carbon capture and storage (CCS) technology. The grey column labelled gas-CCS shows what DECC thinks will happen if CCS is fitted, which as you can see makes the cost go up quite a lot.

Conclusion: argument over? Of course not.

The Grantham Institute is known as a strong supporter of low-carbon policies, and while the report largely just summarises numbers which are already out there, it's unlikely that its conclusions will be universally accepted. Costs of grid connection for increasing amounts of renewables and providing back up to a grid which relies more on intermittant power are not included in the levelised cost calculations.

And some argue that the introduction of shale gas to the market may lead to a dramatic drop in the price of gas in the future. But the report does at least show us the generally accepted evidence base for these discussions, which is useful - it will be interesting to see how the ECC committee investigation deals with the kind of issues that it touches on.

Updated 15th June to note that this discussion only looks at the levelised costs referenced in the report.

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