Wind Report Shows Costs Leveling Off

LBNL/EERE released another annual report on wind market trends. It covers the usual collection of market data points, capacity additions, etc.

PDF: http://eetd.lbl.gov/ea/ems/reports/2008-wind-technologies.pdf

LBNL Publications: http://eetd.lbl.gov/ea/ems/re-pubs.html

Notable among the findings is that US now tops international wind capacity rankings (that is, until China catches up ).

Also worth noting is that wind represents the largest fraction of capacity additions of any class of generation. Wind has clearly now moved into the mainstream of the US power market and although the industry is growing from a small base, there is no doubt it has the scale to quickly become a significant part of our generation mix

However the part that really caught my eye this year were the cost trends. While the capital cost of wind power declined substantially through 2000, the recent trend has been cost escalation. Although we continue to see that trend in project costs,

Wind turbine cost (which drive future project costs) have for the first time started to show some levelling off:

As these costs enter the project pipeline we might hopefully see this trend carry through to declining wind project costs as well

Energy and commodity prices have dropped substantially since mid-2008, however, and the supply-demand balance for turbines has resulted in a turn towards a buyer’s market.  As a result, rumors abound of price reductions in the 5-20% range (NEF 2009), or even as high as 25% (Hays 2009), of increased availability of turbines in the “gray” (i.e., secondary) market (Goodwin 2009), and of more favorable terms for turbine purchasers.  These price reductions and improved terms can be expected, over time, to put downward pressure on total project costs.  (p. 36)

This trend toward lower costs, driven by lower prices for steel and other raw materials, has begun to propogate throughout the power sector.

(from M Al-Juaied, A Whitmore, "Realistic Costs of Carbon Capture" Discussion Paper July 2009 )

Therefore its possible that with similar cost declines throughout the sector, the relative economics of wind will not change appreciably, but these are neverheless positive signs.

Its also worth noting that the cost of O&M (operations and maintenance) has declined somewhat. Although the trend is not clear cut, hopefully this points to new new designs with improved reliability, reduced levelized replacement cost and enhanced lifetimes.

The capacity factors of wind have seemed to level off, although at a fairly high level.

This is not surprising, but my fear is that as the industry transitions from the production tax credit (PTC) to stimulus grants, we may see this trend turn over. The PTC offers tax credits on the basis of a wind farm's output giving the industry a strong performance incentive, but the grants made available through the ARRA are invstment-based and lack the incentive to maximize energy production. This kind of policy support has been problematic in Germany and China, and we may well see much lower capcity factors over the near term if the industry makes a significant transition to these stimulus grants.