How expensive is wind energy? The answer will SHOCK you

It’s time to set the record straight. Wind energy is cheap. Really, really cheap.

For new wind farms installed last year in the Plains, prices reached $21 per megawatt hour (MWh). That’s effectively two cents per kilowatt hour ($0.021/kWh). Furthermore, the price for wind energy is stable and predictable for 20 years, unlike some electricity sources which require continual fuel inputs and are subject to price fluctuations. To put this in perspective, if these prices were locally available and you could run a house off 100% wind power, that’d be like living in Florida and paying a $23 monthly electric bill for your house – for the next 240 months. 

Avg. Household Monthly Consumption (Kilowatt Hours) Average Price (cents/Kilowatt Hours) Average Monthly Bill Monthly Bill with Cheap Wind
Alabama 1,187 11.40 $135.26 $24.92
Arkansas 1,120 9.30 $104.14 $23.53
Florida 1,081 11.42 $123.45 $22.70
Georgia 1,098 11.17 $122.73 $23.06
Kentucky 1,130 9.43 $106.54 $23.73
Louisiana 1,254 8.37 $104.99 $26.33
Mississippi 1,193 10.26 $122.49 $25.06
North Carolina 1,077 10.91 $117.45 $22.62
South Carolina 1,119 11.77 $131.64 $23.49
Tennessee 1,217 10.10 $122.98 $25.57
Virginia 1,117 11.08 $123.72 $23.45

Source: Energy Information Administration, data for 2012. “Cheap Wind” uses a price of $21/MWh from 2013.

Wind energy is really cheap and we can buy it here in the south. Alabama Power is purchasing 404 megawatts of wind power from Oklahoma and Kansas because it’s cheaper than building a new power plant in Alabama. Georgia Power is buying 250 megawatts of wind power from Oklahoma for the same reason. Southwestern Electric Power Company in Louisiana is purchasing 469 megawatts of wind power from Texas, Oklahoma and Kansas while the Tennessee Valley Authority is purchasing 1,542 megawatts from Iowa, Kansas and Illinois. But wind energy is still a small amount of each of these states’ total power, for now.

Can we get wind power for two cents per kilowatt hour in all the states in the south? Probably not…yet. Currently, there are some real physical and technical limitations to getting such a good price on wind energy in the South. And yes, there is a difference between the retail rate utilities charge their customers versus the wholesale price of a power purchase agreement. And no, a house generally can’t run 100% off wind power (without some sort of storage). But with more advanced wind turbines and more transmission lines, we can continue to bring really, really cheap wind power to the Southeast which definitely will reduce our power bills. We’re likely not far from that price point right now – estimates for wind farms in the south run somewhere in the $40-$60 per megawatt hour range. And wind power prices have been dropping steadily since 2008.

In light of the new carbon standards, cheap wind energy is a good thing since it can provide carbon-free electricity. All signs are pointing to the fact that homegrown wind power in the South is inevitable.

Please take a minute now to send a message to the EPA to show you support the proposed rule to limit harmful carbon pollution from existing power plants by sending in comments today.

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17 Comments

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[...] How expensive is wind energy? The answer will SHOCK you. [...]


Pingback by How expensive is wind energy? The answer will SHOCK you. : Solar Company USA on June 3, 2014 10:52 am


Wow!!! thanks for fabulous news.

I see a time that coal, oil, and natural gas will be as valueless as stones. It will be in the unforeseeable but NOT too distant future. The fossil fuel economy is over. Time to divest is now.


Comment by Lefteris Pavlides on June 3, 2014 5:09 pm


Please publish the average cost of transmission to get that cheap wind energy to its delivery point. That is what will shock you…..and not because its low. Without that information, this article is a misrepresentation


Comment by Tony H on June 4, 2014 7:42 am


Thanks Tony for your comment. If you’re aware of any data regarding the average cost of transmission for any of the utilities in the south, I’d be glad to see those figures. Many utilities lack transparency when it comes to transmission charges. Despite additional transmission costs, Alabama Power and Georgia Power both see recent wind power purchase agreements as low cost options. As I mentioned in the post, “there are some real physical and technical limitations to getting such a good price on wind energy in the South” and “there is a difference between the retail rate utilities charge their customers versus the wholesale price of a power purchase agreement”, both of which would include transmission.


Comment by Simon Mahan on June 4, 2014 10:21 am


[...] How expensive is wind energy? The answer will SHOCK you [...]


Pingback by How expensive is wind energy? The answer will SHOCK you : Solar Company USA on June 5, 2014 11:03 am


Wind is cheap, but so is gas. That is, the price to produce it. Not the overhead. 1/10th of the cost you pay at your house is the price to produce it. Residential customers always pay steeply, industrial pays very little, we all know that.


Comment by Jay on June 5, 2014 6:59 pm


Wind appears to be cheap because three-quarters of its cost is subsidized: including, eg, direct federal support in 2012 to the tune of $52.48/MWh according to the Energy Information Administration.


Comment by Reda Paley on June 6, 2014 11:48 am


Thanks Jay for your comment. As I stated in the blog, “there is a difference between the retail rate utilities charge their customers versus the wholesale price”. If you could, please provide a reference for your statement that the wholesale price is “1/10th of the cost you pay at your house is the price to produce it”. Your statement is wrong based on information I have.

Data for the past six months across the country show an average wholesale price of electricity at roughly $66 per megawatt hour (or 6.6 cents per kWh). Average residential retail rate for March 2014 was 12.26 cents per kWh ($122.60/MWh) – or roughly double the wholesale rate. Please note, the wholesale price of wind power was $21 per megawatt hour last year as stated in my post above.

If your ratio were true (1/10th), in a state like Louisiana where our average residential retail rates are 8.36 cents per kilowatt hour, that would mean Louisiana utilities are producing electricity at $0.00836 per kWh – less than a penny to produce power.

Wholesale electricity rates 2014
http://www.eia.gov/electricity/wholesale/xls/ice_electric-2014.xls

Average retail rate March 2014
http://www.eia.gov/electricity/monthly/update/end_use.cfm


Comment by Simon Mahan on June 6, 2014 11:59 am


Reda, your information is false.

First, the $52.48/MWh is sloppy math developed by the anti-wind energy website National Wind Watch and is not “according to the Energy Information Administration”. EIA has never put out such a number, precisely because such a number is wrong. Here’s the NWW analysis – http://wndfo.net/D2493

Second, Wind Watch does cite an EIA report from 2011, but the data are for 2010 – not 2012 like you stated.

Third, Wind Watch’s shoddy analysis compares a one-time federal expenditure to a single year of wind energy production. Wind farms last for 20 years or more, so the Wind Watch figure could be 20 times higher than reality. It’d be like saying saying because your home cost $100,000 to purchase, that your mortgage cost would be $100,000 each year.

Here’s the EIA report:http://docs.wind-watch.org/US-subsidy-2010.pdf
And here’s how Wind Watch came up with that wrong figure:
$4,986,000,000 / 95,000,000 MWh (megawatt hours) = $54.48/MWh

Wind energy received nearly $5 billion in incentives in 2010, with about $3.6 billion of that coming from “direct expenditures”. “Tax expenditures” accounted for another $1.2 billion. That’s where the $4,986,000,000 figure comes from (pg. xviii). According to that same EIA report (on page xvii): “[Direct expenditures] were mostly the result of the ARRA Section 1603 grant program, 84-percent of which went to wind generation. As noted, the relatively high value for this program stems from the fact that the grant program places all of the costs in the year that a project is initiated, while the existing production tax credit that the grant substituted for spread the costs of the tax credit over the first 10 years of a project’s operation. If developers return to using the production tax credit in the future, the first-year costs for each project will be much lower.” Ignoring this fact, Wind Watch took the net generation from wind energy from 2010 (95 billion kilowatt hours, or 95 million megawatt hours, page xx) and divided the $4.986 billion by that figure, even though that was a one-time expenditure compared to 1/20th (one year) of a wind farm’s output.

Fourth, that ARRA program (Section 1603) expired in 2012. That means the wind energy power purchase agreement prices quoted here (from 2013) likely did not receive any benefit from that program. The production tax credit was in effect for 2013 where a wind farm developer could receive a tax credit of $23/MWh for the first ten years of a wind farm’s 20 year lifespan, which is no where near the $52.48/MWh figure you state. The production tax credit has expired since December 31, 2013.

Finally, your statement that “three-quarters of its cost is subsidized” relies on comparing 2010 figures that use the faulty math from Wind Watch with the actual wholesale price of wind energy from 2013. That comparison is inaccurate.

I see you’ve copy/pasted this comment multiple times across the internet. Please be sure to update your figures.


Comment by Simon Mahan on June 6, 2014 4:41 pm


You’re correct that I mistakenly said 2012 instead of 2010. And it’s a fair point that a good part of the 2012 subsidies to wind were one-time grants (for 30% of the project cost) rather than the PTC which is paid over 10 years. And indeed, the similar report for 2007 gives the subsidy to wind as $23.37/MWh, which is not much higher than the value of the PTC itself. But that is only one part of the subsidy package. As the EIA report notes, one big subsidy that it does not calculate is the 5-year double-declining-balance accelerated depreciation allowed for wind.

As for the claim of “three-quarters” of the cost being subsidized, it was written in North American Windpower in June 2009 that “Up to two-thirds of the value of a wind project may derive from federal programs and tax subsidies, as the revenues from the sale of power may not be sufficient to pay for the project development and operating costs. These tax subsidies include combinations of accelerated depreciation, production tax credits (PTCs), investment tax credits (ITCs), federal cash grants and federal loan guarantees.” It is simply by adding state and local incentives — not to mention the cost of new powerlines and grid upgrades — to that two-thirds that one can surmise that three-quarters of the cost is indeed subsidized.

In any case, the PTC alone more than doubles the assumed cost of wind in the analysis that this article reports. And even without that, the comparison is ridiculous, because it is comparing the wholesale cost of wind to retail electric bills.


Comment by Reda Paley on June 6, 2014 5:15 pm


Actually, it is comparing an exceptional low wholesale cost from ideal locations for wind power to retail electricity in states with a comparatively lousy wind resource. Not very useful, and certainly not a good basis for policy.

PS: I contacted my friends at Wind Watch, and they have added a note on the page you cite about the 1603 grants distorting the EIA’s comparative subsidy for wind in 2010.


Comment by Reda Paley on June 6, 2014 6:31 pm


Wind Watch is still comparing a single year of electric generation (when wind farms have a 20-25 year lifespan) against the single-year Section 1603 funding. The methodology itself is ludicrous. As another example as to why it’s bad math, Wind Watch took the 2010 generation figures for natural gas, coal, nuclear, etc. and compared those figures to the 2010 subsidies those industries received – despite the fact that the 2010 generation figures included power plants that were built decades (in some cases, more than half a century) before the 2010 subsidies. Obviously new generation (wind and solar) is going to look more expensive if you don’t evaluate its future generation, and old generation (gas, coal and nuclear) will look cheap if you don’t count previous decades of subsidies. By Wind Watch’s numbers, solar energy received $968 per megawatt hour in incentives.

Wind Watch still claims that the “author” is the “Energy Information Administration” which is obviously a lie since they updated their website with a “note” about the 1603 program. The figure $52.48 appears nowhere in the actual EIA report that Wind Watch cites.

The quote from North American Windpower you cite is another favorite of Wind Watch’s. That North American Windpower article (from June 2009) was written just months after the Section 1603 program was approved as part of the stimulus. Clearly the reporter thought a wind farm developer could claim multiple ARRA incentives together, which certainly isn’t the case. Even reporters get things wrong sometimes. Here’s the original article: http://bit.ly/1n1e1Hs. Please note, the article wasn’t an in-depth discussion about tax policy: the focus was about wind farm development on Tribal land and the quote Wind Watch pulled is a single line.

And you’re wrong again when you state that “the PTC alone more than doubles the assumed cost of wind”. Keep in mind, the production tax credit is taken over ten years while a wind farm will last at least 20-25 years. So the value of the PTC should be taken over 20-25 years, not just the ten years that it’s provided. In a recent analysis by Lawrence Berkeley National Laboratory found that, to a wind farm developer with “tax appetite”, the PTC’s actual levelized value is just 1.57 cents per kilowatt hour – not the full 2.3 cents. The PTC’s value at 1.57 cents is not “double” the assumed cost of wind (at 2.1 cents per kilowatt hour). Analysis here: http://eetd.lbl.gov/sites/all/files/lbnl-6610e-ppt.pdf

Wind gets accelerated depreciation, and so do other energy industries. Between 2011-2015, the accelerated depreciation for “expensing of exploration and development costs, fuels” (predominately fossil fuels) is $4.4 billion. Refining liquid fuels (again, predominately fossil fuels) is an additional $3 billion. Geological and geophysical expenditures is another $600 million. Gas distribution lines are another $600 million. For “five-year MACRS for certain energy property”, which includes ALL renewable energy resources (not just wind energy) that figure is just $1.1 billion. From the Joint Committee on Taxation: http://1.usa.gov/UnmBIC

Please re-read my blog where I state:
“Can we get wind power for two cents per kilowatt hour in all the states in the south? Probably not…yet. Currently, there are some real physical and technical limitations to getting such a good price on wind energy in the South. And yes, there is a difference between the retail rate utilities charge their customers versus the wholesale price of a power purchase agreement…But with more advanced wind turbines and more transmission lines, we can continue to bring really, really cheap wind power to the Southeast which definitely will reduce our power bills.”


Comment by Simon Mahan on June 8, 2014 11:08 pm


It’s unlikely that the writers, including attorneys specializing in wind development financing, (not to mention the editors) at the trade journal North American Windpower were confused about PTC vs ITC vs 1603 grants. Wind Watch also records a quote from 2003 from the same firm as the first 2 authors of the 2009 article, long before the 1603 program: “Federal tax benefits pay as much as 65% of the capital cost of wind power projects in the United States.” –Keith Martin, Chadbourne and Parke, LLP, Financing Wind Power conference, Dec. 3-5, 2003, New York, N.Y.

Whatever the specific value of the PTC and 5-year double-declining depreciation, these statements show that it is clearly incorrect to argue that wind actually costs $21/MWh (or anywhere near it) or that such a subsidized wholesale price would also be the retail price.


Comment by Reda Paley on June 9, 2014 6:37 pm


[...] expensive is wind energy? The answer will SHOCK you Posted: June 3, 2014 By advwind cleanenergy.org June 3, 2014 Simon [...]


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The production tax credit and accelerated depreciation reduce the price of power purchase agreements. As I stated earlier, other energy industries receive subsidies. You’re asking to remove all those policies for wind energy, which would create an unfair market for wind energy.

The quote Wind Watch is using from Chadbourne and Parke LLP was evaluated by the Congressional Research Services in 2011 and was found to be without warrant. “Literature sources cite examples of projects being subsidized by as much as 65% of total project capital costs, although details supporting these estimates are not provided in the references.” http://assets.opencrs.com/rpts/R41635_20110208.pdf

I’d like to note, the article from NA Windpower was also written by someone from Chadbourne and Parke LLP, so the 65% figure that CRS critiques is the same figure for both NA Windpower in 2009 and Chadbourne and Parke LLP in 2003.


Comment by Simon Mahan on June 10, 2014 12:57 pm


[...] expensive is wind energy? The answer will SHOCK you Posted: June 20, 2014 By advwind cleanenergy.org Simon Mahan June 3, [...]


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[...] energy is extremely cheap. For new wind farms installed last year in the Plains, prices reached $21 per megawatt hour (MWh). [...]


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