Wind energy is becoming increasingly competitive with traditional energy sources, with costs decreasing by 80% since 2009. Wind power is set to become the least expensive form of power generation in the US, and the Department of Energy estimates it will supply 20% of the country’s energy needs by 2030. However, coal-fired power plants still generate electricity at a lower cost than wind power, and wind energy still faces challenges in establishing demand and reducing costs.
The economics of wind energy vary moderately from markets such as Europe versus the United States, but there are common trends around the world that suggest it is one of the best investments in the energy arena. In terms of comparison with other traditional energy sources such as natural gas-fired power plants, wind energy is the most competitive of the alternative energy sources. The economics of wind power have also been steadily improving over the past few decades as the technology itself has improved and financing costs have fallen. Sustainable energy supplies from wind are becoming so important, especially in the US sector, that it has been estimated that, as of 2002, wind energy is poised to become the least expensive form of power generation available in America.
As of 2009, wind energy economics reduced costs on a global basis to an average of 11-13 US dollar (USD) cents per kilowatt-hour of power generation. This is an 80% lower cost than the cost of wind energy over the past 20 years and has been competitive since 2009 with the cost of using natural gas for power plants. Natural gas also fluctuates significantly in price due to economic conditions, with its cost level in the 1990s tripling by 2009 and reaching a level seven times higher than in the 1990s during 2003. Wind power decreases by 15% every time power generation capacity from wind turbines is doubled globally due to economies of scale in manufacturing the necessary equipment. This led to wind as a power source as of 2010 costing only 12% of what it did in the 1980s.
While the energy economics of wind power continues to improve, it still has milestones to overcome. As of 2009, coal-fired power plants generated electricity at an average cost of 6 cents per kilowatt-hour in US dollars (USD). That’s still less than half the cost of wind power, and at the same time, coal accounts for 51% of all power generation in the United States, while wind power is only approaching the level of being able to supply 2% of US energy demand. The growth of wind energy is so dramatic, however, that the United States Department of Energy (DOE) estimates that, by 2030, it will supply 20% of the United States’ energy needs. In 2010, the United States overtook Germany as the world’s leading nation in the amount of energy generated from wind sources.
In the European sector, the economics of wind energy are similarly favourable. An annual growth rate of wind power generation of 25% per year since 1992 has continued to drive down equipment costs. A UK estimate found that the largest costs for installing a wind farm come from the turbines themselves at 64% of the total cost and from civil engineering and electrical infrastructure at 21% of the total cost to connect them to the electricity grid. This is significant because, once most of the costs of establishing wind power, which are mostly upfront costs, have been paid, the maintenance costs for the system are much smaller. By comparison, a fossil-fuel power plant such as one that uses natural gas has 40% to 70% of its annual perpetual costs built-in to pay for just the fuel supply.
The biggest disadvantages of wind power are those common to any new energy source: establishing demand and reducing costs by increasing the scale of production. European estimates for the cost of a turbine as of 2007 were £1,230,000 British pounds each. Most of that is just a technology and installation expense, with 76% for the turbine itself, 9% for grid connection, and 7% for the foundations on which the turbine is built.
Investment costs have a direct impact on the wind energy economy and vary from country to country in Europe. Installation costs were lowest in Denmark, slightly highest in Greece and the Netherlands and nearly a third most expensive in the UK, Germany and Spain. Much of this change is due to charges placed on wind utilities to build turbine foundations and connect the technology to the electricity grid. These charges have been on the rise since 1998, as the cost of wind turbine technology itself declines. These institutional costs are the direct result of energy policy, where in Denmark they were 16% of the total, in Portugal 24%, in Germany and Italy 21% and in other European nations up to 32% of the total cost to establish the systems as of 2011.
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