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In this chapter, the cost of conventionally-generated power is compared with the cost of wind-generated power. To obtain a comparable picture, calculations for conventional technologies are prepared utilising the Recabs-model, which was developed in the IEA Implementing Agreement on Renewable Energy Technology Deployment (IEA, 2008). The cost of conventional electricity production in general is determined by four components:
- Fuel cost;
- Cost of CO2 emissions (as given by the European Trading System for CO2, ETS);
- Operation and maintenance (O&M) costs; and
- Capital cost, including planning and site work.
Fuel prices are given by the international markets and, in the reference case, are assumed to develop according to the IEA’s World Energy Outlook 2007, (IEA, 2007c), which rather conservatively assumes a crude oil price of $63/barrel in 2007, gradually declining to $59/barrel in 2010 (constant terms). Oil prices reached a high of $147/barrel in July 2008. As is normally observed, natural gas prices are assumed to follow the crude oil price (basic assumptions on other fuel prices: coal 1.6 €/GJ and natural gas 6.05 €/GJ). As mentioned, the price of CO2 is determined by the EU ETS market; at present the price of CO2 is around 25 €/t.
Here, calculations are carried out for two state-of-the-art conventional plants: a coal-fired power plant and a combined cycle natural gas combined heat and power plant, based on the following assumptions:
- Plants are commercially available for commissioning by the year 2010;
- Costs are levelised using a 7.5 per cent real discount rate and a 40-year lifetime.(National assumptions on plant lifetime might be shorter, but calculations were adjusted to 40 years);
- Load factor is 75 per cent; and
- Calculations are carried out in constant 2006-€.
When conventional power is replaced by wind-generated electricity, the costs avoided depend on the degree to which wind power substitutes for each of the four components. It is generally accepted that implementing wind power avoids the full fuel and CO2 costs, as well as a considerable portion of the O&M costs of the displaced conventional power plant. The level of avoided capital costs depends on the extent to which wind power capacity can displace investments in new conventional power plants, and thus is directly tied to how wind power plants are integrated into the power system.
Studies of the Nordic power market, NordPool, show that the cost of integrating variable wind power is, on average, approximately 0.3-0.4 c€/kWh of wind power generated at the present level of wind power capacity (mainly Denmark) and at the existing transmission and market conditions. These costs are completely in line with experiences in other countries. Integration costs are expected to increase with higher levels of wind power penetration.
Figure 6.1 shows the results of the reference case, assuming the two conventional power plants are coming on-stream in 2010. As mentioned, figures for the conventional plants are calculated using the Recabs-model, while the costs for wind power are taken from Chapter III.1.
Figure 6.1: Costs of Generated Power Comparing Conventional Plants to Wind Power, 2010 (Constant 2006-€)
Source: Risø DTU
As shown in the reference case, the cost of power generated at conventional power plants is lower than the cost of wind-generated power under the given assumptions of lower fuel prices. Wind-generated power at a European inland site is approximately 33-34 per cent more expensive than natural gas- and coal-generated power.
This case is based on the World Energy Outlook assumptions on fuel prices, including a crude oil price of $59/barrel in 2010. At present (September 2008), the crude oil price is $120/barrel. Although this oil price combined with a lower exchange rate for US$, the present price of oil is significantly higher than the forecast IEA oil price for 2010. Therefore, a sensitivity analysis is carried through and results are shown in Figure 6.2.
Figure 6.2: Sensitivity Analysis of Costs of Generated Power Comparing Conventional Plants to Wind Power, Assuming Increasing Fossil Fuel and CO2 Prices, 2010 (Constant 2006-€)
Source: Risø DTU
In Figure 6.2, the natural gas price is assumed to double compared to the reference, equivalent to an oil price of $118/barrel in 2010, the coal price to increase by 50 per cent and the price of CO2 to increase to 35€/t from 25€/t in 2008. As shown in Figure 6.2, the competitiveness of wind-generated power increases significantly: costs at the inland site become lower than generation costs for the natural gas plant and only around 10 per cent more expensive than the coal-fired plant. At coastal sites, wind power produces the cheapest electricity.
Finally, as discussed in Awerbuch (2003), the uncertainties related to future fossil fuel prices mentioned above imply a considerable risk for future generation costs of conventional plants. Conversely, the costs per kWh generated by wind power are almost constant over the lifetime of the turbine, following its installation. Thus, although wind power might currently be more expensive per kWh, it may account for a significant share in the utilities’ portfolio of power plants, since it hedges against unexpected rises in prices of fossil fuels in the future. The consistent nature of wind power costs justifies a relatively higher cost compared to the uncertain risky future costs of conventional power.
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