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Gregory Brew

Gregory Brew

Dr. Gregory Brew is a researcher and analyst based in Washington D.C. He is a fellow at the Metropolitan Society for International Affairs, and his…

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Wind Energy Now Directly Competing With Coal On Cost


Last week, Xcel Energy announced a multi-state wind capacity project, anticipated to be the largest in the United States. Spanning seven states, the project covers eleven new wind farms and would generate 3280 MWs at a cost of $3.5-4.4 billion. In its announcement, Xcel emphasized the cost-savings attached to wind power, arguing that it would save Xcel customers in the Midwest $7.9 billion over thirty years. This, rather than the environmental benefits of renewable energy, drove the company’s mission statement: wind was cheap, not just clean.

Increasingly, this is a line of argument companies involved in renewable energy are deploying, finding that it gets better traction from skeptical consumers and fidgety investors. Existing tax credits, most notably the production tax credit (PTC) that keeps costs low, as well as a tax rebate per kilowatt hour. These help wind compete with natural gas as a cheap source of electricity and has driven the surge of utility interest in harnessing wind power, despite the much-touted promises of President Donald Trump to bring back American coal.

Moody’s Investor Services now estimates that the falling costs of wind power directly threatens 56 GW of coal power, out of 87 GW surveyed. Moody’s report estimates the MW-hour cost of wind in the Great Plains region at around $20, while coal comes in at $30.

Total U.S. wind energy capacity grew 19 percent in 2016 and reached 5.5 percent of total generating capacity, outstripping hydroelectric as the nation’s largest source of renewable energy. Much of the surge in added capacity came from power companies and utilities eager to take advantage of the PTC before it is cut from 80 percent to 60 percent.

The author of the report noted that it was economic, not environmental logic that is driving utilities to adopt wind power, as Xcel plans to do. “Yes, it’s good for the environment and the consumers benefit from having cleaner power at a cheaper price, but at the end of the day, it is pursued by the utility because it is much more cost-effective.” Related: Self-Driving Cars May Just Be the Start

The PTC is already set to decline to 20 percent by 2019, and will be phased out after that. The decision to renew the credit in 2015 largely drove the current rush of investment. Those economic arguments tend to emphasize short-term gains, as the federal government has recently indicated it plans on eliminating many of the previous administration’s clean power regulations. That would threaten wind power’s cheap appeal and cause it to lose its competitive edge over natural gas.

But the surge of investment in wind power may spur on additional growth, especially if the price of natural gas increases (as the EIA predicts it will, by 2018). Berkshire Hathaway Energy Renewables, an energy developer owned by Warren Buffett, purchased a 400 MW project in Nebraska, while another Buffett company, MidAmerican Energy, bought 551 MW of wind online in Iowa, a state with the second-largest total wind capacity, 6,917 MW according to the American Wind Energy Association.

With these investments, Iowa expects $3.6 billion pumped into nearly 2000 MW of wind power capacity between 2017 and 2019. The interest of investor-owned utilities is matched by public utility companies in Iowa, Minnesota, North Dakota and elsewhere. Improving turbine technology is expected to further drive down costs, while innovation (such as new offshore projects in North Carolina and New York) will display wind power’s versatility.

It’s enough to make proponents of wind power optimistic, at least for now. There are reasons to believe that wind, even without the advantages of the PTC, can out-compete coal and even natural gas. Moody’s estimates that without the tax credit, wind costs increase to about $40 per MW hour. But further improvements in technology could drive that cost down.

Utilities like it because it protects customers from volatility in the fossil fuels markets. These arguments and the chance to add capacity at little cost in the short term, rather than the environmental advantages, are the main justifications for putting up new turbines nationwide. Related: Mexico Sees Its First International Offshore Drilling Success

For now, those justifications are enough to attract investors like Xcel and Buffett. But long-term, competition with natural gas for the utilities market will be fierce, particularly if gas prices remain low. The effects of federal regulation and legislation from Congress could shift advantages from renewable energy to coal. The EIA estimates that without tax credits, the costs of constructing and maintaining equal capacity wind power and natural gas power plants are nearly the same: $58.50 per MW-hour versus $56.40.

Right now, investing in wind power makes sense for utilities, allowing them to downplay the environmental arguments. But if the economic rationale for clean energy begins to wane, it’s possible that rhetoric around wind, as well as solar power, could shift once more.

By Gregory Brew for Oilprice.com

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  • Bill Simpson on March 28 2017 said:
    Save the natural gas for fertilizer and chemical production. Concentrated sources of carbon aren't easy to find. Wind will blow as long as the Sun lasts. I'll worry about that in about half a billion years.
  • Josh Gregner on March 28 2017 said:
    I think it is wise to reflect Moody's warning about stranded assets in the coal industry: we should never forget that just as this administration aims at making coal more attractive by removing environmental regulation, any future administration can easily re-introduce (even more drakonian) environmental legislation. And if you think of a coal plant as 30 year investment, that's at least 4 different presidents - so is that really a risk worth taking?

    Conversely, make sure you have those wind subsidies in the bag, before you start building. But that seems to be much more straightforward - especially as the built period is the capital intensive time of any wind project.

    Of course the other piece for consideration is, that the EIA has traditionally underestimated renewables and their growth including the cost reductions they experienced to date. So if we are at parity today, tomorrow wind might be plan cheaper.

    That's especially true for solar (and also for wind) whereas coal can only get more expensive going forward as CCS and other "clean coal" shenanigans will not be for free.
  • citymoments on March 28 2017 said:
    This is another propaganda piece: remove all the wind energy subsidies from the state governments, then start talking about competition between coal and wind. Otherwise, it is tax funded money making fraudulent schemes by evil politicians and their green mates.
  • Randy Verret on March 28 2017 said:
    I (still) have a hard time believing that without SUBSTANTIAL subsidies wind power can complete with natural gas "head to head" in the power generation sector. I would agree that natural gas makes the most sense to "back up" intermittent sources like wind & solar for base load power. So, I'm not dancing in the streets (just yet) regarding wind power. It is (certainly) a part of the electric generation "mix" in the power grid of the future but it has a LONG way to go and a LOT of technological advances away before it is a major factor. Coal is being phased out, but that transition will take a while...
  • EdBCN on March 28 2017 said:
    You're missed the lede on this story. According to Moody's, wind is cheaper than JUST THE OPERATING COST on 56 gW of existing coal capacity. "Around 56 gigawatts of regulated coal-fired capacity in the Midwest has operating costs that are higher than the all-in costs of new wind power." That goes way beyond wind just being cheaper overall, and calls into question how much longer they can keep these plants running.
  • James H. Rust on March 28 2017 said:
    This article is hard to believe for many reasons. Wind energy is available at full power for 30 percent of the time. A 1 MW wind turbine produces 2600 MW-hrs. per year. Cost of backup power that has to be spinning reserves is not factored in these costs.

    Overseas data seem to indicate wind turbines have lifetimes of about 15 years. Then you have a piece of toxic junk to contend with. A 1 MW wind turbine may only generate 40,000 MW-hrs. over its lifetime. If the cost of the turbine is $2000 per kw, the cost of the electricity is $50 per MW-hr. This is not competitive with coal or natural gas.
  • Concerned Citizen on March 29 2017 said:
    Need to factor in the cost of the wind turbines on wildlife. Millions of birds, some that are protected and endangered species, like eagles, hawks, owls, falcons, osprey, geese, egrets, herons and small birds like swallows, wrens, sparrows, are killed by wind turbines every year. utilities get a pass on this and if it were any other industry the fines would put them out of business. Solar kills wildlife, too, though not nearly as much.

    Eliminate the subsidies for wind and solar and let them compete on the same basis as fossil fuels. The subsidies cause electricity rates to increase every year, far more than they would without them.

    The comment about natural gas prices rising over the coming years isn't indicated in the futures prices, which show zero increase over the next 20 years.
  • richtfan on March 29 2017 said:
    wind energy is NOT competitive cost-wise when you factor in all of the bogus subsidies that it gets. take those away, and you have what we've always said........it's a boondoggle for liberal do-gooders.
  • R. L. Hails Sr. P. E. (ret.) on March 29 2017 said:
    It all depends. Energy competitive positions are totally a function of who lives in the White House.

    If an Obama type pours oceans of money on wind gen and sends the bill to the taxpayer, not the guy who pays the light bill, then utilities are rational to buy wind mills. In 2015, when the gravy train was ending, it was estimated that 97% of the wind gen industry would vanish. But Voila! The give-aways continued, until next time. If Trump kills them, wind gen dies. If he pours gravy on coal, and gets it through a dysfunctional Congress, wind gen dies.

    The secret of choosing a power plant today is to build it out of paper mache. Anything that lasts more than a few years is a loser. Investors, interested in energy, should play the ponies. Each has one horse power.

    This is called picking winners and losers.

    The certain loser is the taxpayer; a head of household owes about $250,000 due to this level of governance.
  • John Chittick on April 05 2017 said:
    The true cost of wind power is the cost per MWH times the capacity factor (actual time generating at nameplate capacity expressed as a percent) plus the cost of scaled base load for the other 70 to 75% of the time. Securing scale-able base load is more costly than building a nuke, coal-fired or gas-fired plant designed to operate at well over 90% capacity factor. If the rent seekers promoting wind were only invited to bid like a utility supplying reliable full grid power, I suspect they would be SOL particularly without the subsidies. Their biggest asset seems to be politicians lacking in numeracy skills but well steeped in green theology.
  • Colin C., Jr Jensen on April 18 2017 said:
    Since the 1970's wind renewable energy has become about 4% of the energy in the United States.
    While it is almost an inexhaustible source it has real limitations. If the wind blows too little no energy is produced, blows too much it over speeds the bearings the windings etc and if there is no immediate demand they don't produce as it waste the life of the equipment. So far storage, transmission lines and people are the key to maximizing renewable energy. A few years back Texas which is close to being power neutral (doesn't import or export power) had a month without sufficient wind to operate, consequently had to buy power on the spot market at a huge loss.

    Many thoughts for storage include using exhausted natural gas caverns to store wind energy as compressed air then use it to turn turbines later when electricity is needed. Caverns are already proven to be airtight and didn't have to be built. A theory is to heat the compressed air and produce 3-4 times initial value as well as some are trying to produce anhydrous ammonia with wind power.

    As far as useful life, we ( power company owns the towers )have 8 units on 1 of my families farms in the large Minnesota wind farm. After just 7 years of a 20 year project the utility company is replacing original units with a unit 8% more productive but keeping the same base. Almost the same cost as roads for construction, crane removes and replaces the power unit and blades. Power companies are responsible to remove the complete system including 150-250 cubic yards of concrete anchored in the ground after 20 years.

    Drawbacks are makes planting more difficult as large row planters, cultivators and combines have to negotiate around them. We also have Ethanol and BioDiesel plants here in the midwest where fossil fuel transports seeds, plants, fertilizes, harvests, transports, processes, and transports to the final location. It costs money and BTU's to convert natural gas to liquid and convert back to gas. The greenest way to trans port fuel is by pipeline which is how most of the fuel and water are moved on the east and west coasts, 100's of pipelines. Millions of people are at risk on the west coast as the earthquakes happen frequently breaking lines and polluting. None of the politicians seem to worry bout millions of people with that exposure.

    Some people don't like the looks of them and the do gooder Kennedy's bunch don't want them off the east coast as Muffy's view will be obstructed. We can harness the ocean's current as well. Renewable has be located where the best source is located. For the foreseeable future fossil fuel be the power of choice and on standby when needed. Some super wealthily people such as Warren Buffett, Kennedy family and George Soros will buy all the fossil fuel plants at pennies on the dollar just as a backup power. When the masses need the power will sell it to us "it not about want it costs, its how much you got$$$$?"
  • Windy on April 20 2017 said:
    Such a BULLSHIT STORY...My God this MATH is BS....so another GREENIE just made up a bunch of numbers once again.....Once you figure in all the Subsidies to WIND and all the Tax Breaks who really is getting the GREAT DEAL? it certainly is not the CONSUMER
  • Bubbles on April 24 2017 said:
    This article is problematic becuase it discusses nameplate capacity without regard to the energy source's capacity factor. Also, transmission capacity is an issue in some spots and should be taken into account.
  • Sheeple on April 25 2017 said:
    I see a lot of comments about subsidies. Coal power was birthed into life by the use of subsidies - starting from the use of railroads to ferry coal from the pithead, to the initial grid setup costs. Why would a small town of a 1000 residents spend money to set up the grid for hundreds of miles when they could burn wood and use oil cheaply. Similarly nuclear power was heavily subsidized at the start, gas turbines even more so. No mass-produced power generation technology ever came into existence without the midwife called "subsidy".
  • david jones on October 10 2017 said:
    The only relevant information is that prices are plummeting compared to fossil fuel costs which are already low and could rise again. Unless there has been a skyrocketing subsidy trend to accompany these lowering costs, as in increasing subsidies in direct correlation with these dropping costs, then the fact is that these technologies are maturing as expected and will be able to replace fossil fuels as soon as batteries/storage catches up. This is something everyone should keep in mind before complaining about competitiveness of renewables. Would you seriously want to always pay the same amount or more for pollution heavy energy when prices project a clear trend towards even cheaper and cleaner energy? That to me seems irrational.

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