The economics of wind: how wind farms have revolutionized sustainable energy

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Based on the increasing importance and usage of wind power as a renewable energy source, NewtonX conducted between June and July 2018 a 300-person survey with renewable energy leaders and executives from wind turbine providers, including Siemens, Enercon, Clipper Windpower, and China Guodian Corporation. Global wind power capacity in 2017 reached 539,000 MW, and accounts for 6.3% of total U.S. electricity generation. In Europe, reliance on wind power is even higher, currently covering 11.6% of the EU’s electricity demand, and as much as 45% in certain countries. For the past decade, subsidies from European governments in the pursuit of meeting renewable-energy targets have propelled wind installations, in particular off-shore farms (wind farms located in water, either the ocean or even small bodies such as lakes), which utilize the more frequent and powerful winds over water, but have considerably higher construction and the maintenance costs.

Wind farms have had a massive impact on our global coal reliance — in the U.K., wind now generates twice as much electricity as coal (bringing the total down to just 7%). Other countries have similarly shifted reliance on coal, however the U.S. is still heavily reliant, with 30% of electricity generation still coming from coal. In this article, we examine the economics of wind energy, and the relative benefits of wind to reduce coal reliance.

Global wind power reliance

From Pipe Dream to Windfall: The Cost Trajectory of Wind

In 1990 wind energy cost a little under 10 cents per Kwh; today, it costs between 2-6 cents per Kwh — making it competitive with other electricity sources, which typically cost 2-4 cents per Kwh. That said, the average U.S. consumer pays 12 cents per Kwh due to the cost of transmission from wind sites and the cost of running the utility business. Building more transmission lines from wind farms to electricity-hungry cities would significantly reduce the costs of expanding wind energy down the line. In the Electric Reliability Council of Texas (ERCOT) region, for example, the area invested $7 billion in transmission lines linking West Texas wind farms to the eastern and central cities. Additionally, U.S. grid operators will need to manage the challenge of integrating wind with the rest of the grid, which will require updates and more transmission capacity.

That said, currently the biggest cost barrier for wind is not infrastructure updates, but rather incentive programs. The major driver for most states (and countries) is renewable energy standards. In the U.S., these incentives vary significantly from state to state, even within the same wind regions. For instance, while Texas would rank sixth in the world for electricity supplied by wind energy if it were a country, its neighboring states of Louisiana, Florida, and Georgia have little-to-no installed wind power. States that don’t have renewable portfolio standards aren’t incentivizing the development of renewables.

The same is true for other countries. Mckinsey recently noted that subsidies are already beginning to shrink because wind energy has penetrated a significant percentage of the electrical production market.

Winds of Change: Stiff Competition Over Prices Will Drive Make Wind Energy a Consumer-Friendly Electricity Source

NewtonX experts noted that one of the biggest benefits of wind becoming a serious competitor to fossil-fuel electricity is that it places pressure on the industry to keep costs low and performance high. For wind companies, this will make turning a profit a major challenge, but for consumers and governments, it will make fronting infrastructure costs less painful. Furthermore, because wind-generated electricity is sold at a fixed price over a period of time, it doesn’t hold the same uncertainty that fuel-based forms of energy do.

As a cost-effective, relatively easy source to integrate with existing grid infrastructure, wind-energy is sure to grow. As turbines become larger and larger, offshore wind farms will also become increasingly popular, particularly considering their higher yield. In conjunction with other clean energy sources, wind will continue to be a major player in efforts to reduce our reliance on dirty fossil fuels.

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About Author

Germain Chastel is the CEO and Founder of NewtonX.

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