Cost of Wind Energy by S. Tegen, M. Hand, B. Maples, E. Lantz, P. Schwabe and A. Smith
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Cost of Wind Energy by S. Tegen, M. Hand, B. Maples, E. Lantz, P. Schwabe and A. Smith

Executive Summary:

In 2010, wind energy generated more than 2% of U.S. electricity, with some states generating more than 10% of their power from wind. The United States installed 5,116 megawatts (MW) of wind (American Wind Energy Association, AWEA 2011), which was one-quarter of all new electric capacity additions for that year.

Wind energy capacity additions trailed the 6,000 MW of new coal and 7,200 MW of new natural gas additions in 2010 (Wiser and Bolinger 2011). With today’s economic downturn, decision-makers are weighing the costs of different electricgeneration resources with careful scrutiny.

It is vital that we understand what those costs include and do not include when comparing technologies, analyzing the costs of wind energy over time, and seeking cost-improvement opportunities. This report presents the best available information on the cost of wind energy in 2010, along with a summary of historical trends and future projections.

One way to express the cost of wind energy is to calculate the levelized cost of energy (LCOE). The LCOE is a metric that has been used by the U.S. Department of Energy (DOE) for many years to evaluate the life-cycle costs of generation for energy projects and the total system impact of technology design changes.

The LCOE equation used by NREL for this report is a standard method used to compare energy technologies (Short et al. 1995, EPRI 2007); it is described in detail below. There are four basic inputs to any LCOE equation: installed capital cost, annual operating expenses, annual energy production, and fixed charge rate (an annualized presentation of the cost of financing a wind project).

This report provides context for each of the four major components and describes the LCOE equation in detail as well as the methodology, assumptions, and current market conditions for utility-scale land-based and offshore wind. NREL used a variety of sources including industry data and model projections to arrive at the best representative data for U.S. wind projects in 2010.

The modeled results presented in this document are based on the NREL Wind Turbine Design Cost and Scaling Model (Cost and Scaling Model) developed in 2006 (Fingersh et al. 2006). This cost of energy review summarizes the latest input assumptions for the Cost and Scaling Model as well as two of the outputs used by NREL: annual energy production and component capital costs.

Although the LCOE can be calculated in a variety of ways, this report presents only one of them. This report provides information about each element used in typical LCOE calculations, and the individual components can be used in other LCOE equations.

The LCOE estimates in this report do not include prices to consumers (which are influenced by policies and other incentives e.g., production tax credit), transmission, integration, or potential revenues designed to reflect the cost of producing energy. The estimates are designed to reflect a typical U.S. wind plant.

For each variable represented in our 2010 LCOE equations, there is a range of possible values. Figure 1 shows the baseline assumptions and ranges of costs for the different parameters of LCOE that we used for land-based wind, and Figure 2 shows the assumptions and costs for offshore wind.

The key parameters include: installed capital cost (ICC), annual operating expenses (AOE), capacity factor, discount rate, and operational life of the project. For example, the capacity factors range from 25% to 45%, with an assumed 38% for our baseline turbines.

Each of these ranges and assumptions are shown in Figure 1. Land-based wind assumptions and sensitivities for key LCOE input parameters are explained in their corresponding section in the paper.

Note that the LCOE ranges for land-based and offshore are different (and have different axes in these figures). For offshore wind, capacity factor ranges from 30% to 45% with an assumption of 39% for the baseline or reference turbine.

As shown, there is a very wide range of installed capital cost for offshore wind projects. This is discussed further in the offshore wind capital cost section.

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