Ever since the modern wind power industry began to develop, the main question it has had to answer is the question of cost. Can wind power compete with conventional forms of power generation?
Early development in California during the 1980s was stimulated by government financial incentives; when these were dropped, the development of projects declined too. Californian wind development was also affected by the fall in the cost of oil that started in the late 1980s. Real oil prices fell by 75% between 1980 and 1992, according to the World Bank.
In Europe the development of wind power took off more slowly but during the middle of the 1990s it became well established with Denmark and Germany its most enthusiastic early supporters, followed by Spain. Here, again, however, government incentives have helped promote wind generation. The wind power market began to grow again in the USA at the end of the 1990s, encouraged both by incentives and by regulations which required utilities in some states to provide a proportion of their electricity from renewable sources.
Continuous development since the early 1980s has led to the cost of wind turbine installations falling rapidly during the 1980s and early 1990s. The World Bank estimated that wind technology costs fell by between 60% and 70% between 1985 and 1994. While prices are still falling, the rates are not so dramatic as they were. Current installation costs for an onshore wind farm at between €700/kW and €1000/kW. Offshore wind farms still cost around €1500/kW but this could drop to €1000/kW by 2010.
The installation cost is the main up-front cost of a wind farm. However energy costs also depend on the amount of wind available at a particular site. To this must be added the cost of financing the project. Operating costs must also be included before a final figure for the cost of each kilowatt-hour of electricity can be established.
Taking these factors into account, favourable estimates suggest that at the beginning of the twenty-first century modern onshore wind farms could generate electricity for €0.03/kWh at a wind speed of 10m/s and €0.08/kWh at a wind speed of 5m/s. Early commercial offshore wind farms generate power for between €0.05/kWh and €0.08/kWh. Generating costs have been predicted to fall by 36% between 2002 and 2010 and a further 24% between 2010 and 2020,7 predictions which if borne out will make wind power more competitive still.
These figures imply that onshore wind is currently broadly competitive with coal-fired power generation but not with gas-fired generation. Less favourable reviews of wind power claim that it generates power for two to three times the cost of coal plants. Such reviews take account of changes needed to grid operation and the cost of strengthening transmission grids to support the input of power from regions that have previously been at the end of the supply chain.
In both cases, external costs of fossil fuel power generation, the costs attached to the effects of the atmospheric pollution these plants cause, are ignored. Such costs are difficult to estimate but a 1998 EU report put the external cost of coal-fired power generation between €0.018/kWh and €0.15/kWh while the external cost of gas-fired power generation was between €0.005/kWh and €0.035/kWh. The equivalent estimate for wind energy was from €0.001/kWh to €0.003/kWh.8
Adding these amounts to generation costs would make wind generated electricity relatively more competitive. Even without taking external costs into account, wind power will almost certainly become cheaper over the next 10-20 years while the cost of coal- and gas-fired generation is likely to rise.
While arguments about its cost effectiveness continue, in practice the future of wind power is likely to be determined by political decisions. Environmental concerns are increasingly leading to legislation which requires the introduction of renewable electricity generation. Aside from hydropower, wind power is the best placed renewable source to meet that need. If renewable energy is required, in many cases that renewable energy will be wind energy.
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