Wind Energy Is One of the Cheapest Sources of Electricity, and It’s Getting Cheaper

While the all-in price of wind energy directly depends on the wind speeds at a particular site, examining national trends in the installed cost of wind energy definitively shows that wind energy has become an extremely inexpensive source of electricity.

The average U.S. consumer pays about 12 cents per kilowatt-hour for electricity. That price includes the cost of generating power, the wires that deliver it from generators to our homes, and the cost of running the utility business. The actual cost of electricity generation alone is something like 2 to 4 cents per kilowatt-hour — that’s the price that wind energy has to compete with to be successful.

Based on data compiled in the Wind Technologies Market Report, wind energy consistently comes in at or below the going market rate for electricity. Wind energy is often purchased in large blocks through a long-term contract called a power purchase agreement (PPA). The figure below shows the historic price of wind energy PPA contracts since 1996. The diameter of each circle is the size of the wind farm built in megawatts, and the height of the circle on the y-axis is the contract price in dollars per megawatt-hour (or dollars per 1000 kilowatt-hours).

In recent years, an enormous amount of wind energy has been procured at or below a price of 20 dollars per megawatt-hour — or just 2 cents per kilowatt-hour. That is competitive with typical wholesale electricity market prices by any measure.

But it’s important to note that the price of wind energy offered through a PPA is an all-in price that includes the effect of subsidies such as the federal wind production tax credit, which provides a tax subsidy of 18 to 23 dollars per megawatt hour of energy produced. When you exclude the production tax credit and look at the leveled cost of energy (LCOE) from interior wind, it still comes in at an extremely competitive cost of fewer than 50 dollars per megawatt-hour (5 cents per kilowatt-hour). For comparison, the Energy Information Administration estimates a best-in-class combined cycle natural gas power plant has an LCOE of about 54 dollars per megawatt-hour (5.4 cents per kilowatt-hour). So even when you account for the effect of the federal wind production tax credit, wind energy remains an extremely competitive generating resource.

Competition Is Driving Wind to Be Cheaper, Bigger, and Better

One of the benefits of wind energy becoming fully competitive with conventional fossil-fuel electricity generation is that it places significant pressure on the wind industry to continually improve the cost and performance of their wind turbines to stay one step ahead of the competition.

Industry data show that wind turbines deployed in 2016 has larger diameter rotors, which allow them to capture more wind overall, and higher hub heights, which allow them to capture the more-steady winds available at higher altitudes. The average rotor diameter in 2016 was 108 meters, a 13 percent increase over the previous 5-year average, while the average hub height in 2016 was 83 meters, up 1 percent from the previous 5-year average. As a result, the average generating capacity of newly installed wind turbines in the United States in 2016 was 2.15 megawatts, up 11 percent from the average over the previous 5 years.

Improvements in wind turbine design have not only helped to increase the maximum power they can produce (or their generating capacity) but also their capacity factor, a measure of how often they actually produce energy. The average capacity factor of projects installed in 2014 and 2015 was over 40 percent — meaning they produced 40 percent of the maximum possible energy they could produce if it were very windy 24 hours a day, 365 days a year.