What Are the Economics of Wind Energy?

The economics of wind energy varies moderately from markets like that of Europe versus the US, but common trends worldwide exist to suggest that it is one of the best investments in the energy arena. In terms of comparison to other traditional energy sources like natural gas-fired power plants, wind energy is the most competitive of alternative energy sources. The economics of wind energy have also been steadily improving over the past several decades as the technology itself has improved and financing costs have diminished. Sustainable energy supplies from wind are becoming so important, especially in the US sector, that it has been estimated that, as of 2002, wind energy is destined to become the least expensive form of energy generation available in America.

As of 2009, the economics of wind energy have brought the cost down on a global basis to an average of 11 to 13 cents in US dollars (USD) per kilowatt hour for energy production. This is a reduced cost of 80% over what wind energy cost in the past 20 years, and is competitive as of 2009 with the cost of natural gas use for power plants. Natural gas also fluctuates greatly in price due to economic conditions, with its level of cost in the 1990s tripling by 2009, and spiking to a level seven times higher than what it was in the 1990s during 2003. The cost of wind energy also drops by 15% every time that energy production capacity from wind turbines is doubled globally due to economies of scale in producing the necessary equipment. This has led to wind as an energy supply as of 2010 costing only 12% of what it did in the 1980s.

Though the energy economics of wind power continue to improve, it still has milestones to overcome. As of 2009, coal-fired power plants on average generated electricity at a cost of 6 cents per kilowatt hour in US dollars (USD). This is still less than half of the cost of wind power, and, at the same time, coal accounts for 51% of all energy generation in the US, whereas wind power is only approaching the level of being able to supply 2% of US energy demand. The growth of wind power is so dramatic, however, that the US Department of Energy (DOE) estimates that, by the year 2030, it will supply 20% of US energy needs. In 2010, the US surpassed Germany as being the leading nation in the world for the amount of power generated from wind sources.

In the European sector, the economics of wind energy are just as favorable. An annual growth rate in energy production from wind of 25% per year since 1992 has continued to bring down the cost of equipment. A UK estimate found that the biggest costs in setting up a wind power station are from the turbines themselves at 64% of the total cost, and civil engineering and electrical infrastructure at 21% of the total cost to connect them to the power grid. This is significant because, once the majority of the costs in establishing wind power are paid, which are primarily upfront costs, the maintenance expense for the system is very minor. By comparison, a fossil-fuel-fired power plant such as one using natural gas has 40% to 70% of annual perpetual costs built into it to just pay for the fuel supply.

Wind energy's biggest drawbacks are those that are common to any new energy source: establishing a demand and reducing costs by increasing the scale of production. European estimates for the cost of one turbine as of 2007 were £1,230,000 British pounds each. Most of this is just a technology and setup expense, with 76% for the turbine itself, 9% for connection to the power grid, and 7% for the foundations upon which the turbine is built.

Investment costs affect the economics of wind energy directly and vary from nation to nation in Europe. Setup expenses have been the lowest in Denmark, marginally higher in Greece and the Netherlands, and almost a third more expensive in the UK, Germany, and Spain. Much of this variation is due to charges levied against wind service providers to build turbine foundations and connect the technology to the electrical grid. These charges have been on the rise since 1998, while the cost of wind turbine technology itself drops. Such institutional costs are a direct result of energy policy, where in Denmark they have been 16% of the total, in Portugal 24%, Germany and Italy 21%, and in other European nations as high as 32% of the total cost for establishing the systems as of 2011.