WIND PRICE V. NAT GAS

Renewable Cost Parity: Is Wind Competitive With Gas?
Dave Levitan, February 8, 2011 (Climate Central)

"…[T]he American Wind Energy Association (AWEA)…[says] wind power is now largely cost competitive with natural gas…Experts have suggested that natural gas, with its apparently smaller climate impact and widespread availability [could be a better short term energy source]…[But] in several recent power purchase agreements…wind power has been sold in the surprisingly low range of five to six cents per kilowatt-hour…[I]ndependent industry data…[also suggests] wind’s growing competitiveness with natural gas…

"…[But] the most recent Energy Information Administration estimates place the cost of a new onshore wind installation at 9.7 cents per kilowatt-hour, and a new advanced cycle natural gas plant at 6.3 cents per kilowatt-hour…AWEA’s statement of competitiveness with natural gas does include the federal incentives for wind power, primarily the renewable energy production tax credit. The credit can lower the price of wind power by 2.2 cents per kilowatt-hour, and is currently set to expire at the end of 2012. Including this straightforward subsidy, and excluding various other factors from the wind power economics equation can lead one to make the claim of cost parity…"

Existing nat gas is a little cheaper than existing wind... (click to enlarge)

"…[W]ind in certain areas requires massive transmission line projects, as well as backup generators — often powered by natural gas — to smooth out wind’s variability…The claim of cost parity [usually] does not include these costs…[but] fossil fuels also benefit from enormous federal incentives, though not in such a handy cents-per-kilowatt-hour form. Instead, subsidies are applied at the point of drilling or mining, and many are permanent rather than temporary features of the tax code.

"…[I]t is not just policy that has changed the economics of wind power development in recent years. Technological innovation and economies of scale also help, and if natural gas turns out to be less attractive from a carbon perspective than previously thought, there is a chance that could play a role in boosting wind energy as well…[N]atural gas’s reputation as a cleaner fossil fuel could be misleading. The frequently cited claim that a natural gas plant has about half of the climate impacts of a coal plant might be based on false assumptions, because it fails to take into account leaks of methane — a potent greenhouse gas — from gas infrastructure, as well as other emissions generated when extracting natural gas from the ground…"

...but nat gas prices are notoriously volatile and there is no guarantee it will be cheaper than new wind. (click to enlarge)

"…These findings cast doubt on the idea of spending billions to move from coal to gas as a bridge toward a renewable energy future…[but] the possibility that natural gas may have a greater environmental impact than previously thought might not change relative costs on short time scales…[but until there is a price on emissions] learning that natural gas is worse for the environment doesn’t actually lead to any consequences…

"Still, market pressures make it wise for utilities to consider what sort of environmental regulations might eventually enter into force, and the new information could play a role in improving wind and other renewable sources’ position…[Meanwhile wind is an ideal hedge]…AWEA foresees utilities following such logic this year: more than 5,600 megawatts (MW) of wind were under construction at the start of 2011 (the total currently online around the country is about 42,000 MW, enough to power more than nine million homes), and the group thinks there will be an increase in total installations versus last year."