Wind energy costs are now lower than the costs of most new conventional sources and are close to cost-competitive with new natural gas generation due to continuing technological innovation. In fact, the price of American wind power has declined more than 90% since 1980, benefiting utilities and consumers. This is one reason that in 2012, wind was the #1 source of new electric generation capacity in the United States, accounting for 42% of all new generation capacity. In Australia, wind energy is now cheaper than coal and natural gas.

Price per Kilowatt-Hour
The cost of energy from the wind is mostly a function of the wind resource – how fast it blows, how often, and when. Higher-speed winds are more easily and inexpensively captured. The more the wind blows, the more power will be produced by wind turbines. The term used to describe this is "average capacity," which is simply the percentage of power a turbine produces compared to what it could produce if it were always spinning.

A more precise measurement of output is the "specific yield." This measures the annual energy output per square meter of area swept by the turbine blades as they rotate. Overall, wind turbines capture between 20% and 40% of the energy in the wind. So at a site with average wind speeds of 7 m/s, a typical turbine will produce about 1,100 kWh per square meter of area per year. If the turbine's blades are 35 meters long, for a total swept area of 1,000 square meters, the power output will be about 1.1 million kWh for the year.

The power output from a wind turbine is a function of the cube of the average wind speed. In other words, if wind speed doubles, the power output increases eight times. Also, wind speed increases as the height from the ground increases. For example, if the average wind speed at 10 meters above ground is 6 meters/second (m/s), it will typically be about 7.5 m/s (25% greater) at a height of 50 meters. Finally, the power in the wind varies with temperature and altitude, both of which affect the air density. Chilly winter winds in Minnesota will carry more power, due to greater air density, than warm summer winds of the same speed high in the passes of southern California.

On the other hand, wind turbines operate over a limited range of wind speeds. If the wind is too slow, they won't be able to turn, and if too fast, they shut down to avoid being damaged. Ideally, a wind turbine should be matched to the speed and frequency of the resource to maximize power production.

Another factor in the cost of wind power is the turbines' distance from transmission lines. It is not unusual for remote areas (for example, northern Canada or Siberia) to have high average wind speeds, but be too far from major electricity demand centers (cities) for the wind power to be used economically.  Considerable wind energy development has taken place in recent years in U.S. states like Indiana and Illinois, which are not as windy as North Dakota or Montana but have substantial transmission capacity.

For offshore wind projects, the economics depend on the distance from shore because turbine foundation costs increase rapidly with increasing water depth. Offshore wind turbines are generally much larger than land-based turbines. Larger rotors can be incorporated more easily because large rotor blades can easily be transported by ship.

Wind and Natural Gas
The U.S. is currently experiencing very low natural gas prices due to a massive increase in production of gas from shale deposits. Industry experts believe that the prices are too low to be sustained because they do not provide an adequate income stream to producers. Nevertheless, gas supplies are likely to be abundant for some time.

Although abundant natural gas presents competitive challenges for wind power, there is still an important place for wind as part of a diversified electric utility portfolio and a hedge against volatility in fuel prices. Wind energy's fuel cost is zero, so the price of electricity from a wind farm is predictable over the long term—which is not true for any fueled power plant.

In addition, wind and natural gas complement each other well in a utility system—gas turbines can easily be turned up and down as needed to match variations in the output of wind farms. The combination of these two energy sources can provide abundant electricity with lower price volatility and greenhouse gas emissions than natural gas alone.

Incentives
The availability of incentives may greatly affect the economics of a wind project, large or small. The Database for State Incentives for Renewables and Efficiency (DSIRE) is the most current and comprehensive source of state incentives, policies, regulations and contacts pertaining to the purchase and installation of small wind systems and other technologies.

Established in 1995, DSIRE is an ongoing project of the North Carolina Solar Center and the Interstate Renewable Energy Council. It is funded by the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy and administered by the National Renewable Energy Laboratory.

Important incentives for utility-scale projects are the Production Tax Credit (PTC) and the Investment Tax Credit (ITC). The PTC, created by the Energy Policy Act of 1992, is a commercial tax credit that applies to wholesale electrical generators of wind energy facilities based on the amount of energy they generate. The ITC is a tax credit granted for specific investment types, such as wind projects. Learn more about the Production Tax Credit and the Investment Tax Credit.

Financing

Financing can also affect the economics of wind projects.

Brookings. (2012). Smarter Finance for Cleaner Energy: Open Up Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs) to Renewable Energy Investment (PDF)

Environmental and Energy Study Institute. (2012). Issue Brief: New Approaches in Renewable Energy Finance

World Resources Institute. (2009). Harnessing Nature's Power: Deploying and Financing On-Site Renewable Energy

More Information

American Planning Association. (2011). Planning for Wind Energy (PDF 5.6 MB)
See pages 26-33 of this report for a detailed discussion of wind costs, incentives, impacts of economies of scale, and a cost comparison of electricity options.

Lawrence Berkeley National Laboratory. (2013). Re-Visiting the Long-Term Hedge Value of Wind Power in an Era of Low Natural Gas Prices.
This report investigates the degree to which wind power can serve as a cost-effective hedge against rising natural gas prices, given the significant reduction in gas prices in recent years and expectations that gas prices will remain low for many years to come.

Lawrence Berkeley National Laboratory; National Renewable Energy Laboratory. (2012). Recent Developments in the Levelized Cost of Energy from U.S. Wind Power Projects (PDF 1 MB)
This presentation summarizes recent work on wind energy costs. The LBNL-NREL work analyzes wind energy costs in three time periods: projects installed in 2002-2003, projects installed in 2009-2010, and projects based on current wind turbine pricing to be installed in 2012-2013.

U.S. Department of Energy. Wind Power Economics: Past, Present, and Future Trends: A Wind Powering America Webinar
This webinar, which is available for online viewing, featured three related presentations that explore historical trends and provide insight on what the future may hold. Mark Bolinger of Lawrence Berkeley National Laboratory covered highlights from the recent report Understanding Trends in Wind Turbine Prices Over the Past Decade (PDF 368 KB), focusing in part on turbine scaling as a critical turbine price driver. Ryan Wiser of Lawrence Berkeley National Laboratory demonstrated that—despite putting upward pressure on turbine prices—turbine scaling and other design improvements over this period have provided a net benefit in terms of the cost of wind generation, and that with today's lower turbine prices, the cost of wind generation from soon-to-be-built plants is lower than it has been in years. Finally, Eric Lantz of the National Renewable Energy Laboratory discussed the potential for further technology-based cost reductions, assuming ongoing turbine scaling and full realization of opportunities for technology improvement.

Windustry. Economics
This site offers information about the risks, costs, and benefits involved with siting a wind turbine.