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 by September 2014, there were more than 13,000 megawatts of new generating capacity under construction in the United States. The following recent examples demonstrate how wind energy costs measure up against conventional energy sources:
Price per Kilowatt-Hour
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.
In 2011 and 2012, the price of wind under long-term power purchase contracts in the United States averaged just 4 cents per kilowatt hour, which is 50% lower than in 2009.
Wind and Natural Gas
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.
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 can also affect the economics of wind projects.
Environmental and Energy Study Institute. (2012). Issue Brief: New Approaches in Renewable Energy Finance
Frankfurt School - UNEP Collaborating Centre for Climate & Sustainable Energy Finance. (2014). Global Trends in Renewable Energy Investment 2014
New York Green Bank: A state-sponsored investment fund dedicated to overcoming current obstacles in clean energy financing markets and increasing overall capital availability through various forms of financial support such as credit enhancement, project aggregation, and securitization.
American Planning Association. (2011). Planning for Wind Energy (PDF 5.6 MB)
Bloomberg New Energy Finance. (2013). Global Trends in Renewable Energy Investment 2013 (PDF 4.5 MB)
Lawrence Berkeley National Laboratory. (2013). Re-Visiting the Long-Term Hedge Value of Wind Power in an Era of Low Natural Gas Prices.
Lawrence Berkeley National Laboratory; National Renewable Energy Laboratory. (2012). Recent Developments in the Levelized Cost of Energy from U.S. Wind Power Projects
U.S. Department of Energy. Wind Power Economics: Past, Present, and Future Trends Webinar