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Seeking Consensus on the Internalized Costs of Onshore Wind

What is meant by “internalized costs”?

Internalized costs are the costs which can be accurately accounted for in our current systems. In energy production, these costs typically consist of capital costs, financing costs, operation and maintenance costs, and exploration costs. Some energy options incur these costs in various stages such as extraction, transportation and refinement. Profits and taxes are excluded wherever possible in order to isolate the pure cost of production.

Internalized costs of onshore wind

Wind power costs depend strongly on several factors, the most important of which being the capital costs, capacity factor and discount rate. The current status of the internalized costs of onshore wind is well summarized in two recent reports from the IEA and BNEF.

To get an overview of capital costs, a graph compiled by the IEA Medium-Term Renewable Energy Market Report is given below.  

Global real-world wind power capacity factors can be estimated from data given in the BP Statistical Review using the electricity generated at the end of each year (TWh) and the average installed capacity during that year (GW, taken as the average of the capacity at the start and the end of the year).

Discount rates were also discussed in the IEA Medium-Term Renewable Energy Market Report where examples were given for a developed nation (Germany) and a developing nation (South Africa).

Electricity

The LCOE of onshore wind is given below as a function of the capacity factor for different capital costs (at 6% financing costs) and financing costs (at $1800/kW capital costs). Other assumptions include O&M costs of $20/kW/yr and a plant lifetime of 20 years. The Excel file from which these figures were compiled can be downloaded here.

Heating

The cost of using onshore wind power for heat is given below.

Transport

As outlined in the previous article on the internalized costs of nuclear, transport costs using onshore wind energy will be estimated based on optimistic projected technologically mature synfuel production technology. Since synfuel plants will be operating predominantly during solar/wind peaks in a variable-dominated system, a synfuel plant capacity factor of 30% was employed. 

Commenting

If you have a number that differs significantly from the estimates given above, please add it in the comments section below together with an explanation and a reference. 

Schalk Cloete's picture

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Schalk Cloete's picture
Schalk Cloete on October 23, 2014

DATA: Global average onshore wind LCOE: $81/MWh. This is based on a capital cost of $1800/kW, a 25% capacity factor and a 6% discount rate. Onshore wind is deployed roughly equally in developed and developing countries, so the numbers are an average of the high capital costs and lower financing costs in developed nations and the low capital costs and high financing costs in developing nations. 

Schalk Cloete's picture
Schalk Cloete on October 21, 2014

Well, 2/3 of global wind capacity has been installed since 2008 when annual capacity additions started plateauing at about 40 GW/year. You can see on the graph in the article that the average global capacity factor also started to plateau from that point forward, implying that the numbers are fairly representative for new builds. 

A more specific reference can be found in Figure 32 here where it is shown that the US wind fleet (which achieves capacity factors far above the global average due to excellent wind resources) has stagnated in terms of weighted average capacity factor over the past decade. 

Schalk Cloete's picture
Schalk Cloete on October 21, 2014

When this column moves on to externalized costs, we will cover the profile costs, balancing costs and grid-related costs caused by the temporal and spatial variability of wind energy. 

John Miller's picture
John Miller on October 21, 2014

Schalk, Yes, Internalized costs are a function of fixed and variable costs, but also, power grid dynamics and operations.  Since wind power generally makes up a smaller part of total power grids’ generation capacity and is often given 1st supply priority over more fully dispatchable reserve/backup power generation (natural gas & hydropower pumped storage for example), the published internalize costs tend to be driven towards minimum levels.  As the penetration levels of variable wind increases or the levels/mix of available dispatchable backup power or demand response decline, wind power capacity factors will directionally decrease and costs increase proportionally (as capacity factors directionally decline in order to reasonably balance power grids’ supply-demand; assuming limited available power storage capacities continue).

Besides normal variable wind/weather energy availability factors, environmental impacts on ‘at risk’ avian wildlife (bird/bats) will possibly become a growing operating constraint.  Capacity factors and costs will likely become increasingly impacted as wind turbine operations are possibly curtailed to protect avian wildlife during seasonal migrations and other potentially at risk wildlife movements; example daily sunset/sunrise movement behaviors of many bat species. 

Clayton Handleman's picture
Clayton Handleman on October 21, 2014

It would be easy to deduce from your comment that the plateau in CF is due to lack of higher CF resource.  That would be incorrect.  The reason the CF has stagnated in the US is because there is little transmission reach to the best sites.  That will likely change a bit as ERCOT expands there grid and they get at some of their 50% CF region.  However, if these guys are successful running HVDC to western KS then we will see a rapid rise in average CF. 

This scenario is of grave concern to those who favor coal.  If Clean Line Energy is successful, they will enable wind to be economically deployed unsubsidized.  They currently are working on about 10 GW of HVDC.  However, most are not driven by academic discussions of possibilities.  If they get one of their power lines in, the press will light up with the potential for wind and I believe we will see an aggesive buildout of transmission capacity.  Lazards reports unsubsidized wind at favorable sites is running around $37 / MWhr.  At that price you can pay an awful lot of money to get your power to the east coast where the energy portion of the bill is more than twice that number.

 

Nathan Wilson's picture
Nathan Wilson on October 21, 2014

Using Schalk’s spreadsheet for liquid fuel synthesis, I got the following results:

1) All windfarm output is used, and US central plains: with electricity cost of $50/MWh, 50% capacity factor, $1500/kW capital cost, 60% energy conversion efficiency, 20 year plant life, $100/kW-yr O&M, and 5% discount rate, the syn-fuel costs $4.54/GGE (gallon-of-gasoline-equiv).

2) Using off-peak wind only, bought at a discount: with electricity cost of $30/MWh, 30% capacity factor, $1500/kW capital cost, 60% energy conversion efficiency, 20 year plant life, $100/kW-yr O&M, and 5% discount rate, the syn-fuel costs $4.55/GGE.

3) For developing nations with 10% discount rate: assuming electricity cost of $50/MWh, 40% capacity factor, $1000/kW capital cost, 60% energy conversion efficiency, 20 year plant life, $50/kW-yr O&M, the syn-fuel costs $4.46/GGE.

Remember that for multi-GW scale syn-fuel plants, the capacity factor will always be higher than that of the individual wind farms, since each GWatt of fuel plant will be matched to 1.1-1.2 GWatt of wind farms, with little curtailment (See Archer-Jacobson-2007).

This could be viable with a modest carbon tax, assuming the fuel allowed vehicles which had substantially greater fuel economy than is possible with gasoline (e.g. hydrogen in fuel cells, ammonia in ICEs or fuel cells).

Schalk Cloete's picture
Schalk Cloete on October 21, 2014

This highly optimistic high capacity factor wind scenario that you often refer to remains a long way off. The report linked above gives average wind capital costs in the US interior as $1750/kW and average capacity factors in the interior as 38%. These parameters return a LCOE of $53/MWh at a 4% discount rate. In addition, the IEA “Power of Transformation” report gives the LCOF (Levelized Cost of Flexibility) of using 1000 km overhead HVDC lines to balance intermittent resources as $27/MWh, thus bringing the sum up to $80/MWh.

And then there is of course the NIMBY issues of HVDC. The Power of Transformation report lists public opposition as the most important factor limiting transmission buildouts for balancing intermittent renewables (2 points more important than cost on a 5 point scale). Administrative compexity and implementation duration fall in between cost and public opposition in terms of challenge magnitude.  

Nathan Wilson's picture
Nathan Wilson on October 22, 2014

The University of Minnesota believes the wind-to-ammonia concept is sufficiently promising to have built an 40KWatt demo plant as described here.  It’s meant to be a proof-of-concept for an 8MWatt community-scale fertilizer plant (for 150,000 acres of corn), but as the size is further scaled up, it should approach the fuel-plant efficiency and economics described above.

Nathan Wilson's picture
Nathan Wilson on October 22, 2014

Yes, Roger, in the US, natural gas is by far the cheapest energy source, once plant capital costs are included.  This is true of electricity generation, syn-fuel production, and even more so for use as a transportation or direct heating fuel.

The whole alternative fuel concept is really only viable for fossil fuel importing nations/regions (of which there are many), as well as a future US in which fossil fuel use must decrease (whether due to resource depletion or environmental/climate concerns).

But this does show that the cost of transportation fuel need never be higher than what the Europeans currently pay.  So fuel scarcity will never drive us to dramaticly restructure society, force other solutions involving lifestyle change or restrictions on consumer choice, nor will we be forced into widespread wildlife habitat destruction in the name of biofuel.

Clayton Handleman's picture
Clayton Handleman on October 22, 2014

Hmmm, not sure why you are using $53 / MWhr when the PPA numbers for the central region are coming in around $20 / MWhr (figure 45) in the same report.  It appears your interest is not particularly objective.  Of course, the whole point of building the HVDC is to access the better sites which will be at the low end and, in fact, Barnard is saying that he is hearing industry experts suggesting further downward trends.  There is already transmission access to mediocre and even good sites and those are what are producing the high numbers that you try to portray as likely for the future.  Almost none to the great sites have suitable transmission access.  I invite you to take a moment to look at the maps and turbine siting in this post.  It is quite clear that the best sites are nearly untouched and it correlates with lack of transmission access. 

Also based upon my read of their site, it would appear that Clean Line Energy is well along on getting their right of ways.  What do you consider ‘a long way off?’  It sounds like you have better information.  Could you please cite credible sources that suggest that Clean Line Energy’s projects are delayed and that HVDC is a long way off?  Do you think it is further off then large scale use of CCS for example?  Also, Texas is in the process of expanding transmission to high wind areas.  I have not gotten my hands on the transmissio line maps.  But it is hard for me to imagine that they are going to be building transmission out to their low CF regions. 

 

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