In his State of the Union address on Jan. 12, President Obama said, “in fields from Iowa to Texas, wind power is now cheaper than dirtier, conventional power.” That is true in some pockets of the country, but the national average for coal and gas prices is still less.
Wind energy has become increasingly cost competitive compared with fossil fuel-generated energy, and Obama rightly points out that in some areas of states like Iowa and Texas, wind energy is already cheaper than energy produced by coal or natural gas. But that’s not true everywhere, at all times. Not yet, at least. Bloomberg New Energy Finance reports that nationwide, on average, coal and gas were still cheaper in the U.S. in the second half of 2015.
In November 2014, the New York Times reported that the “long-held dream” among those in the solar and wind industries to produce energy at the same cost as conventional sources like coal and natural gas was on the verge of coming true.
“The cost of providing electricity from wind and solar power plants has plummeted over the last five years, so much so that in some markets renewable generation is now cheaper than coal or natural gas,” the Times reported.
But while that may be true in some markets, it’s not quite true, on average, across the U.S., according to Bloomberg New Energy Finance.
Analyzing markets around the world, Bloomberg New Energy Finance measures a “levelized cost of electricity,” which takes into account not just the cost of generating electricity, but also the upfront capital and development expense, the cost of equity and debt finance, and operating and maintenance fees.
Its analysis concluded that there has been a “significant shift in the generating cost comparison between renewable energy and fossil fuels.” The two leading renewable technologies — onshore wind and crystalline silicon photovoltaics — both reduced costs in 2015, due primarily to cheaper technology and lower finance costs, while costs went up for gas-fired and coal-fired generation.
Onshore wind is “much more competitive against the established generation technologies than would have seemed possible only five or 10 years ago,” said Luke Mills, energy economics analyst at Bloomberg New Energy Finance, in a press release.
Costs vary from region to region, Bloomberg said in the press release. And in some countries, the United Kingdom and Germany, for example, onshore wind was cheaper than both gas-fired and coal-fired generation in 2015, once carbon costs are taken into account. But in the U.S., on average, the report stated, “coal and gas are still cheaper, at $65 per MWh [megawatt-hour], against onshore wind at $80.”
But in some areas like Texas and Iowa — the states mentioned by Obama, which were among the leading wind energy producers in 2014 — the cost of wind power is lower. And, according to a March 2015 Dallas Morning News story cited by the White House (along with the previously mentioned New York Times story), “renewable energy plans count among the cheapest options available.”
“The cost and value of wind, natural gas, solar, etc., do vary significantly across the country, as does the relative competitiveness of each,” Chris Namovicz, team leader for renewable electricity analysis at the U.S. Energy Information Administration, told us via email. “Both our analysis and recent market trends suggest that wind is generally lowest in cost and most competitive in the Great Plains region of the country, roughly corresponding to ‘Iowa to Texas.’ ”
The main reason for the lower prices in the Great Plains states, said Ethan Zindler, head of U.S. research at New Energy Finance, “is that there’s extraordinary wind in these states and developers are finding ways to take greater advantage of this with newer, larger wind turbines.”
Wind energy is particularly cost-effective at night, Zindler said.
“There is no question that wind is the low-cost source of power generation in the overnight hours in many states where it exists,” Zindler told us in an email. “This is because once a wind project is built, it effectively has almost zero operating (or fuel) costs. So, when the winds blow strongly across the plains after midnight, wind turbines deliver lowest cost power.”
During other times of the day, however, the wind advantage is less clear, and varies by region. Projects in the windiest spots can sell at lower prices and be profitable, Zindler explained. “There is no question that we’ve seen wind out-compete other sources in states such as Iowa and Texas during daytime hours,” he said.
Some wind critics note that some of the cost benefit enjoyed by wind production is due to a $23 per megawatt-hour tax credit. In December, Congress extended this wind production tax credit for another five years, though it will phase down in its level of support every year.
But even without the tax credit, Zindler said, “wind can be competitive in regions with high power prices and constrained supply of gas, like New England during certain times of the year when winds are heaviest and power prices highest.”
And if the price trends continue, Bloomberg estimates that wind power will be cheaper than energy produced by fossil fuels, even without government subsidies, in the next 10 years.
“In terms of where we’re going, yes, definitely, we do anticipate prices for wind will continue to decline over the next few decades allowing the technology to become more competitive in more markets around the world and in more states in the U.S. at more hours of the day,” Zindler said.
And when it comes to building new power production, “there’s no question wind is less expensive,” Zindler said. “That is, building a new wind project from scratch results in power that can be sold for less than building a new coal plant from scratch, assuming that coal plant complies with various EPA regulations … Coal plants equipped with carbon capture and sequestration technology are very pricey today. So, on a new-build basis in the U.S., wind beats coal hands down without caveats.”
Namovicz of EIA said when it comes to new builds, “wind is generally in a competitive range with combined cycle and perhaps even lower cost than coal, on an unsubsidized basis.”