The learning rate for wind power is in the range of 7.7%-11%, researchers Eric Williams and Eric Hittinger of Rochester Institute of Technology found. This means the cost should go down from 5.5 cts/kWh today to 4.1-4.5 cts/kWh in 2030, cheaper than conventional power sources. Does this mean we should stop subsidizing wind? Article courtesy The Conversation.
There are high hopes for renewable energy to help society by providing a more stable climate, better energy security and less pollution. Government actions reflect these hopes through policies to promote renewable energy. In the U.S. since 1992 there’s been a federal subsidy to promote wind energy, and many states require electricity utilities to use some renewable energy.
But when is the right time to stop government support for an energy technology?
This is a timely question: Rick Perry’s Department of Energy is currently working on a grid reliability report that many expect to argue that wind and solar cause reliability problems because they don’t supply power continually. A conclusion like this can be used to justify removal of government subsidies or regulations favoring other sources of energy.
The price for wind power has gone down over the years, but how cheap is it getting? There is a surprisingly diverse set of answers to this question
Subsidies need not last forever – there can come a time when its objective has been achieved or experience suggests the subsidy is not working as intended.
Is it time to end subsidies for wind? A big part of the answer to this question lies in whether subsidies are actually making wind cheaper.
Why subsidize energy technology
The justification for subsidizing a given technology is that it delivers public benefits that outweigh the subsidy cost. If a technology shows promise to become cheap enough, the subsidy can be viewed as a temporary stimulus to bring it a point where it can stand on its own.
For example, in the early days of the semiconductor industry, integrated circuits were too expensive for consumer markets. Government demand for military applications provided a critical bridge to bring down costs and activate broader markets.
On the other hand, subsidizing an emerging technology that has trouble bringing down costs may be inefficient. For decades, the U.S. government has subsidized or mandated production of corn ethanol. Yet ethanol is still not market-competitive, at least not with recent crude oil prices.
Wind power’s ‘learning curve’
The price for wind power has gone down over the years, but how cheap is it getting? There is a surprisingly diverse set of answers to this question. There are over 100 existing studies of wind cost trends, with results ranging from wind power becoming more expensive over time to becoming cheaper so quickly that it will soon be cheaper than fossil fuels.
Curiously enough, while researchers have recently started to note disparities between studies, no one has yet grappled with explaining and reducing such variability. This is, unfortunately, a common situation in many research domains: Various groups get conflicting results from similar analyses, but no one works on understanding why these differences arise.
The adoption of wind in one country helps the industry develop and grow so that wind becomes cheaper in other countries
In a recent paper, we sought to better understand cost reductions in wind power by finding patterns in historical trends.
Wind costs follow what economists call a learning curve: For every doubling of wind production, the cost goes down by a fixed percentage. For example, if the price of electricity from wind is 10 cents per kilowatt-hour with a given number of wind farms, a 10 percent “learning rate” means that wind electricity would cost 10 percent less, or 9 cents per kilowatt-hour, if one doubles the number of wind farms.
Our main finding was that the learning rate for wind power is in the range of 7.7 percent to 11 percent. That means if more wind power is installed and the cost of energy continues to decline as it has in recent years, the cost of generating electricity with wind will fall from 5.5 cents/kilowatt-hour today to 4.1–4.5 cents/kilowatt-hour in 2030.
Previous studies obtained learning rates from -3 percent to +33 percent, the minus sign indicating wind becoming more, rather than less, expensive over time. Why are the results so different? We showed that one can get very different outcomes depending on the method and data range used.
First, we believe it is important to account for wind power costs in terms of the total cost to generate electricity. Many prior studies measured wind cost as the price to build the capacity to make electricity at peak wind times. But this is a poor measure because much of the progress in wind technology in recent years has been to generate more power when the wind is weaker.
Wind is on track to become cheaper than fossil fuels as a source of electricity
Secondly, it is important to treat wind power as a global industry. The adoption of wind in one country helps the industry develop and grow so that wind becomes cheaper in other countries. Modeling wind adoption in only one nation can skew results.
Finally, results depend strongly on the date range of data used. Even with an identical method, the estimated learning rate can change up to 10 percent depending on which years of data you use.
To subsidize or not to subsidize?
So if wind costs will fall to 4.1–4.5 cents/kilowatt-hour in 2030, as we found, what does this mean for wind subsidies? The U.S. Energy Information Agency projects the cost of natural gas and coal power in 2030 will be 4.5 and 5 cents per kilowatt-hour respectively. Taking these numbers at face value, wind is on track to become cheaper than fossil fuels as a source of electricity.
One must be cautious, however, in feeling too sure of forecasts. Technologies and fuel prices can go in unpredictable directions. Also, wind is an intermittent resource, meaning it can’t provide round-the-clock power as fossil fuels can. There is an additional cost to this intermittency, which is very difficult to predict.
Also, being cheap doesn’t mean we will soon be able to switch to 100 percent wind. To meet electricity demand continually, we will need a combination of energy storage, lowering power consumption at certain times (known as demand response) and traditional “firm” power production.
This said, the past suggests a trajectory in which wind becomes economically competitive with fossil fuels. Our study shows that support policies, such as the current Production Tax Credit, are contributing to lowering wind costs. As such, continued subsidies are expected to enable a smoother and cheaper transition to a sustainable energy system.
Editor’s Note
Eric Williams is Assocatiote Professor of Sustainability at Rochester Institute of Technology. Eric Hittinger is Assistant Professor of Public Policy at the same institute.
This article was first published on The Conversation and is republished here with permission from the authors.
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bob says
In many countries (including Spain, Germany, etc, etc), wind power is already at 4cts/kwh (according to the latest tendering processes).
Nigel West says
Unless renewables continue to receive subsidies/support their success might be their eventual downfall. Wind/solar has zero marginal cost so as capacity grows wholesale power prices in a competitive market will tend to zero. Wholesale power prices will then be so low that developers will not invest in new wind/solar based on wholesale market revenues. So developers will need long term power sales contracts with suppliers, or other subsidies/support mechanisms to continue rolling out wind/solar capacity.
Robert Borlick says
Not quite.
Zero marginal costs do not mean zero wholesale prices. Why? Because there will still be capacity constraints which give rise to the need for scarcity pricing to effectively “auction off” the available capacity when demand threatens to exceed that capacity. Developers will then recover their investment plus earn a return from the revenues they collect during the scarcity events.
Nigel West says
Robert, yes ‘scarcity’ events should occur – unless storage became economic at adequate scale. For investors though predicting when they will occur and to what extent is difficult so they may choose lower risk investments. Scarcity in a competitive power market can also drive prices very high and that has lead to Government interference in markets which is a big risk for investors.
Bob Wallace says
“unless storage became economic at adequate scale. ”
Storage is already economic and can be scaled up as large as needed. Now the task is to find even cheaper storage.
Nigel West says
No it is not economic (nor feasible) on the scale needed.
http://euanmearns.com/is-large-scale-energy-storage-dead/
Bob Wallace says
You can’t prove a point with flawed evidence.
Bob Wallace says
Does competition work to drive down the price of just about everything? Are there more than one company vying to build wind farms? More than one company building and selling wind turbines?
It the title question silly? We’re at a point at which the cost of wind will continue to drop with or without subsidies.
There’s a different question we should be asking ourselves.
Would it be in our best interest to spend some money to reduce our use of fossil fuels faster?
Subsidies serve two purposes.
First, subsidies support an emerging product/technology/service until it can grow large enough to enjoy economy of scale and compete with other offerings.
Second, subsidies support the higher use of an established product/technology/service. We subsidize nutritious foods for children because we want them to be healthier and cost us less money as they grow and turn into adults.
Wind, where it is established, probably does not need subsidy. (Offshore US wind will need assistance for a while.)
But if we want to speed the departure of coal (and save ourselves trillions of dollars in health care) then spending a few tens of millions to encourage utilities to add wind to their supply faster makes good economic sense.
Nigel West says
“Would it be in our best interest to spend some money to reduce our use of fossil fuels faster?”
Would need to look at the economics of the options available before picking a winner. Money for wind is one, supporting existing US nuclear plants that might otherwise close prematurely is another.
Bob Wallace says
Nigel, what do you think the cost of uncontrolled climate change might be?
Just for starters, what might be the cost of rebuilding our coastal cities on higher ground?
What is the value in preventing hundreds of millions of premature deaths?
You familiar with “Penny wise and pound foolish”?
Nigel West says
Bob, if you were really that concerned about the potential effects of uncontrolled climate change you would be promoting nuke life extensions and new nukes, not just renewables.
Bob Wallace says
I have no problems with extending life of existing reactors if:
1) Refurbishing and increased maintenance costs don’t drive up the cost of electricity to the point at which we have to subsidize them.
Right now in the US we are starting to subsidize money-losing paid off reactors. It would be far better to use that money to assist more inexpensive wind and solar to come online.
2) We are very certain that the reactors are safe.
The US has reactors that were designed and built over 40 years ago. We would never permit those designs to be built today. Plus old stuff more frequently breaks.
Robert Borlick says
You make statements that are unsupported by any empirical data. For example, you claim that it would be better to assist wind and solar construction than to retain our existing nuclear fleet through subsidy payments. Based on what evidence? The federal government is already heavily subsidizing wind and solar through the production tax credit, the 30 percent investment tax credit and rapid 5-year depreciation. One may be able to justify these subsidies as compensation for producing carbon-free electricity. But the operating nuclear plants also produce carbon-free electricity. Why shouldn’t they receive comparable subsidies or at least payments tied to the social cost of carbon?
Another issue you overlook is the large amount of renewable capacity (and storage) that would be needed to replace the nuclear fleet. Have you calculated how much? Is that even feasible? If we abruptly retire a significant portion of the existing nuclear fleet it will be replaced with natural gas-fired capacity and carbon emissions will go up.
As for the safety issue, nothing is perfectly safe. But given the hundreds of unit-years of nuclear plant operation in the US with no significant release of radiation I think we can say that the US light water reactor design is pretty safe. Long-term treatment of the nuclear waste they have produced is a problem but not really one of safety.
Given how cheap onshore wind and large-scale solar PV has become I think it is time to phase out the federal subsidies. The congress got that right.
As for offshore wind – we should not even think of subsidizing that enormously expensive technology. It is almost certain that it will never be cheap enough to compete with onshore wind because of the added costs of offshore construction and the undersea cables needed.
Bob Wallace says
” you claim that it would be better to assist wind and solar construction than to retain our existing nuclear fleet through subsidy payments. Based on what evidence”
A recent study by Bloomberg found that the cost to generate electricity in paid off US reactors is 3.5 cents per kWh. More than half of our existing reactors would need to be subsidized 1 cent/kWh or more to avoid going out of business.
Our reactors are old. They will get more expensive to operate as they further age. We can subsidize them now but there will not be a long term payoff. Old stuff breaks.
A new wind or solar farm should last at least 30 years, possibly much longer. Spending money to increase the rate of wind and solar installations should mean at least a couple of decades more of less expensive electricity. Remember, after a wind or solar farm is paid off in 20 years there’s another 10 or probably more years of ~1 cent/kWh electricity coming from them.
We probably do not need to continue to subsidize all onshore wind and solar. Our subsidy programs have paid off and brought their costs down to where they are two of our cheapest electricity sources. And solar should soon be cheaper than natural gas.
I’m not suggesting we subsidize wind and solar in order to further reduce their cost. Market forces (competition) will take care of that.
What I’m suggesting is that we could use some money to assist utilities in closing down fossil fuel plants and replacing them with renewables. Rather than give a couple pennies per kWh to solar and wind farms, offer a penny or two per kWh to utilities for each kWh of coal generation they replace with RE electricity.
“As for offshore wind – we should not even think of subsidizing that enormously expensive technology.”
Best to check to see how rapidly offshore wind prices are dropping in Europe.
And, remember, offshore tends to produce in the middle of the day when demand is the highest. Offshore may be an excellent source for the upper East Coast which won’t have very much solar in the winter.