Wind power becoming more competitive

Annual Lazard report suggests cost of wind, solar power dropping to levels that may be competitive with conventional sources

Alan Bailey

Petroleum News

Financial consulting and asset management firm Lazard has published a report suggesting that the costs of wind power and power from utility-scale photovoltaic solar systems have dropped to levels that are becoming competitive with more traditional ways of generating electricity. However, the cost data do not take account of the cost of integrating these varying and intermittent power sources into a power grid. Grid integration involves the provision of some alternative power source that can reliably fill in the dips in power output from the intermittent supply.

And the cost of power from solar systems installed by individual electricity consumers is still much higher than the cost of conventional power delivered by a utility, the report says.

The Lazard report makes comparisons based on what it calls the levelized cost of energy, the cost per megawatt hour from an electrical generation system, taking into account factors such as the development and operating costs of the system and assuming a consistent set of parameters for the cost of investment capital. The analysis considers the cost of power at source, and does not take into account power transmission costs.

On that basis the levelized cost of wind power has dropped from somewhere in the range $101 to $169 in 2009 to a range of $37 to $81 in 2014, the report says. The corresponding figures for solar power are $323 to $394 in 2009 and $72 to $86 in 2014. The report attributes the steep drop in costs to a combination of declining manufacturing costs for the systems and dramatic improvements in system efficiencies. The cost figures do not assume any government subsidy.

By comparison, the report says that the levelized cost of power from a modern combined-cycle gas-fired power facility is in the range $61 to $87. The low-end cost of coal-fired generation is $66, with that cost increased to $151 if 90 percent of the carbon emitted by the plant has to be captured. Nuclear power costs somewhere in the range of $92 to $132. And, as will come as no surprise to rural Alaskans, the cost of diesel generated power comes in somewhere in the range of $297 to a whopping $332.

Other alternative energy sources include geothermal, with a cost range of $89 to $142, and biomass, with a range of $87 to $116.

A similar levelized cost analysis by the U.S. Energy Information Administration in its 2014 Annual Energy Outlook made a distinction between onshore and offshore wind power, saying that offshore power is much more expensive that wind power generated on land. The EIA report gives the cost of onshore wind power as $80 per megawatt hour, with the corresponding figure for offshore systems being $204. The EIA report estimates the cost of photovoltaic solar power as $130, with the cost from a combined cycle gas-fired system coming in at $64 and coal at $95. The EIA estimates are quoted in 2012 dollars and appear to make different financing assumptions from the Lazard report.

And the cheapest form of energy? According to the Lazard report energy gains through improved efficiency in energy use max out at about $50 per megawatt hour and may cost nothing. It is easy to turn the lights out when not required.