The costs of using wind energy and natural gas for electricity are virtually equal when accounting for the full private and social costs of each, making wind a competitive energy source for the United States, according to a new study on the federal tax credit for wind energy.
Just released by researchers at Syracuse University and the University of California, the analysis shows that wind energy comes within .35 cents per kW·h when levelized over the 20-year life of a typical wind contract, compared on an equivalent basis to the full costs for natural gas-fired energy, according to Jason Dedrick, associate professor at the School of Information Studies (iSchool).
Current national-average estimates for wind and gas-fired energy. (Source: Dedrick, Kraemer & Linden, 2014)
“The true costs of electricity from wind power and natural gas are effectively indistinguishable, yet because the cost of carbon emissions is not included in the market price of gas, wind has not been a competitive form of energy use in most of the United States, without government pricing support,” Dedrick says.
The analysis starts from the U.S. Department of Energy (DOE) estimates of the lifetime “levelized” cost of electricity from a new wind farm, and also from an advanced combined cycle gas plant. The analysis develops a new metric that incorporates long-term factors that are not included in the DOE numbers. Accordingly, the study also reveals that the recently expired Production Tax Credit for wind makes up for the lack of any mechanism to make fossil fuel generators pay for the cost of carbon emissions, Dedrick notes.
Researchers for the study, “Visualizing the Production Tax Credit for Wind Energy,” in addition to Dedrick, are Kenneth L. Kraemer, research professor, University of California, Irvine; and Greg Linden, senior research associate at the University of California, Berkeley.
Current national-average estimates from the DOE are 8.7 cents per kilowatt-hour (kW·h) for wind and 6.6 cents for gas-fired energy—making gas appear as a much cheaper alternative, Linden notes. Incorporating the new metric into the analysis, however, shows that the tax credit “is actually compensating for a market failure to price the future cost to society of carbon emissions,” Linden explains. “In the absence of a carbon tax, the PTC can serve as a stand-in to make the market reflect the true costs of energy.”
The study incorporates these aspects:
- Future costs of carbon dioxide emissions are added to the price of gas (using the government’s most recent Interagency Working Group average of $43 per metric ton)—at a cost of 1.6 cents per kW·h.
- The cost of supply intermittency (the cost to utilities to compensate for wind stoppages and variations) is added to the price of wind—estimated at 0.5 cents per kW·h.
- The cost of correcting natural gas price volatility for 20 years (the length of time for which wind prices are typically fixed) is added to the price of gas—estimated at 0.65 cents per kW·h.
- Adding these costs together finds that the adjusted levelized cost of electricity for wind is 9.2 cents per kW·h, versus 8.85 cents per kW·h for gas.
The components of the adjusted levelized cost, reported here as averages, are actually estimates that fall in a range, Linden notes. “The result is even more favorable for wind if you consider some of the larger possible values for carbon emissions,” he says.
Further details can be found in a brief working paper available here.