rss
12

Warren Buffett’s energy rules: wind is cheaper than coal

Print Friendly

Legendary US investor Warren Buffett hit the headlines this week when his MidAmerican Energy subsidiary made the biggest ever order for onshore wind turbines – a $1 billion order that will gladden executives of German wind turbine maker Siemens.

The turbines are part of Buffett’s previously announced plans to invest $2 billion of wind energy investments into the state of Iowa, which will soon source 50 per cent of its electricity needs from wind energy, and begin exporting that capacity to neighbouring coal states.

wind energyMore importantly, however, it underlines how the cost of wind energy has fallen so dramatically in the US, and elsewhere, to the point that it is now demonstrably cheaper than new coal-fired plants, and new gas-fired generation, and is even challenging existing coal-fired generation on costs.

Recent contracts for wind energy in Texas have been written as cheaply as $25/MWh. Granted, that includes a tax credit, but it still represents wind energy at a levellised cost well below $50/MWh. This is similar to prices struck in Brazil, where 2.3GW of wind energy was recently allocated in an auction at an average price of $47/MWh. These prices have undercut coal and gas fired generation by such a margin that Brazillian authorities had to create a separate auction mechanism for those fuels, although there is no doubt whether they will bother.

Wind energy may have been around for several decades, but it is still enjoying significant cost decreases. Bloomberg estimates turbine prices have fallen 26 per cent in the last two years, and new structures and mechanisms, not to mention the interest of Buffett and other mainstream investors, are bringing down financing costs as well.

Bloomberg estimates that wind power is now within 5.5 per cent of the cost of electricity from existing coal assets, and the American Wind Energy Association says that wind farms are now profitable without subsidies – which is just as well because in many states they don’t get any, apart from mandates for renewables to be constructed – laws which are being vigorously fought by incumbent fossil fuel generators and their lobbyists.

“If Congress were to remove all the subsidies from every energy source, the wind industry can compete on its own,” AWEA’s Tom Kiernan said at a press conference at a Siemens factory in Fort Madison, Iowa, this week.

MidAmerican Energy CEO Bill Fehrman said wind farms were being used by its customers as “a hedge” in an era of reduced fossil fuel generation. MidAmerican expects to close some of its own coal-fired generation in 2015 as the cost of wind power continues to slide.

“Those coal retirements do require us to have some excess capacity or an increase in capacity,” Adam Wright, vice president of wind generation and development for MidAmerican’s Iowa utility.told Bloomberg in an interview. “If you strip away everything from all generation resources, I think wind is more competitive.”

Bloomberg says that power from coal costs about $78.30 a megawatt-hour to produce and gas costs $69.71, compared with $82.61 for onshore wind farms.

Iowa governor Terry Branstad said MidAmerican’s wind project is the state’s largest economic development effort in history, bringing needed jobs.  (The blades are manufactured in the state).

“As a leader in wind generation, we welcome the opportunity to expand renewable energy,” Branstad told a press conference. “The cost of generating through wind continues to go down. The cost of generating by coal has become very expensive and more difficult. So we continue to see an opportunity in the future for wind energy.”

RenewEconomy Free Daily Newsletter

Share this:

  • RobS

    The Tax credit is 1.5c/kwh or $10 per MWh correct? Why oh why cant the two sides be sensible to give the industry some long term stability and come up with a bipartisan plan along the lines of dripping it by ten percent every 6 months which would see it phased out over 5 years. Considering we are now at a point where wind is competitive with new coal and gas without subsidies surely everyone can agree on a 5 year phase out and with the tax credit gone or going a huge portion of the resistance to wind and the negative publicity about it only being economic because of subsidies” can be put to bed.

    • Bob_Wallace

      The PTC is 2.3 cents per kWh for the first ten years of operation. Since PPAs are generally 20 years that makes it about 1.2 cents per kWh over the 20 year span.

      We’re somewhere in the last five years of subsidies for wind and solar. Solar drops from a ITC of 30% to 10% at the end of 2016. Onshore wind could give up subsidies now and survive (with some short term slowdown).

      The ‘two sides’ can’t be reasonable as long as the fossil fuel industry has a lot more money to spend on political campaigns than does the renewable industry.

      The fossil fuel industry, particularly coal, is fighting for its life. Trying to stall the movement to renewables as much as possible. The longer they can stall, the more money they can make. Spending a few million to keep politicians who support them in office is a wise thing for them to do. Spend a million, make a billion….

      • RobS

        Lobbyists need to be banned. The way I see it, one side want’s to keep the PTC, the other side wants to stop them, the logical compromise seems to be a phase out. If we have a policy both sides agree on then the industry has certainty and the uncertainty is more harmful to investment then simply scrapping the PTC would be.

        • Bob_Wallace

          Lobbyists play a useful role. They know how to get through the tangles of government and get the message across.

          The problem, IMO, is the way we fund our elections. It takes a fortune to run for a high level public office and that makes it necessary to befriend the people who have a lot of money.

  • Bob_Wallace

    “Bllomberg says that power from coal costs about $78.30 a megawatt-hour to produce and gas costs $69.71, compared with $82.61 for onshore wind farms.”

    The NREL says that wind sold for $40/MWh in 2011 and 2012.

    http://www1.eere.energy.gov/wind/pdfs/2012_wind_technologies_market_report.pdf

    Add in $15/MWh for subsidies if you wish. But also recognize that the selling price also includes land costs and wind farm profits which are not included in production costs.

  • Jack

    *percent

  • Jane Peters

    Let’s make all of the wind stuff here ourselves. Let’s don’t let the Chinese beat us on this. This is a real growth industry.

    • PrMaine

      Actually, Siemens is a German company but I entirely agree. There’s no reason we can’t make these turbines here in America.

      • LeopoldvonRanke

        The Fort Madison, Iowa plant belongs to Siemens. There is a smaller producer located in Cedar Rapids.

        • PrMaine

          Yes, like other international corporations, Siemens has offices and factories all over the world, including in Iowa. I once interviewed for a job with them in Massachusetts.

          Still they were founded and they are headquartered in Germany.

          • LeopoldvonRanke

            Yes, true. They’re making the blades for the turbines in Fort Madison, Germany, and all those employees are wearing liederhosen.

  • Emmanuel Balogun

    I agree with Warren that the wind is far better than coal. That is nature for you. God the Supreme and the creator of nature is even swifter than the wind.This is why HE is OMNI-POTENT.
    Emmanuel.