Wind at wholesale price parity in world’s major markets

Print Friendly, PDF & Email

The cost of wind energy is not just cheaper than new build fossil fuel generation in many markets, it is also competing with the existing wholesale electricity price in a number of large markets. And it is starting to display the characteristics of baseload generation.

share
Print Friendly, PDF & Email

We spend a lot of time on this web-site chronicling the dramatic price falls of solar PV, and the new technologies emerging in solar thermal, but it is sometimes forgotten that wind energy is also making important advances.

The recent report by Citigroup on the rapidly changing dynamics of global energy markets – Energy Darwinism the evolution of the energy industry” – had some important conclusions to make about wind.

The first is that the cost of wind energy (levellised cost of energy of LCOE) is not just cheaper than new build fossil fuel generation in many markets, it is also competing with the existing wholesale electricity price in a number of large markets.

This includes China, the UK, Italy and Spain. And in Brazil, wind energy has surpassed parity and is by the far the cheapest in the country’s capacity auctions – so much so that a separate category had to be created for fossil fuels.

And for all the noise and the publicity that has been made about the claimed arrival of “cheap gas”, wind energy is clearly cheaper than gas in most major markets.

Even at a relatively low capacity factor of 21 per cent – which is what they get in Germany – wind power is currently competitive with gas-fired power (combined cycle not peak-load) for natural gas prices under $10/MMBtu. Germany pays at least that because it imports gas from Russia at high prices.

At a capacity factor of 24 per cent  – achievable in some regions of Southern Europe – wind power is currently cheaper than gas-fired power at gas price of under ~$9/MMBtu.

At a capacity factor of 30 per cent – which is what is achieved in the UK, U.S. and Australia – wind power is cheaper than gas-fired power for natural gas prices of under $7/MMBtu.

Screen Shot 2013-10-18 at 11.46.55 AMAnd Citigroup expects wind energy to get cheaper. Because it is a relatively mature technology, and turbines have heaps of different components, it is not achieving the same “learning rates” of solar – but it is still reducing costs by around 7.4 per cent for every doubling of capacity (Solar does more than 20 per cent and in recent years 40 per cent).

That means that the combinations of cost reductions and increases in efficiency suggests that by 2020, wind energy should be increasingly competitive with gas prices – at a natural gas price of roughly ~$1/MMBtu less than today.

That means that in the US and Australia, for example, wind power will be competitive with gas-fired power for a natural gas price of under $6/MMBtu. In Australia, gas prices could be 50 per cent higher than that by 2020, and even in the US gas prices could rise above that level.

Citi notes that at the best sites in the US, wind is already cheaper than gas at $6/MMBtu. And that would be true of the best Australian sites too.

Not only that, wind is also competing with, and displacing, higher cost coal generation. As we reported earlier, on new build capacity, wind is competing with coal fired generation in a number of countries. (See graph at the bottom). And while wind has variable output, but Citi notes that with more widespread national adoption, wind energy begins to exhibit more baseload characteristics (i.e. it runs more continuously on an aggregated basis).

That is making it an attractive alternative: “Hence it becomes a viable option, without the risk of low utilisation rates in developed markets, commodity price risk or associated cost of carbon risks,” Citi writes.

citi darwin

 

Print Friendly, PDF & Email

3 Comments
  1. adam 6 years ago

    i found the report. havent read it yet.

    dont know how to insert a proper hyperlink so here it is:

    https://ir.citi.com/Jb89SJMmf%2BsAVK2AKa3QE5EJwb4fvI5UUplD0ICiGOOk0NV2CqNI%2FPDLJqxidz2VAXXAXFB6fOY%3D

    Got it through linked in so I assume it’s public.

    • Dylan Tusler 6 years ago

      Thanks Adam!

  2. Really, this CITI research report on the generation cost of electricity is so wrong and incomplete.
    Most important, it ignores the cost of CO2
    It is written solely from the fossile market perspective (the customers og CITI) while more and more electricity will be generated decentrally, by the users themselves.

    The graph tries to lie that electricity from wind power is almost as expensive as fossil fuel electricity.
    But electricity has a constant price of about 5 cent per kWh, regardless the scale it is deployed. (given there is a grid)
    Because wind is free. But probably, the market fundamentalists at Citi Research did not realize that, because they were paid for fossil interest propaganda.

    Because the fossil energy market is manipulated, users will leave this market as much as they can, and generate their own electricity.
    Because they can, wind is everywhere.
    It is the policies, induced by fossil interests, that limit the installation of wind farms

Comments are closed.

Get up to 3 quotes from pre-vetted solar (and battery) installers.