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How Much Does It Cost to Harness the Wind?
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by Amanda Ruthven | 2010

By Amanda Ruthven—It seems that determining the economic feasibility of wind energy would be easy; after all, wind is free. Worldwide, wind energy is getting cheaper, yet empirical cost data is scarce for offshore wind energy in the United States. There are many components that complicate estimating the cost of such projects but at a macro-level, the cost of generating this type of electricity, like any other, consists of the capital costs, the running costs, and the cost of financing.

How Much Does It Cost to Harness the Wind?

 

By Amanda Ruthven—It seems that determining the economic feasibility of wind energy would be easy; after all, wind is free. Worldwide, wind energy is getting cheaper, yet empirical cost data is scarce for offshore wind energy in the United States. There are many components that complicate estimating the cost of such projects but at a macro-level, the cost of generating this type of electricity, like any other, consists of the capital costs, the running costs, and the cost of financing.

 The capital cost, or the cost of building the turbines and connecting them to the grid, is high; for onshore projects the range is 75-90% of the total cost. Turbines are getting cheaper and more powerful as more competitors emerge and as experience with the technology deepens. Technical factors such as the windiness of the site, wind turbine availability (the capability of the turbine to operate when wind is available), and good design, like the way turbines are arranged, affect the cost of electricity. Investors’ willingness to accept longer repayment periods and lower rates of return reduces costs. Availability of financing is influenced by lenders’ confidence in the technology. This confidence is growing but is hard to measure. A UK government white paper shows that the minimum price per kilowatt (p/kWh) for new construction of nuclear and offshore wind energy are the same, however the range of cost is higher with nuclear.

 

Economics of Offshore Wind Specific to Maryland

The Center for Integrative Environmental Research (CIER) at the University of Maryland determined in its study, “Maryland Offshore Wind Development,” that it would be most economical to deliver the energy produced by Maryland’s turbines via the utility grid in Delaware. It would be about ten times more expensive to route the energy through a grid on the eastern shore: $20 million vs. $200 million. The study found no significant price difference between projects in shallow or in deep water. That price tag is estimated to be $1850/kWh.

Some of the cost obstacles may be cleared or reduced by the deepwater transmission lines that Google Inc., Good Energies, Marubeni and Trans-Elect will build. These firms have already set aside $1.8 billion for a network of lines that would stretch from Virginia to New Jersey and will tie into PJM’s grid. The first phase is projected to be complete by early 2016 and will run 240 kilometers in federal waters from New Jersey to Delaware.

 According to the CIER study, the best example of what an offshore wind project may cost Maryland is the contract between Delmarva Power and Bluewater Wind. The Delaware Bluewater Wind Project actually beat out both a coal and natural gas bid which demonstrates that the pricing is competitive.

According to a 2007 report (source: http://www.ceoe.udel.edu/windpower/DE-Qs/icreport121307.pdf) prepared for the Delaware Public Service Commission, depending on the size of the customer base, the average increase in cost per month to one’s utility bill from the proposed Delaware Bluewater Wind Project would range between $2-$14. This large range depends on how many customers the costs are allocated against. Not surprisingly, the report also concludes that “the rate impacts during the first several years of service in today’s dollars will be approximately double the real levelized cost impact over the entire 25 years of the Bluewater PPA. Over time, the [price] impact is reduced until it breaks even and turns positive about half-way or more through the contract term.” In other words, the first year is when customers will be impacted the most, but over the course of 25 years, the duration of the contract to purchase offshore wind electricity, the cost would go down and ratepayers would break even and begin saving money.

An offshore wind farm would likely benefit Maryland’s economy by creating demand for the construction of, maintenance of, and even manufacturing of wind turbines. Governor O’Malley, at a recent press conference with environmental groups, including the Sierra Club, and the United Steelworkers announced that the proposed offshore wind farm for Maryland would generate up to 4,000 construction jobs and 800 permanent jobs. Fossil fuel energy does not provide this sort of economic boost to the region since most of it is sourced from other states.

The Department of Energy offers an online calculator called Wind Energy Finance (WEF) for the economic analysis of wind projects.                                                     

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