When Will Windmills Make Financial Sense? The economics of green energy

Slug Signorino

As I drive through the plains, I see more and more windmills. I got to thinking: Taking into account the carbon cost of production, transport and assembly, when do windmills become both financially and carbon-footprint cost-effective? I’ve asked several energy experts, including one manufacturer, and they had no clue. —Todd J. Janus

Where did you find these so-called experts? The carbon cost of wind power is well known—low carbon emissions is one of wind’s main advantages. (Renewability, naturally, is the other.) Wind’s cost-effectiveness from a financial standpoint is likewise no mystery, but the story is less upbeat, particularly in light of the natural gas boom due to fracking. It’s not game over for wind power; all fossil fuels including gas will run out eventually. But wind has a steep hill to climb.

To gauge the carbon cost of a power-generation source, engineers perform a life-cycle analysis, which takes into account everything from construction and transportation of components to the site to eventual decommissioning costs when the generating device has reached the end of its useful life. For wind power, these costs aren’t trivial. Some wind turbines are so massive that a single blade is nearly as long as a football field. Wind turbines contain iron, zinc, aluminum, lead, and other metals that must be mined and refined. The cost of transmission lines and transformers can also be sizable, since turbine fields are often in remote locations.

But carbonwise it pays off. A standard unit of measurement for greenhouse gas emissions is grams of carbon dioxide (CO2) equivalent per kilowatt-hour (kWh) generated. The worst offenders, coal-fired power plants, typically produce about 1,000 grams of CO2 per kilowatt-hour. Natural gas power plants emit about 600 grams, while solar photovoltaic cells can emit from 50 to 250 grams depending on technology. Nuclear power plants emit just 20 to 30 grams, but nukes have other issues. Wind turbines vary considerably—offshore plants generate more juice due to steadier winds but have much higher carbon costs. On average, though, wind generates less than 30 grams of carbon per kilowatt-hour.

Out-of-pocket costs are where wind power runs into trouble. According to U.S. Department of Energy projections, offshore wind power plants entering service in 2019 will have a net cost of 20 cents per kilowatt-hour, by far the highest cost of any technology except solar thermal. Onshore wind power is much cheaper at 8 cents/kWh, which compares well with coal at 9.6 cents, although coal you can switch on and off as needed, unlike wind.

Natural-gas-fired plants, however, kick virtually every other technology’s butt. They produce electricity for as little as 6.4 cents/kWh, cheaper than all other sources except geothermal—and geothermal has limited availability, while gas is abundant. Gas is also relatively easy to transport and available on demand. If it weren’t for global warming, natural gas unquestionably would be the electricity-generation source of choice.

But global warming can’t be ignored, much as some would like to. Although cleaner than coal, natural-gas plants still produce significant CO2. In the near term, the limits proposed by the Obama administration won’t make natural gas less attractive; on the contrary, if they stick they’ll hasten the switch from coal-fired generation to gas.

However, a carbon tax, which has been proposed with varying degrees of seriousness, would be a different story. Australia recently enacted a controversial carbon tax of more than $23 per metric ton of CO2. This dramatically shifts the financial balance in favor of wind, which can generate power at 70 percent of the cost of natural gas and 55 percent that of coal.

But I don’t see a carbon tax getting much traction in the U.S.—Obama will have a tough enough time holding the line on CO2 limits. Absent such a tax, the prospects for wind are dubious. Till now the wind-power industry has benefited from a tax credit of 2.3 cents/kWh for plants that started construction before 2014. The credit lasts 10 years, bringing the cost per kilowatt-hour below six cents, which overcomes a lot of investor hesitation. The credit is currently in limbo because of Republican-led efforts to slash or kill it. Kill the credit and you kill much of the incentive.

But isn’t a tax credit for wind just a carbon tax from a different angle? No. The carbon tax says “Figure out a way to reduce emissions.” The tax credit says “Here’s how you’re going to reduce emissions.” If we’re trying to encourage innovation, that’s a big distinction.

Over the long term, wind’s prospects are brighter. For 2040, the DOE projects that power-generation costs for natural gas will rise, while those for wind will drop (although offshore wind will still be among the costliest technologies). If so, wind power may make more economic sense. But from a strictly dollars-and-cents perspective, it doesn’t make a lot of sense right now.

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