The costs of using wind energy, natural gas for electricity virtually equal

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 kWh.
• 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 kWh.
• The cost of correcting natural gas price volatility for twenty 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 kWh.
• Adding these costs together finds that the adjusted levelized cost of electricity for wind is 9.2 cents per kWh, versus 8.85 cents per kWh for gas.

The components of the adjusted levelized cost, reported here as averages, are actually estimates that fall in a range, Linden noted. “The result is even more favorable for wind if you consider some of the larger possible values for carbon emissions,” he added. Further details can be found in a brief working paper.

Dedrick noted that while the amounts discussed here are averages, the costs of wind and gas vary considerably across the U.S. The price difference between wind and gas power is actually less than 1.6 cents per kWh in many regions of the country, “and that is where the PTC will have its impact,” he concluded.

Support for PTC?
The question of whether the federal government should support wind energy has been debated by Congress for more than two decades, at least since the PTC was created in 1992, according to Kraemer. He said the credit has been implemented in an on-again/off-again fashion, expiring five times since then. Until now, the tax credit has always been renewed for another year or two. This year, Kraemer said, President Obama’s proposed budget for the Department of Energy calls for permanently extending the PTC, at a cost of $19.2 billion over the next ten years.

“Effectively indistinguishable”
Dedrick suggested that “Since the levelized value of the PTC happens to be very close to the average estimated cost of carbon from a natural gas plant, a long-term extension of the PTC would have a similar effect to a carbon tax in terms of the relative price of electricity from wind and gas.” He continued, “Given the ranges of the estimates for each of the costs involved, our research shows that the true cost 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 is not competitive in most of the U.S. without government support. An alternative would be to create a pricing mechanism for carbon emissions, either through a carbon tax or cap-and-trade scheme. However, neither of those options seems likely in the current U.S. political environment,” Dedrick added.

The project was supported by a grant from the Alfred P. Sloan Foundation.

— Read more in the working paper by Jason Dedrick, Kenneth L. Kraemer, and Greg L. Linden, “Visualizing the Production Tax Credit for Wind Energy” (25 March 2014); the authors’ paper, “Wind Energy: Should the U.S. Continue Its Support?” which is currently undergoing peer review at Energy Policy, covers additional aspects of the industry, such as jobs, and includes more detail about the analysis in this working paper.