When a world class manufacturer like General Electric enters a business, quality goes up and prices come down. That's what has happened with wind power, since General Electric began making wind turbines.
Just since 2003, General Electric has driven the cost of wind power from its turbines down from 15 cents per kilowatt-hour to 5 cents per kilowatt-hour, a 65% reduction. See page 31 at:
http://www.ge.com/pdf/investors/events/09202011/ge_energy_analyst_meeting_09202011.pdf.
As GE notes in its presentation to investors, the 5 cents per kilowatt-hour price is without any subsidies. That number makes wind power cheaper than new nuclear and new coal. It would be competitive with a new natural gas plant, if gas prices were at about $4 per thousand cubic feet and higher. The falling price of wind power is a key to the global wind boom that has seen about 240,000 megawatts of wind installed around the world, with nearly 50,000 megawatts in the USA.
Huge companies like General Electric and Siemens that is the leader in offshore wind can make big change happen quickly. The wind pricing revolution has been completed in less than a decade. Remarkable.
I'm a bit confused about what this 5 cents per kwh means. In a previous post you explained (or at least this is how I understood it) that energy is priced according to a bidding system in which the cost of the last unit of energy needed by the system sets the price for every unit of energy used. If my understanding of this pricing set-up is right, it wouldn't really make sense to talk about wind energy having a set price of 5 cents per kwh, so my question is does the 5 cents per kwh just refer to the marginal cost of producing the wind as opposed to its market price? I obviously don't expect you to respond to this in detail, but maybe in a future post you could clarify this issue - I at least would find it very interesting and helpful.
ReplyDeleteAs you will see on page 31 of the GE presentation to investors, the 5 cents number is the levelized cost of energy. That number is not a price but a cost. It reflects the capital costs of constructing the turbine and other costs. It is not the marginal cost or price.
ReplyDeleteYou are correct to note that the levelized cost is not the same as a market price of electricity, nor is it the same as the production cost. The production cost of wind is very low, typically 0.5 cents per kilowatt-hour, since wind has zero fuel cost. The low production cost of wind allows owners of wind farms in competitive wholesale electricity markets to bid zero to insure that they are dispatched and to take whatever price is set by the highest generator needed to meet the load at the point in time. Now the market price will always be above the low production cost of wind but it will not always be above the levelized cost of wind, or any just about any other form of generation.
that is very clear. thank you!
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