Estimates of the cost of wind-generated electricity vary from $80 to $120 per megawattt hour (MWh). The reason for this wide range in estimates is that many of the factors that affect costs are site specific - such as wind speeds, capital and construction costs, as well as the cost of connecting the wind farm to transmission lines.
In New Zealand, wind farms do not receive subsidies. For this reason, wind farm developers will only build a wind farm if it can produce electricity at a cost that is competitive with other forms of generation.
Wind increasingly competitive
The combined effects of rising fossil fuel prices and the introduction of a cost on greenhouse gas emissions will push the cost of thermal generation above wind energy.
Many of the costs associated with thermal generation are uncertain, but trends suggest they are likely to rise. Lack of certainty regarding the availability of natural gas is already providing a disincentive for investment in new gas-fired power stations.
In addition, the rising price of natural gas has been an important driver of increasing electricity prices. This trend is expected to continue, and could push electricity prices up another $15 to $25/MWh.
New Zealand's emissions trading scheme has required generators to meet their emission costs from 2010. Analysis by NZIER shows that a cost on carbon emissions of $NZ33.32 would increase the cost of coal generated electricity by $33.32/mWh and gas generated electricity by $16.66/MWh.
Future costs of wind generation
The fuel for wind farms - the wind - is free. This means the future cost of wind energy will not be affected by increasing fossil fuel prices or the cost of greenhouse gas emissions.
There are other costs to integrating wind energy into the electricity system, but these costs are estimated to be less than the costs associated with continuing to rely on thermal generation.
Globally respected consultancy Deloitte investigated the economics of wind energy in New Zealand, using actual data from local projects and often confidential facts and figures. The findings confirm that wind energy is a viable source of electricity generation in New Zealand.
Analysing the Long Run Marginal Cost (the price required for the electricity generated to ensure that it covers its operating and investment costs) of the types of generation we have in New Zealand, including gas, coal and other renewables, Deloitte found that wind energy compares very favourably with investment in other types of generation.
Deloitte, gave a presentation on the report's findings to our 2011 Conference, and you can find a copy of this here. Our announcement and a link to download the PDF of the report can be found here.
A study lead by Goran Strbac, Professor of Electrical Energy Systems at Imperial College in the UK, and commissioned by Meridian Energy identified that costs associated with greater use of wind in New Zealand included additional costs for system reserves (instantaneous, frequency-keeping and scheduling reserves) and generation capacity (as wind has limited ability to provide generation capacity at peak demand). For integrating 2000 MW of installed generating capacity by 2020, the additional cost would be between $2.06 and $2.76/MWh of wind energy - an amount significantly less than the effect of the cost of carbon on gas and coal generated electricity.
The study noted that the cost of integrating wind into the New Zealand electricity system is many times lower than experienced in Europe, primarily because of New Zealand's excellent wind resource and significant hydro generation.