Although it only provides about 1% of US electricity needs, wind power is growing faster than any other energy source. More than 5,000 megawatts of new wind generation capacity was installed in the US in 2007, second only to new natural gas-fired generation capacity. Wind technology has improved a lot in the last two decades; however, wind power still relies on federal tax incentives to compete with traditional energy sources. A big hurdle to grid parity using wind power is that its production depends on when the wind blows rather than the peak power needs of the consumer. This variability creates additional expense and complexity in balancing supply and demand across the network. An additional problem is that new transmission infrastructure will be required to deliver wind power to high-density population centers. Because construction of new transmission lines is expensive and time-consuming, it is difficult to determine how construction costs should be allocated among consumers and what pricing methodologies should be used.
To date, US federal wind energy policy has focused on the production tax credit. The Production Tax Credit is a commercial incentive to operate wind facilities. However, this credit expired on December 31, 2008. Policy analysts and wind industry representatives have argued that the intermittent nature of the production tax credit is inefficient and actually leads to higher costs for the industry.
According to the 2008 CRS Report to Congress, “Wind Power in the United States: Technologies, Economics, and Policies,” wind turbines have no fuel costs and minimal variable operating and maintenance (O&M) expenses. Additionally, wind power does not have the other costs that come with burning fossil fuels, such as air pollution control equipment. Wind power also does not incur the waste disposal costs associated with other power generation, such as sewage sludge disposal for coal plants and waste storage for nuclear plants. However, although wind power plants have low variable costs, fixed operation and maintenance costs are high, and wind power plants are capital intensive. Due to these fixed costs, project costs increased and averaged more than $1,700 per kilowatt in 2007. In addition, higher input prices (steel, copper, concrete), shortage of skilled workers, unfavorable currency exchange and shortages of key wind turbine components and manufacturing capacity have contributed to rising costs.
When wind makes up a large portion of a power system’s total generating capacity, perhaps 10% to 15% or more, the system must also bear additional costs to provide reliable backup for wind turbines. This backup capacity is from fossil fuel, nuclear, or other renewable energy (for example, hydroelectric, geothermal, and biomass).
Reference
CRS Report to Congress, “Wind Power in the United States: Technologies, Economics, and Policy Issues,” June 20, 2008.