Wind Energy Cost Comparisons
by Christopher C. Pflaum, President
Spectrum Economics, Inc.
August 2005

Electrical service has two components: capacity and energy. Energy is measured in kilowatt hours and is the ability to do work. Capacity, is the availability of energy when you need it and is measured in kilowatts. Put simply, capacity is having electricity there when you want it in the amount that you want. It is important because electricity cannot be efficiently stored.

The problem with wind energy is that it has a very low capacity factor. A one megawatt (one thousand kilowatts) turbine has a capacity factor of 40%. That means that sometimes it operates at one megawatt, sometimes at less than one megawatt and frequently does not operate at all -- because either the wind is not blowing or it is blowing too hard. On average, it produces 400 kilowatts per hour. For this reason, electrical utilities do not (and by law cannot) count the megawatts of wind turbines that they own as reliable capacity.

Therefore, if a utility needs to meet a 100 megawatts of additional load and would like to do so with wind, they need to erect 100 megawatts of wind turbines and build a back up gas turbine with 100 megawatts of capacity. This not only screws up the cost of wind but also screws up all those nice environmental benefits that the wind energy promoters like to tout. Why? Because only 40% of the 100 megawatts will come from wind and the other 60% will come from the gas turbine (it's that capacity factor thing) that spew pollution into the air and deplete a natural resource.

Now, let's look at the cost of providing this energy. A wind turbine costs about $1500 per kilowatt and a gas turbine back up adds about $600 per kilowatt for a total cost of providing one kilowatt of RELIABLE wind energy of $2100. This is more expensive than the newest state-of-the-art coal plant (with carbon sequestration) and about the estimated cost of a new nuclear plant with passive safety controls.

What about running cost? Remember that our wind turbine has only a 40% capacity factor so the cost of "fuel" is the average of the wind variable cost (about a penny) and the cost of running that simple cycle turbine burning $7 gas, about seven cents. Total cost to the consumer of that "free" wind energy = (.4*.01)+(.6*.07) = .046.  This compares to about two cents for coal variable cost and less than two cents for nuclear.

Christopher C. Pflaum, President, Spectrum Economics, Inc.
Dr. Pflaum specializes in financial and regulatory policy analysis and the implications of those policies for firms operating in markets undergoing fundamental structural change. Dr. Pflaum has testified in the areas of utility rates, regulatory policy and energy economics before the utility commissions of over a dozen states and the Federal Energy Regulatory Commission. He has served as a consultant in energy supply planning to the largest municipal utility in the United States. Prior to entering consulting, he was a Director of the utility commission in Illinois. He received his Ph.D. in Finance and Operations Management from the University of South Carolina.