Skip to content

Wind Power & Avoided Energy Costs

October 24, 2015

By Paul Homewood  




I looked at the real cost of wind power last week. The exercise was based on the latest energy outlook, published by the US Energy Information Administration. 

The outlook included an analysis of the levelized cost of electricity for new build units. Although the EIA analysis, as well as the Bloomberg report released a couple of weeks ago, showed that onshore wind was now becoming competitive with coal and gas, I showed that when the cost of providing new back up capacity was allowed for, wind was actually much more  expensive.

As both the EIA and Bloomberg specifically compared the relative costs of new build wind, CCGT etc, my analysis stuck to the same approach. 


In a comment, Tobi K noted:

The calculations above make the assumption that for every MW of wind power installed you need a MW of *additional* dispatchable (controllable, e.g. gas) capacity.
This is absolutely not the case. Even if we assume that wind provides no “firm capacity”, i.e. it can suddenly drop to zero, that would merely mean that you still need to keep all your existing coal/gas power stations on standby and then ramp them up whenever wind output goes down.

Of course he is exactly right. We do have existing capacity (if rapidly disappearing!), and therefore there is no need to spend money building more.

However, under this logic there is no need to waste money building wind farms for which there is no need.

Let me use an analogy.

If you owned a car that was perfectly reliable, would you buy another one, which you could only use two days a week, simply because it did not need filling up with petrol?

You would, of course, still need the old car for the other five days a week. The only justification would be if the saving on petrol for two days a week was enough to cover the cost of buying the new vehicle and other associated costs.


Indeed, the US EIA recommend that we look at electricity costs in precisely this way, as Wiki state:


The US Energy Information Administration has recommended that levelized costs of non-dispatchable sources such as wind or solar may be better compared to the avoided energy cost rather than to the LCOE of dispatchable sources such as fossil fuels or geothermal. This is because introduction of fluctuating power sources may or may not avoid capital and maintenance costs of backup dispatchable sources. Levelized Avoided Cost of Energy (LACE) is the avoided costs from other sources divided by the annual yearly output of the non-dispatchable source. However, the avoided cost is much harder to calculate accurately.


The cost calculation is indeed a complex affair, when the whole electricity mix is looked at. However, it is a very simple calculation, in theory, when just looking at one energy source, say onshore wind.



We start with the levelized costs, produced by the EIA:






In my earlier post, I worked out the total cost of onshore wind, based on a capacity factor of 26%, which is all that is being achieved in the UK according to DECC.


Onshore Wind $
1 MW @26% = 2277 MWh/yr  
Capital+Fixed Costs/yr 222328
Capital+Fixed Costs/MWh 97.64
Variable Costs/MWh
Total Cost/MWh 97.64



For every MWh produced by onshore wind, there is an avoided cost of not having to generate by another source. For this scenario, let us assume it is gas fired generation which is avoided. (If we compare to coal or nuclear, the avoided costs are much lower still).

The saving from this will be the variable cost of $57.80/MWh. (This does not take account of the likelihood of extra costs incurred from switching the gas turbines on and off).

In other words, we have to pay $97.64/MWh for wind output, but only save $57.80. Clearly, in any sane world, this would be regarded as a no brainer. 

  1. Joe Public permalink
    October 24, 2015 3:16 pm

    Regarding Tobi K’s comment ” ….. that would merely mean that you still need to keep all your existing coal/gas power stations on standby and then ramp them up whenever wind output goes down.”

    They actually need ramping up before the wind goes down, to maintain continuity of supply/frequency.

    Hence the interest in Load Shedding, and the industry/governmental push for Smart “Meters” that are actually smart “Shedders”.

  2. Knute permalink
    October 24, 2015 4:40 pm

    Nice analytical work.

    The counter of course is that your world is insane because fossils are dirty, they harm public health, rape the land and pollute our environment and conduct a reckless experiment on our climate The marketing translation is:

    “We chose renewables to protect our world for the future of our loved ones”

    The above fallacious appeal works if it’s nots too painful to the person who is paying the bill. England is a good pilot case. Please keep me in mind for a distribution if you come across a valid comparison of rate payer costs of before and after renewables vs fossils.

  3. October 24, 2015 8:58 pm

    Thanks, Paul. Way too logical for those farming unicorns.

  4. October 24, 2015 10:12 pm

    Reblogged this on The Arts Mechanical and commented:
    When the avoided costs are much lower than the required costs, you have a loser. That’s exactly where industrial wind is.

  5. October 24, 2015 10:42 pm

    Nice work! And, more than that, those wind power turbines seem also to influence the climate, at least in the case of those built offshore.

  6. October 25, 2015 6:13 am

    I can confirm that your calculations based on US figures are correct.

    It takes 0.0101 Mcf (thousand cubic feet) of natural gas to produce one kWh of electrical energy.

    In the US, the price of natural gas in 2014 averaged $5.19 per Mcf.


    This gives $ 0.0529 per kWh or $52.90 per MWh as the savings achieved by wind generation. (About 9% less than what you calculated.)

    In my opinion, a gas-fired power plant saves little else but gas when units are placed on standby.

    The cost savings in gas are not enough to cover the cost of the extra cost of wind power.

    Policies that promote wind power effectively penalize the public and reward investors in wind power for their efforts in lobbying government to put the policies in place.

    In the UK, landowners benefit at the expense of the public. So what is new?

  7. October 25, 2015 8:35 am

    There’s always power on standby, with or without renewables, in case of unexpected breakdowns etc.

    The big problem comes if/when the total generating capacity including renewables is needed to meet demand, and the renewables can’t deliver e.g. not windy enough.

  8. October 25, 2015 10:04 am

    This is actually worse is it not; Wind turbines ABSORB power in cold, still conditions in order to stop the blades freezing up!

  9. October 28, 2015 8:09 pm

    For information on Renewable Energy performances and capacity factors derived from Renewable Energy industry sources see:

    This comparison of course strips out all the positive profitability effects of government regulation and subsidies that are being applied to Renewable Energy, that make Renewables a viable business proposition.

    Accounting for the capacity factors, (the actual electrical output as compared to the Nameplate capacity of the Renewable installation) that are reported by the Renewable Industry, the overall capital cost of all European Renewable Energy installations averages out at about €29billion / Gigawatt, whereas the cost of a conventional gas-fired generation is about €1billion / Gigawatt.

    The overall capital value accounting for capacity of Renewables at €29billion / Gigawatt is derived from the combination of:
    Onshore Windpower ~€14.2 billion/GW
    Offshore Windpower ~€41.4 billion/GW
    On Grid Solar Power ~€48.5 billion/GW

    Overall wind and solar power capacity in Europe is ~18%

    The burden of these additional Renewable costs is imposed on consumers via the increase in their utility bills.

    According to these Renewable Energy supporting sources by 2014 European Union countries had invested approximately €1 trillion €1,000,000,000,000 in large scale Renewable Energy installations. This may well be an underestimate.

    This has provided a nameplate electrical generating capacity of about 216 Gigawatts, nominally about ~22% of the total European generation needs of some 1000 Gigawatts.

    The actual measured output by 2014 from Renewable Industry sources has been 38 Gigawatts or ~3.8% of Europe’s electricity requirement, at a capacity factor of ~18% overall.

    Accordingly the whole 1000 Gigawatt fleet of European electricity generation installations could have been replaced with dispatchable, lower capital cost Gas-fired installations for the €1trillion of capital costs already expended on Renewable Energy in Europe.

    However Renewable Energy production is dependent on the seasons, local weather conditions and the rotation of the earth, day and night. The Renewable Energy contribution to the electricity supply grid is inevitably erratic, intermittent and non-dispatchable. It is therefore much less useful than dispatchable sources of electricity, which can be engaged whenever necessary to match demand and maintain grid stability.

    But that 3.8% Renewable Energy contribution to the grid is often not available when needed and obversely its mandatory use and feed-in obligations can cause major grid disruption if the Renewable Energy contribution is suddenly over abundant.

    The Renewable Energy industry could not exist without the Government mandated subsidies and preferential tariffs on which it depends. So it is not a truly viable business proposition

    Viewed from the point of view of the engineering viability of a nation’s electrical grid, Renewable Energy would never be part of the generating mix without its Government mandate and Government market interference.

    So the Green thinking in its enthusiasm to save the world from an indefinable but probably minimal threat, will destroy civilisation long before the world fails from excessive overheating from CO2 emissions.



    Cost comparisons are have been clearly made by the US EIA
    US EIA electricity_generation.pdf 2015 Table 1

  10. ghl permalink
    October 29, 2015 1:02 am

    Nice article Paul.
    I like the car analogy, but you left out the bit about only using it for short journeys, so that you can walk home for your old car when the new one stpps.


  1. Wind Power & Avoided Energy Costs | Petrossa's Blog

Comments are closed.

%d bloggers like this: