This document analyzes the cost structure of wind power compared to other energy sources. It finds that while onshore wind has very competitive capital costs, offshore wind costs are significantly higher. It also discusses external costs and benefits associated with different energy sources as well as other factors like government subsidies that impact costs. The conclusion is that the best energy source depends on the priorities of different stakeholders and there are tradeoffs to consider between financial and external costs.

1. Wind Power
Evaluating Cost Economics
Global Electricity Markets and Policy
New York University
Professor – Jonathan McClelland
By Steven L. Avary
2/27/2014

2. 1
Introduction
Cost structure is critical for the competitiveness of any energy source. The most common method in
assessing financial costs utilizes a standardized measure, the Levelized Cost of Electricity (LCOE), used
across a variety of energy source technologies. The LCOE is a discounted financial cost figure over the
economic life of the project incorporating capital costs, fixed and variable operating and maintenance
(O&M) costs, fuel input costs and carbon tax where relevant, and an assumed utilization rate. Yet,
Joskow calls LCOE flawed when comparing renewables versus hydrocarbon based technologies, that
LCOE treats electricity generation as a “homogenous product governed by the law of one price,” that it
does not take into account volatility in the value of supply varying significantly over the year.1
However,
he bases his argument on the assumption that demand is perfectly price inelastic, which might hold at a
specific point in time, but unlikely over a prolonged period as new energy supply is introduced. Other
costs may come in the form of externalities, opportunity costs, and market distortions through
government intervention.
Financial Cost Structure
Wind Power does not have a fuel or variable O&M cost; thus, the focus is on capital costs and fixed
O&M. Utilizing EIA’s capital cost report2
, we can see the relative cost rank (1 is most expensive) of the
competing technologies (See Exhibit A). Key cost issues for wind power relates to its intermittent
nature, non-dispatchability, and technology risk. Higher fixed cost O&M reflect its capital intensity, and
increased utilization would improve cost economics on a per unit basis.
The competitive cost position is more pronounced via an ocular test when combining the costs in a
scatter plot (See Exhibit B). This test illuminates the differences of a bifurcated market between
onshore and offshore. Whereas onshore overnight capital costs are very competitive at $2,213/kW, the
cheapest amongst renewables, it exceeds the most expensive natural gas source, Advanced CC with CCS
at $2,095/kW. Onshore’s fixed O&M is approximately 1/3rd
SD below the group mean. Offshore’s
capital costs are significantly higher reflecting its greater construction complexity, ranking it amongst
the top 10 most expensive in both overnight capital costs ($6,230/kW) and fixed O&M ($74/kW-yr.),
respectively, for all energy sources.
Externalities – Beneficiaries and Burdens
From a financial cost perspective, renewable energy sources are not as competitive relative to
hydrocarbon sources. Yet there are costs associated with negative externalities such as health effects
and unsightliness of carbon emission, waste disposal, depletion of resources, soil and water
degradation, and seismic activity and cave-ins related to extractive operations (See Exhibit C). Each
1
Joskow, Paul L., “Comparing the Costs of Intermittent and Dispatchable Electricity Generating Technologies,”
(http://www.aeaweb.org/articles.php?doi=10.1257/aer.101.3.238), American Economic Review: Papers & Proceedings,
2011,100:3, p. 239
2
EIA Independent Statistics & Analysis, “Updated Capital Cost Estimates for Utility Scale Electricity Generating Plants,”
(http://www.eia.gov/forecasts/capitalcost/pdf/updated_capcost.pdf), U.S. Energy Information Administration, April 2013, p. 6

3. 2
renewable source has positive externalities, like an increase in the fish population around offshore
facilities (See Exhibit D). Still, wind power has negative externalities with which to contend in the form
of aesthetics, business disruptions and safety concerns, other economic impacts, the effect on wildlife,
as well as interference in cultural activities.
While viewing wind turbines may be preferable to viewing oil and gas rigs, Bill Koch, an opponent of the
Cape Wind offshore project, described it as “visual pollution”.3
The project faces resistance over
concerns of disruption in the fishing and tourism industries, from landowners about depressed property
values and obstructed views, which Indians have also said interferes with their rituals, and facility sites
disturb ancient tribal burial grounds.4
Turbine blades striking and killing birds are common. The recent precedent against Duke Energy, fining
the company for the deaths,5
“internalizes the cost”. Duke is required to take measures to stop turbines
when birds are present, and to cut back flora where raptors prey may hide. Increased bird deaths may
disrupt the food chain and result in rodentia overpopulation and pestilence transmission, which have
real economic and societal costs.
Flight safety may be compromised as the vortex effects distort radar signatures of planes making them
undistinguishable on the screen.6
Turbulence generated may require flight path alteration7
and
additional financial costs and carbon emissions incurred with additional jet fuel consumption.
Other “Cost” Factors
Regardless of substitutability and switching costs, the intermittent and non-dispatchable nature of wind
power limits the ability to capture additional value when more supply is needed in the system, resulting
in an opportunity cost, which may be estimated as the contribution margin.
Government support distorts the price mechanism through loan guarantees, subsidies, and tax credits,
reducing the provider’s costs. Although set to expire, the U.S. government provides wind energy a
$23/MWh production tax credit, inflation indexed, over the first ten years of the project’s life.8
These
cost incentive measures are underwritten by taxpayers and/or passed through to electric customers
(See Exhibit E).
3
Seelye, Katharine Q., “Koch Brother Wages 12-Year Fight Over Wind Farm,” (http://www.nytimes.com/2013/10/23/us/koch-
brother-wages-12-year-fight-over-wind-farm.html?pagewanted=all&_r=0), The New York Times, October 22, 2013, p. A 12
4
Courtney, “Cape Cod’s Offshore Wind Farm: Yay or Nay?,” (http://thegreenists.com/energy-saver/cape-cods-offshore-wind-
farm-yay-or-nay/5699), The Greenists, April 29, 2010
5
Cappiello, Dina, “Guilty plea in bird deaths at wind farms a first,” (http://www.myfoxny.com/story/24050658/guilty-plea-in-
bird-deaths-at-wind-farms-a-first), My FoxNY, November 23, 2013
6
Shchuka, Andrew and Inderbir Sandhu, “Technology Today: Highlighting Raytheon’s Technology,”
(http://www.raytheon.com/newsroom/technology_today/2012_i2/airtraffic.html), Raytheon Corporation, 2012 Issue 2
7
Burnett III, James H. , “ ‘Spin’ a good yarn,” (http://www.boston.com/ae/movies/articles/2012/06/10/spin_a_good_yarn/),
The Boston Globe, June 10, 2012
8
Bloomberg New Energy Finance, “Sustainable Energy in America Factbook,” Bloomberg Corporation, February 2014, p.36

4. 3
Evaluation
Whereas onshore’s financial costs declined 13% since 2010, second best of the technologies, offshore’s
remained flat.9
Better site selection and quicker turnaround times for maintenance and repair
contributed to the improvement, but going forward additional improvements in these areas may be
limited. For plants entering service in 2018, onshore’s all-in LCOE is estimated at $86.6/MWh, trailing
only Natural Gas’s CCC’s $67.1/MWh and ACC’s $65.6/MWh. Yet offshore’s LCOE of $221.5/MWh is
only superior to Solar Thermal’s $261.5/MWh.10
Externality costs and benefits are difficult to quantify, yet the Duke case precedent may provide
guidance as to the cost of bird deaths. Medical costs may benefit from reduced carbon emission, but
information for this issue may have a significant lag time.
Conclusion
Stakeholders come in many forms. Some may be capital providers and employees, which may
prefer the best financial return, while the community may focus on less disruption. Certain
environmentalist may push for wind to reduce carbon emissions, while other environmentalists
have concerns over bird deaths.
Cost structure assessment should take a holistic approach. The energy supply decision comes down to
tradeoff preferences, and the benefits that accrue or detriments incurred depend on through which
prism the stakeholder looks.
9
EIA Independent Statistics & Analysis, “Updated Capital Cost Estimates for Utility Scale Electricity Generating Plants,”
(http://www.eia.gov/forecasts/capitalcost/pdf/updated_capcost.pdf), U.S. Energy Information Administration, April 2013, p. 7
10
EIA Independent Statistics & Analysis, “Levelized Cost of New Generation Resources in the Annual Energy Outlook 2013,”
(http://www.eia.gov/forecasts/aeo/pdf/electricity_generation.pdf), U.S. Energy Information Administration, January 2013, p. 4

5. 4
Exhibit A - Capital Cost Estimates for Utility Scale Electricity Generating Plants
Plant Costs ($2012)
Plant Characteristics Overnight Fixed Variable
Nominal Heat Capital O&M O&M
Capacity Rate Cost Cost Cost
Coal (MW) (Btu/kWh) ($/kW) Rank ($/kW-yr) Rank ($/MWh) Rank
Single Unit Advanced PC 650 8,800 3,246 18 38 15 4 13
Dual Unit Advanced PC 1,300 8,800 2,394 20 31 17 4 13
Single Unit Advanced PC w/ CCS 650 12,000 5,227 9 81 7 10 5
Dual Unit Advanced PC w/ CCS 1,300 12,000 4,724 11 66 11 10 5
Single Unit IGCC 600 8,700 4,400 12 62 12 7 9
Dual Unit IGCC 1,200 8,700 3,784 17 51 13 7 9
Single Unit IGCC with CCS 520 10,700 6,599 4 73 9 8 8
Natural Gas
Conventional CC 620 7,050 917 25 13 23 4 15
Advanced CC 400 6,430 1,023 23 15 21 3 16
Advanced CC with CCS 340 7,525 2,095 22 32 16 7 11
Conventional CT 85 10,850 973 24 7 24 15 3
Advanced CT 210 9,750 676 26 7 25 10 4
Fuel Cells 10 9,500 7,108 3 - 26 43 1
Uranium Dual Unit Nuclear 2,344 N/A 5,530 7 93 6 2 17
Biomass
Biomass CC 20 12,350 8,180 2 356 2 17 2
Biomass BFB 50 13,500 4,114 15 106 4 5 12
Wind
Onshore 100 N/A 2,213 21 40 14 - 18
Offshore 400 N/A 6,230 6 74 8 - 18
Solar
Solar Thermal 100 N/A 5,067 10 67 10 - 18
Photovoltaic 20 N/A 4,183 14 28 18 - 18
Photovoltaic 150 N/A 3,873 16 25 19 - 18
Geothermal
Geothermal - Dual Flash 50 N/A 6,243 5 132 3 - 18
Geothermal – Binary 50 N/A 4,362 13 100 5 - 18
Municipal Solid Waste 50 18,000 8,312 1 393 1 9 7
Hydroelectric
Conventional Hydroelectric 500 N/A 2,936 19 14 22 - 18
Pumped Storage 250 N/A 5,288 8 18 20 - 18

6. 5
Exhibit B – Scatterplot of Capital Costs vs. Fixed O&M Costs
500
1,500
2,500
3,500
4,500
5,500
6,500
7,500
8,500
- 50 100 150 200 250 300 350 400
OvernightCapitalCosts($/kW)
Fixed O&M Costs ($/kW-Yr)
MSW
BCC
Offshore GDF
SUIGCCCS
Fuel Cell
Onshore

7. 6
Exhibit C – Negative Externality Demand Curve
Comments:
Private Price (Pp) is too low as it only considers Private Cost with equilibrium Pp/Qp, and does not
consider the Social Cost of negative externalities (e.g., carbon emission), borne by others external to the
transaction, which would have resulted in a higher equilibrium at Ps/Qs; thus, quantity supplied is higher
than if all factors of production were included.

8. 7
Exhibit D – Positive Externality Supply Curve
Comments:
Private Price (Pp) is too low with equilibrium at Pp/Qp as it does not take into account social benefits
(e.g., an increase in the fish population attracted to additional coral reefs arising from offshore wind
structures), which would suggest the market and society willing to pay a higher price (Ps) with
equilibrium at Ps/Qs.

9. 8
Exhibit E – Tax Subsidy/Credit
Comments:
Government intervention through subsidies or credits causes a distortion from the market’s natural
equilibrium (P*/Q*), shifting the new equilibrium to (Ps/Qs). This shift results in increased supply
funded by the subsidy/credit, causing a dead weight loss (DWL), where resources are diverted away
from other productive activities or additional degradation may occur (e.g., obstructed views).
Note: Supply/Demand curves extracted from Wikipedia