No longer the underdog: how wind is competing with fossil fuels

Renewables are increasingly part of the global energy conversation, with wind competing economically with fossil fuel-generated power in many cases. Taylor Heyman finds out how the industry got to this position and what it can do to make the economic case for wind.

Offshore has a long way to go

In the run-up to the Paris climate talks in December 2015, each country involved released its intended nationally determined contributions to show how it would tackle climate change. A large proportion of these included commitments to increase wind power capacity.

Wind technology has come a long way since its first two-turbine incarnation in the 1980s. Technology has been honed, and installation methods refined and sped up, to the extent that wind is now able to compete with fossil fuels in countries where is it widely rolled out. In Europe, the wind industry is supporting 262,000 jobs.

"We have seen significant advancements in cost reduction both for onshore and offshore wind"

We have seen significant advancements in cost reduction both for onshore and offshore wind," says European Wind Energy Association (EWEA) spokesperson Oliver Joy. "Onshore is the cheapest form of new power generation in Europe. In China it is cheaper than gas; in the US it is challenging conventional technology across the board. Simply put, onshore wind makes economic sense. This is one of the main messages we want to get across."

"One area where we see wind competing with other technologies very favourably is Brazil, where wind competes directly against natural gas and other forms of generation at auction and successfully outbids them," says head of the wind insight group at Bloomberg New Energy Finance, Amy Grace.

Squaring up to fossil fuels

Onshore wind is now competing on a global scale. Figures from Bloomberg New Energy Finance (BNEF) published in October 2015 show the levelised cost of wind energy (LCoE) has declined by 40% in the last decade to $83 per MWh, comparing well with gas and coal at $98 and $84 respectively. The levelised cost of energy (LCoE) combines the generation costs per MWh electricity with the upfront capital and development, operation and maintenance and cost of equity to give an overall picture of the cost of producing energy using different technologies.

Although this may appear a cause for celebration, the picture on a country-by-country basis is slightly more complex. The economic case for wind varies widely from country to country, owing to the wind resources available, government policy and the comparative cost of other fuel sources. However, as long as countries such as Brazil are committed to the technology, the cost should keep declining.

This is due to a 'learning rate', declines in cost caused by developments in turbine efficiency technology and faster installation and operation and maintenance techniques. BNEF expects the learning rate to influence a decline in cost of wind of 19% for every doubling of installed technology.

Reductions in cost are a continuing trend

BNEF figures also suggest an increase in installations and the learning rate will equate to an 18% total drop in price over the next decade. This is because compared to other, older technologies, wind and other renewables have significant potential to reduce costs. This potential lies in the reduction of turbine casts, increasing the amount of energy that turbines are harvesting from wind and reducing the costs of installation, operation and maintenance.

"In the first five years of this decade, we have seen the cost of onshore wind generation come down by 30%," explains Joy. "We expect that this will continue and we will reduce costs by another 10% by 2020, according to the International Energy Agency. You don't see that potential with more mature technologies such as coal gas and nuclear. They do not have the room for cost reduction that wind power currently does."

As the collection and analysis of data improves in wind farm construction and operation, analysis will provide the opportunity to identify areas for improvement and act to find smart solutions. In a recent article for Nature Andrew Kusiak, professor at the University of Iowa's Department of Mechanical and Industrial Engineering, said the defence, commerce and healthcare sectors had all benefitted from collating and releasing data to reduce cost and increase efficiency and that the wind power industry could, and should, do the same.

"Offshore wind still has some way to go to become a competitive industry"

Offshore wind still has some way to go to become a competitive industry, proven by its current LCoE of $174. "For offshore wind, the industry is taking great strides on cost reduction through installing higher capacity turbines and optimising the supply chain among other measures," says Joy. "Progress continues, but it is now up to policymakers to match the industry's ambition. Stable regulation and long-term policy visions, particularly post-2020, are essential pieces of the cost reduction puzzle."

Policy is helping and hindering the economics of wind

Costs may be falling in general, but significant capital is still needed to construct a wind farm. For wind power to continue to attract investment, investors need to be able to envisage a stable return.

Policy uncertainty continues to affect investment in projects globally and has influenced a move to projects funded by private purchase agreements (PPAs) rather than export to the grid. This minimises the risk investors take by agreeing a private buyer for the electricity before starting construction.

The Solution Wind campaign is backed by the EWEA and aims to publicise the role of wind in energy provision for businesses globally. A look at the projects the campaign is publicising shows this change to PPAs in action. Global furniture store IKEA has six wind farms in Poland and is energy independent in the country, while Google is signing PPAs with onshore wind farms to power its data centres in the UK and US.

"Wind, to us, is extremely important, not only because our company is carbon neutral, but also because it gives us long term pricing predictability, which is important for any business, and it is philosophically the right thing we should be doing," says Google's global vice president Joseph Kava.
For export to the grid models, government policy differs widely globally. The UK government has dramatically reduced its feed-in tariff support mechanism, whereas the US has renewed its version, the Production Tax Credit, for the next five years.

Both countries have introduced contract for difference / auction systems. "In an auction system, developers have to make large capital outlays getting the project ready to bid into the auction so they know the project will win a contract in the auction and be built," says Grace. "This is bad news for developers as they're accepting a lot more risk but it is good news for consumers as the auctions have shown time and time again that they bring down the cost."

The intermittency issue

There is one problem that continues to plague wind technology; when the wind isn't blowing, it cannot generate power.

The EWEA is currently advocating the completion of an internal energy market in Europe, where the variability in wind and solar power can be mitigated by a connected grid for the whole of Europe. "We need to create one market where the wind blowing in the Scottish highlands can power homes along the Black Sea coast and vice versa" says Joy.

The idea that intermittency can be mitigated with the right energy mix is slowly gaining traction. A UK Parliamentary Office of Science and Technology report issued in May 2014 stated the need for flexible technologies to work around this issue. This could include connecting to a European grid as advocated by the EWEA, but also the flexible burning of coal, gas or waste fuel.

Another increasingly popular option is to harness the excess energy turbines produce by developing and enhancing storage technologies. A report entitled Energy storage: The missing link in the UK's energy commitments by the Institute of Mechanical Engineers claims that "provision of sufficient energy storage capability will make much better use of the wind asset and avoid the necessity for GHG emitting fossil fuel back-up plant".

The report argues that the government needs to start seriously investing in the development of energy storage as a workable storage solution is yet to be found. Until then, we are left with replacing electricity by other means during down time for wind.

The economics of wind are undeniably strong; the issue now is finding the impetus and long-term policy to implement wind power production on a large scale in countries rich in wind resources.