Wind and Solar Costs Challenge Fossil Fuels in US

The price of new power purchase agreements for wind farms and new solar projects in the US continue to defy all expectations, making some energy experts wonder why anyone would contemplate a new fossil-fuel plant.  UBS analysts in the US have produced a new report.  It is basically a write-up from a webinar hosted by UBS and Declan Flanagan, head of local renewable energy group Lincoln Energy, but  it provides some fascinating insight of what is happening in that market.

The first notable conclusion is the declining cost of wind energy.  Contracts in Texas, which accounts for around one quarter of all US installations, are regularly below $30/MWh, and some are at $25/MWh.  Even with a tax incentive, this still puts wind well below $50/MWh.

Why is this happening?  New equipment is lifting capacity factors by 5 percentage points, and Texas' excellent wind conditions mean that wind farms are getting capacity factors in the high 40s or low 50's (per cent).  Nearly half of this occurs during peak load, defying most characterizations of wind as essentially an off-peak power source.

What does this mean?  Greentech Media recently quoted Stephen Byrd, Morgan Stanley’s Head of North American Equity Research for Power & Utilities and Clean Energy, speaking at the Columbia Energy Symposium in late November.  “Compare that to the variable cost of a gas plant at $30 per megawatt-hour.  The all-in cost to justify the construction of a new gas plant would be above $60 per megawatt-hour.”  So who would build gas?

Wind and Solar Costs Challenge Fossil Fuels in US