While it only provides about 1% of the US electricity needs, wind power is growing faster than any other energy source. More than 5,000 megawatts of new wind generation capacity were installed in the US in 2007, second only to new natural gas generation capacity. Wind technology has improved tremendously over the past two decades; however, wind power still relies on federal tax incentives to compete with traditional energy sources. A big obstacle to grid parity using wind power is that its production depends on when the wind blows rather than the maximum energy needs of the consumer. This variability creates additional expense and complexity to balance supply and demand on the network. An additional problem is that new transmission infrastructure will be required to deliver wind-generated power to high-density population centers. Because the construction of new transmission lines is expensive and time consuming, it is difficult to determine how construction costs should be distributed among consumers and what pricing methodologies to use.

To date, US federal wind power policy has focused on the production tax credit. The production tax credit is a business incentive to operate wind facilities. However, this credit expired on December 31, 2008. Policy analysts and representatives of the wind industry have argued that the intermittent nature of the production tax credit is inefficient and actually leads to higher costs for the industry.

According to the 2008 CRS Report to Congress, “Wind Power in the United States: Technological, Economic, and Political Issues,” wind turbines have no fuel costs and have variable minimal operating and maintenance (O&M) expenses. Also, wind power doesn’t have the other costs that burning fossil fuels come with, like air pollution control equipment. Wind power also does not incur the waste disposal costs associated with other power generation, such as scrubber sludge removal for coal plants and waste storage for nuclear plants. However, although wind plants have low variable costs, fixed operating and maintenance costs are high, and wind power plants are capital intensive. Due to these fixed costs, project costs increased and averaged more than $ 1,700 per kilowatt in 2007. Additionally, higher input prices (steel, copper, concrete), skilled worker shortages, unfavorable currency exchange, and component shortages Key wind turbine and manufacturing capacity have contributed to rising costs.

When wind makes up a large part of a power system’s total generating capacity, perhaps 10-15% or more, the system must also bear additional costs to provide reliable backup for the wind turbines. This backup capacity is from fossil fuels, nuclear, or other renewable energy (eg hydroelectric, geothermal, and biomass).

Reference

CRS Report to Congress, “Wind Power in the United States: Technology, Economic, and Political Issues,” June 20, 2008.