2011 Cost of Wind Energy Review

TL;DR: In this article, the levelized cost of energy (LCOE) for a typical land-based wind turbine installed in the United States in 2011, as well as the modeled LCOE for a fixed-bottom offshore wind turbine, were presented.

Abstract: This report describes the levelized cost of energy (LCOE) for a typical land-based wind turbine installed in the United States in 2011, as well as the modeled LCOE for a fixed-bottom offshore wind turbine installed in the United States in 2011. Each of the four major components of the LCOE equation are explained in detail, such as installed capital cost, annual energy production, annual operating expenses, and financing, and including sensitivity ranges that show how each component can affect LCOE. These LCOE calculations are used for planning and other purposes by the U.S. Department of Energy's Wind Program.

Summary

As the operational life for the reference project moves toward 30 years, the LCOE will decrease

• Offshore wind assumptions and ranges for key LCOE input parameters Source: NREL Along with the reference LCOE estimates, NREL researchers created additional land-based wind project scenarios to demonstrate the impact of two specific project permutations: lower installed capital cost and higher average annual wind speed.
• The altered variables and their resulting LCOE are summarized in Table ES3.

Net annual energy production (MWh/MW/yr) 3,263 3,263 3,578

• LCOE ($/MWh) $72 $62 $65 xi From these results, researchers came to the following key conclusions: Final LCOE estimates differ only slightly from those in the 2010 report.
• The anticipated expiration of the PTC forced substantial acceleration of wind development; so much that, even with the January 1, 2013, extension of the PTC, demand for new wind projects is expected to be weak.
• To address these two sources of uncertainty, model estimates for installed capital cost and capacity factor are forced to reflect market data by applying a “market adjustment” and generic “losses” terms in the model.
• The following sections of this report describe each componentICC, AOE, AEP, and FCRof the LCOE equation, market context, and range of data for typical U.S. wind projects in the year 2011.
• Given these inputs as well as the additional variables considered to reflect the reference project and summarized in Table 1 below, the resulting LCOE is $72/MWh.

Data

• Because of capital cost variability, estimates for each capital cost component were established using the NREL wind turbine design cost and scaling model and a market price adjustment was added to bring the all-in capital cost in line with the industry average.
• This analysis does not attempt to predict which capital cost components are influenced by the market price adjustment, as these impacts can vary from project to project.
• Wiser and Bolinger (2012) reported an average O&M value of $28/kW/yr that generally incorporates the costs of wages and materials associated with operating and maintaining a facility, but likely excludes other elements such as insurance, taxes, or 9 Additional detail on the new BOS data and scaling relationships will be published in a separate report later this year.

3.3.1 Turbine Parameters

• Turbine parameters are characteristics that are specific to the turbine and independent of wind characteristics.
• These parameters consist not only of turbine size (such as rated power, rotor diameter, and hub height), but also of turbine operating characteristics [such as maximum rotor capacity (Cp), maximum tip speed, maximum tip-speed ratio (TSR), and drivetrain design].
• Because the geared drivetrain topology dominates the U.S. market, a geared drivetrain was selected for the baseline turbines.
• For the specific approach used regarding additional turbine parameters (e.g., power curves), see the 2010 Cost of Wind Energy Review.

3.3.2 Wind Resource

• The annual average wind speed chosen for the reference project analysis is 7.25 meters per second (m/s) at a 50-m height above ground level (7.75 m/s at hub height).
• This wind speed is representative of a Class 4 wind resource (7−7.5 m/s) and is intended to be generally indicative of the wind regime for projects installed in moderate quality sites in the “heartland” (Minnesota to Oklahoma).

3.3.3 Losses

• Losses are treated as independent of any other input in this simplified analysis.
• Types of losses accounted for in this analysis include array losses, collection and transmission losses (from the substation to the point 11 of interconnection), soiling losses, and availability.
• Net annual energy production is calculated by applying all losses to the gross AEP.
• Table 4 shows the AEP, capacity factors, and losses and availability for the land-based reference turbine operating in 2011.

3.3.4 Land-Based Wind Finance

• Throughout 2011, the financing environment remained relatively steady for land-based wind development.
• The extension of the Section1603 cash grant program through 2011 allowed for continued flexibility in project developer’s incentive election options between the 30% cash payment or tax incentive mechanisms, such as the production tax credit.
• On the debt side, Wiser and Bolinger (2010) indicated that 6% interest of all-in debt rates were achievable in 2010 (Wiser and Bolinger 2011) and rates were at or below 6% again in 2011 (Wiser and Bolinger 2012), although loan lengths appeared to have shortened.

Cost

• Calculation Table 13 summarizes the offshore wind technology reference project by providing the component cost categories for the 3.6-MW turbines in the project as well as the LCOE calculation results.
• These estimates are applied to the total capital cost estimate to generate individual component costs.
• NREL plans to continue to collect market data and develop bottom-up cost models in 2013.
• As was the case for land-based projects, these inputs are subject to considerable uncertainty.
• This selection of ranges provides insight into how real-world ranges influence LCOE.

3.7.1 Decreased Capital Cost

• Wiser and Bolinger (2012) suggested that 2009/2010 represented a likely peak in installed capital cost based on 2011’s slightly lower averages and estimates for 20 projects in 2012 that were reported to be even lower.
• With turbine prices peaking in 2008/2009 and continuing in a downward trend, it is reasonable to expect that installed capital cost would continue in a downward trend as well, because of the lag time between negotiations of turbine supply contracts, power purchase agreements, and project commissioning.
• If installed capital costs continue downward and match the initial 2012 estimated average reported by Wiser and Bolinger (2012) in midyear (approximately $1,750/kW), the reference project LCOE would be expected to fall to $62/kWh (Table 7).

3.7.2 Increased Annual Average Wind Speed

• A number of factors, such as policy influences, siting impacts, and technology changes, have led to the recent trend in siting wind projects in areas of reduced wind resource quality (Wiser and Bolinger 2012).
• It is important to note that the decrease in LCOE resulting from the better wind resource may also be achieved with a taller tower or a larger rotor for the same turbine power rating.
• If these technological advances can be implemented without a concurrent increase in either ICC or AOE (using advanced controls or design innovations), the net effect could be similar.
• The lack of domestic experience with offshore wind technology has contributed to considerable uncertainty in estimates of the potential cost of offshore wind energy in the United States.
• This report provides an update to the 2010 report including trends in capital costs observed outside of the United States as well as recent market conditions.

Model Capacity factor (%) 39

• Projects under development are plotted based on their anticipated commissioning date.
• Because the forward-looking global and domestic capital cost environment does not appear to have shifted, the reference project installed capital cost of $5,600/kW is maintained with the range of estimates for commercial-scale projects15 that received regulatory approval, excluding noted outliers, extending from approximately $4,500/kW to $6,500/kW.
• Percentage estimates are based on the NREL wind turbine design cost and scaling model (Fingersh et al. 2006, Maples et al. 2010); several recent publications (Douglas-Westwood 2010, BVG Associates 2011, Deloitte 2011); and conversations with U.S. offshore wind project developers.
• The percentage estimates in Figure 5 were applied to the all-in capital cost estimate of $5,600/kW to generate individual component costs in dollars per kilowatt for the 2011 reference project.

Port and staging 73 3

• 3 Annual Operating Expenses for Offshore Wind.
• There has been no indication that expected annual operating expenses for offshore wind projects have shifted between 2010 and 2011.
• U.S. developers have announced capacity factor expectations for nine project sites currently under development.
• Because net AEP and the corresponding net capacity factor will vary with the wind resource and project design, the authors assume specific site characteristics that are common to the North Atlantic Coast for the reference offshore wind project.
• Table 10 shows the assumptions used to calculate the net AEP for the reference project.

Losses

• We, the NREL authors, also assume that offshore wind projects will experience losses from array impacts, availability, and inefficiencies in power collection and transmission.
• These data show that the 2011 baseline project will deliver 3,406 MWh per megawatt of installed capacity annually, which is equivalent to a net capacity factor of 39%.
• The specific structures are not examined in this analysis.

Figures

Figure 3. Sensitivity of land-based wind LCOE to key input parameters

Table 6. Land-Based LCOE Cost Breakdown

Table 14. Ranges of LCOE and LCOE Elements for Land-Based and Offshore Wind in 2011

Table 3. Reference Land-Based AEP Input Assumptions

Table 4. Land-Based Wind Turbine AEP and Capacity Factor Summary

Figure 1. Installed capital costs for the land-based wind reference project

Table 7. Example Land-Based LCOE Reduction Scenarios

Figure 4. Reported capital costs for installed, under construction, contracted, and approved offshore wind projects (2000 to 2016) .............................................................................................. 18 Figure 5. Installed capital costs for the 2010 offshore wind reference turbine .................................. 20 Figure 6. Cost breakdown for the 2011 offshore wind reference project ............................................ 26 Figure 7. Sensitivity of offshore wind LCOE to key input parameters ................................................ 27

Table 12. Fixed-Bottom Offshore Reference Project Assumptions Summary

Table 2. Land-Based LCOE and ICC Breakdown

Figure 7. Sensitivity of offshore wind LCOE to key input parameters

Figure 5. Installed capital costs for the 2010 offshore wind reference project

Figure 2. Line item cost breakdown for the 2011 land-based wind reference project

Table 13. Fixed-Bottom Offshore Wind LCOE and Reference Project Cost Breakdown

Table 9. Fixed-Bottom Offshore LCOE Component Cost Breakdown

Figure 6. Cost breakdown for the 2011 offshore wind reference project

Table 5. Land-Based Reference Project Assumptions Summary

Table 10. Fixed-Bottom Reference Offshore AEP Input Assumptions

Table 11. Offshore Wind Turbine AEP and Capacity Factor Summary

Table 8. Summary of Inputs and Results for the Fixed-Bottom Offshore Wind Project

Table 1. Summary of Inputs and Reference Project LCOE for Land-Based Installations

Full text

NREL is a national laboratory of the U.S. Department of Energy, Office of Energy
Efficiency & Renewable Energy, operated by the Alliance for Sustainable Energy,
LLC.
Contract No. DE-AC36-08GO28308
2011 Cost of Wind Energy
Review
S. Tegen, E. Lantz
, M. Hand, B. Maples,
A. Smith, and P. Schwabe
National Renewable Energy Laboratory
Technical Report
NREL/TP
-5000-56266
March
2013

NREL is a national laboratory of the U.S. Department of Energy, Office of Energy
Efficiency & Renewable Energy,
operated by the Alliance for Sustainable Energy, LLC.
National Renewable Energy Laboratory
15013 Denver West Parkway
Golden, Colorado 80401
303-275-3000 • www.nrel.gov
Contract No. DE-AC36-08GO28308
2011 Cost of Wind Energy
Review
S. Tegen, E. Lantz, M. Hand, B. Maples, A.
Smith, and P. Schwabe
National Renewable Energy Laboratory
Prepared under Task No. WE11.1201
Technical Report
NREL/TP
-5000-56266
March 2013

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i
Acknowledgments
The work contained in this report has been funded by the U.S. Department of Energy’s (DOE’s)
Office of Energy Efficiency and Renewable Energy Wind and Water Power Program. This work
has been performed under Contract No. DE-AC36-08-GO28308 with the National Renewable
Energy Laboratory (NREL).
The authors would like to extend thanks to Mark Higgins from the DOE Wind and Water Power
Program for supporting this research. Thanks also to Jose Zayas, Patrick Gilman, Cash
Fitzpatrick, and Rich Tusing (contractor) of the DOE Wind and Water Power Program as well as
Ann Brennan, Robin Newmark, Fort Felker, and Brian Smith of NREL for reviewing and
providing strategic guidance in the development of this work. Thanks to Paul Veers (NREL),
Edward James Smith (Ea Energianalyse), Aidan Duffy (Dublin Institute of Technology),
Athanasia Arapogianni (European Wind Energy Association), and Brendan Cleary (Dublin
Institute of Technology) for reviewing earlier versions of this report. Any remaining errors or
omissions are the sole responsibility of the authors.

ii
List of Acronyms
AEP Annual energy production
AEP
net
Net annual energy production
AOE Annual operating expenses
AWEA American Wind Energy Association
BNEF Bloomberg New Energy Finance
BOEM Bureau of Ocean Energy Management
BOS Balance of station
CF
net
Net capacity factor
C
p
Coefficient of performance
CRF Capital recovery factor
DOE U.S. Department of Energy
DOI U.S. Department of the Interior
EIA U.S. Energy Information Administration
ENS Danish Ministry of Energy and Environment
EPRI Electric Power Research Institute
FCR Fixed charge rate
GWEC Global Wind Energy Council
ICC Installed capital cost
JEDI Jobs and Economic Development Impact
kW Kilowatt
LCOE Levelized cost of energy
LLC Land lease cost
LRC Levelized replacement cost
MACRS Modified Accelerated Cost Recovery System
MW Megawatt
MWh Megawatt-hour
NREL National Renewable Energy Laboratory
O&M Operation and maintenance
OCS Outer Continental Shelf
PPA Power purchase agreement
PTC Production tax credit
PVdep Present value of depreciation
TSR Tip-speed ratio
WACC Weighted average cost of capital

Frequently asked questions

Q1. Why were the assumptions held constant from the previous land-based wind LCOE analysis?

Because of the lack of large fluctuations in the cost and availability of debt and equity capital from 2010 to 2011, the financing assumptions were held constant from the previous land-based wind LCOE analysis. 

Q2. How many kVs are used in the reference project?

In the reference project layout, the turbines are spaced at 8 rotor diameters apart and connected to the substation using a simple radial 33-kilovolt (kV) collection system design. 

Q3. How many megawatts of capacity were installed in the U.S. in 2011?

For land-based wind technology calculations, the U.S. had over 46,000 megawatts (MW) of capacity installed and operating in 2011. 

Q4. What is the main approach for estimating the levelized cost of wind energy?

NREL’s wind turbine design cost and scaling model (Fingersh et al. 2006, Maples et al. 2010) is used to estimate the capital cost and AEP of a project based on turbine rated capacity, rotor diameter, hub height, and a representative wind resource. 

Q5. What are the main objectives of NREL’s ongoing work?

In 2012 and going forward, NREL will continue to work with industry and national laboratory partners to obtain project-specific data to validate and improve models. 

Q6. What is the main approach to estimating the levelized cost of wind energy?

This model uses scaling relationships at the component level (e.g., blade, hub, generator, and tower) developed with curve-fit industry data, published scaling models, and turbine models developed through the WindPACT studies (e.g., Malcolm and Hansen 2006) that reflect component-specific and often nonlinear relationships between size and cost (see Appendix C in Tegen et al. 2012). 

Q7. How is the net AEP calculated for offshore wind projects?

Assuming 18% total losses, AEPnet is estimated for offshore wind projects using commercially available technology and the NREL wind turbine design cost and scaling model. 

Q8. What are the assumptions that will be revised in future editions of this report?

These assumptions will likely be revised in future editions of this report, based on the expiration of the Section1603 cash grant program and macroeconomic issues, such as new banking regulations or continued credit challenges in Europe. 

Q9. What is the way to measure wind energy costs?

Continued collaboration with industry could lead to better data, enhanced modeling capabilities, and increased awareness of current and future wind power system component costs. 

Q10. What is the general approach for estimating the levelized cost of wind energy?

Given the market and model data available, the general approach for estimating the levelized cost of wind energy includes:1. Evaluating market conditions and data for projects that have been installed in the United States (or in Europe and Asia when considering offshore wind technology) in a given year, to understand installed project cost, AEP, operating costs, and representative turbine technology. 

Q11. How many costs were averaged for a given project?

When there were multiple cost estimates for a given project, costs were averaged: 1 EUR = 1.392 USD; 1 GBP = 1.604 USD; 1 DKK = 0.187 USD; 1 SEK = .157 USD; 1 NOK = 0.165; and CNY = 0.155 USD (x-rates.com 2011).