IEA Wind Task 26: The Past and Future Cost of Wind Energy, Work Package 2

TL;DR: In this article, the authors provide a review of historical costs, evaluate near-term market trends, review the methods used to estimate long-term cost trajectories, and summarize the range of costs projected for onshore wind energy across an array of forward-looking studies and scenarios.

Abstract: Over the past 30 years, wind power has become a mainstream source of electricity generation around the world. However, the future of wind power will depend a great deal on the ability of the industry to continue to achieve cost of energy reductions. In this summary report, developed as part of the International Energy Agency Wind Implementing Agreement Task 26, titled 'The Cost of Wind Energy,' we provide a review of historical costs, evaluate near-term market trends, review the methods used to estimate long-term cost trajectories, and summarize the range of costs projected for onshore wind energy across an array of forward-looking studies and scenarios. We also highlight the influence of high-level market variables on both past and future wind energy costs.

Summary

1 Introduction

• This report has been developed as part of the International Energy Agency (IEA) Wind Implementing Agreement Task 26, The Cost of Wind Energy, and builds on the prior work of this task to estimate the 2008 cost of wind energy among the participating countries (Schwabe et al. 2011) .
• Additional input to this report comes from published data as well as data provided to the Task 26 Working Group by participating members.
• To be clear, this report does not make new, long-term cost-of-energy forecasts.

2 Trends in Wind Energy Capital Costs and Performance

• Here the authors examine capital cost and performance trends from the 1980s through present day.
• These time periods cover both significant cost reductions as well as the period of cost increases observed during the last decade.
• Included is a discussion of the drivers of both capital cost reductions and increases.
• Developments in turbine performance since the 1980s are also discussed; however, performance data are focused primarily on the more recent period, from the turn of the century to today's current turbine offerings.

2.1 Capital Cost Reductions: 1980-2003

• From the 1980s to the early 2000s, average capital costs for wind energy projects declined markedly.
• Wiser and Bolinger 2011 , Nielsen et al, also known as Sources.
• Larger turbines provided access to better wind resources while lowering the plant-wide parts count and generating turbine-level economies of scale for many components for which costs do not vary proportionally with turbine size (e.g., controls).

2.2 Capital Cost Increases: 2004-2009

• Further discussion and analysis of the role of some of these factors in driving historical onshore wind energy costs is included in Milborrow (2008) , Blanco (2009) , and Dinica (2011) .
• Moreover, other authors note the importance of many of these same factors in driving up the cost of offshore wind energy (e.g., Carbon Trust 2008 , Greenacre et al. 2010) , as well as other forms of electricity generation equipment (e.g., Chupka and Basheda 2007, Winters 2008 ) over a similar time frame.

2.3 Performance Increases: 1980-2010

• As a result of the limitations noted above, fleet-wide capacity factor data are incapable of demonstrating the true level of performance improvement achieved over the past three decades.
• By evaluating overall multi-year average capacity factor changes within specific wind power classes and for specific project vintages, greater insights into the overall magnitude of technical improvement can be gained.
• Such an exercise is particularly important in places like Spain (and many other parts of the world) where projects have increasingly been installed in lower wind power class sites, and the actual degree of capacity factor improvement over time within individual wind resource classes is less apparent (Wiser 2011 , Dinica 2011) .
• 8 Figure 6 illustrates the substantial improvements over time in multi-year average capacity factors that have been observed from projects installed in the United States when sorted by wind power class and project vintage.
• These improvements have been directly linked to the development of taller towers and larger rotors (Wiser 2010 ).

2.4 Recent and Near-term Trends in Capital Cost and Performance

• Hub heights and rotor diameters have continued to trend toward larger machines, suggesting that turbine performance improvements will also continue.
• Preliminary analysis conducted by Wiser et al. (2012) suggests that capacity factors for projects to be installed with current state-of-the-art technology in the United States will improve significantly within a given wind power class, relative to older technology .
• Moreover, also shown in the figure, the most significant performance improvements are occurring in equipment designed for low wind speed sites (typical average hub-height wind speeds of 7.5 m/s).
• As a result of these technical and design advancements, Wiser et al. (2012) find that the amount of U.S. land area that could achieve 35% or higher wind project capacity factors has increased by as much as 270% when going from turbines commonly installed in the 2002-2003 time frame to current low wind speed turbine offerings.

3 Impact of Capital Cost and Performance Trends on Levelized Cost of Energy

• As noted earlier, attempting to elicit LCOE trends from either capital cost or performance independently is tenuous.
• Data shown here generally reflect the impact on LCOE from capital cost and performance changes.
• More precise estimates would also factor in the effects of changes in O&M costs, major equipment replacement costs, financing costs, and actual turbine lifetime.
• Due to limited data availability, the latter variables were not considered in the analysis presented in Section 3.2.
• Also note that the LCOE figures presented in this section exclude available incentives that might affect the price of wind energy in wholesale markets.

3.1 Historical LCOE Trends: 1980-2009

• Significant reductions in capital cost and increases in performance between 1980 and 2003 had the combined effect of dramatically reducing the LCOE of wind energy.
• During this time, capital cost and performance trends were both generally aligned with substantial capital cost declines and performance improvements.
• As a result, there was little risk associated with an exclusive focus on one or the other when attempting to understand broad trends in the LCOE of wind.

4.2 Expert Elicitation

• This approach is based on surveying or interviewing industry executives and technology design experts.
• Interviews are typically focused at the turbine component and system level and may also attempt to capture trends in various aspects of installation costs (e.g., underground cabling, erection costs, and required on-site monitoring infrastructure).
• By evaluating the potential for cost reductions or performance improvements at the component or system level and combining the estimated potential from an array of concrete possible technological advancements, this approach constitutes a simple but technology-rich, bottom-up analysis.
• It also introduces a relatively high level of subjectivity into the analysis, as the responses to the elicitation may be affected by the design of the data collection instrument and by the individuals selected to submit their views through that instrument.

4.3 Engineering Model

• In addition to primarily being focused on the near to medium term, the main limitation of the engineering model approach is that it requires highly sophisticated design and cost models to capture the full array of component-and system-level interactions.
• Often the level of sophistication achieved with today's modeling tools is insufficient to truly capture the systemlevel interactions that are common in wind turbine design.
• 18 Accordingly, the projected costs are generally based on the impact of a particular technical innovation, all else being constant.

4.3.1 Engineering Model Examples

• One of the prime examples of the engineering modeling approach comes from the U.S. Department of Energy's WindPACT project (e.g., Bywaters et al. 2005, Malcolm and Hansen 2002) .
• These results were ultimately tied to cost functions to quantify their impact on turbine and project costs (Fingersh et al. 2006 ).
• More recent NREL modeling work that builds upon these studies suggests that performance increases on the order of 20% and cost reductions on the order of 10% over the next one to two decades are possible but may require additional technological advancements not captured by the WindPACT studies (e.g., Lantz and Hand 2011) .

4.4 Sources of Cost Reduction Identified by Expert Elicitation and Engineering

• Table 1 summarizes the broad categories of opportunities envisioned to apply to onshore wind energy projects, based on engineering studies and expert elicitation.
• Much of the opportunity to drive down costs is perceived to be in the design and performance of wind turbines because of their critical role in calculating wind energy's LCOE; initial turbine expenditures alone account for roughly 70%-75% of project capital costs (Wiser and Bolinger 2011, Blanco 2009 ) and about 60% of lifetime project costs (Blanco 2009 ).

5 Conclusions

• Robust data collection is needed across the array of variables that must be factored into estimating LCOE (e.g., capital cost, capacity factor, O&M costs, component replacement rates and costs, and financing costs) and in each of the wind energy markets around the globe.
• Such data would allow historical LCOE trends to be more closely analyzed, with insights gleaned both through more-sophisticated learning curve analysis as well as bottom-up assessments of historical cost drivers.
• An enhanced capacity to model the cost and performance impacts of new technological innovation opportunities, taking into account the full system dynamics that result from a given technological advancement, is also essential.

Figures

Figure 8. Estimated LCOE for wind energy from 1980 to 2009 for the United States and Europe (excluding incentives)

Figure 1. Capital cost trends in the United States and Denmark between 1980 and 2003

Figure 5. Fleet-wide capacity factor data for the United States, Denmark, and Spain from 1999 to 2010

Table 1A. Inputs in Modeling of U.S. LCOE Estimates 2002–2003 through 2012–2013

Figure 6. U.S. project capacity factors by vintage and wind power class

Table 1A. Inputs in Modeling of U.S. LCOE Estimates 2002–2003 through 2012–2013

Figure 10. Estimated change in the LCOE between low and high wind speed sites resulting from technological advancement

Figure 3. Wind turbine prices in the United States

Figure 9. LCOE for wind energy over time in the United States (left) and Denmark (right)

Figure 7. Modeled capacity factors for current turbine models relative to historical technology

Figure 11. Estimated range of wind LCOE projections across 18 scenarios

Figure 4. Representative turbine architectures from 1980 to 2010

Table 2A. Inputs in Modeling of Danish LCOE Estimates 2002 through 2012

Figure 2. Capital cost trends in the United States, Denmark, Spain, and Europe from 2003 to 2009

Full text

IEA Wind Task 26
WP2
The Past and Future Cost of Wind Energy
Leading Authors
Eric Lantz: National Renewable Energy Laboratory
Ryan Wiser: Lawrence Berkeley National Laboratory
Maureen Hand: National Renewable Energy Laboratory

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
IEA Wind Task 26:
The Past And Future Cost
Of Wind Energy
Work Package 2
Lead Authors:
Eric Lantz: National Renewable Energy Laboratory
Ryan Wiser: Lawrence Berkeley National Laboratory
Maureen Hand: National Renewable Energy Laboratory
Contributing Authors:
Athanasia Arapogianni: European Wind Energy Association
Alberto Ceña: Spanish Wind Energy Association
Emilien Simonot: Spanish Wind Energy Association
Edward James-Smith: Ea Energy Analyses
The IEA Wind agreement, also known as the Implementing Agreement
for cooperation in the Research, Development, and Deployment of
Wind Energy Systems, functions within a framework created by the
International Energy Agency (IEA). Views, findings, and publications of
IEA Wind do not necessarily represent the views or policies of the IEA
Secretariat or of all its individual member countries.
Technical Report
NREL/TP
-6A20-53510
May 2012

NOTICE
This report was prepared as an account of work sponsored by an agency of the United States government.
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trademark, manufacturer, or otherwise does not necessarily constitute or imply its endorsement, recommendation,
or favoring by the United States government or any agency thereof. The views and opinions of authors
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iii
Acknowledgments
This report has been sponsored by the International Energy Agency (IEA) Wind Implementing
Agreement for Co-operation in the Research, Development, and Deployment of Wind Energy
Systems, and funded by the respective entities in the participating countries of Task 26, The Cost
of Wind Energy, including Denmark, Germany, Netherlands, Spain, Sweden, Switzerland, and
the United States. The authors of this report would like to thank each of the participating
countries and their representatives for supporting the work of this task. United States
participation in Task 26 is supported by the U.S. Department of Energy under Contract No. DE-
AC36-08GO28308 with the National Renewable Energy Laboratory.
Special thanks to Graham Sinden (Climate Strategies), Paul Schwabe (National Renewable
Energy Laboratory), Roberto Lacal Arantegui (European Commission), and Sander Lensink
(Energy Research Centre of the Netherlands) for detailed comments and input on earlier versions
of this report. Thanks also to Mark Bolinger (Lawrence Berkeley National Laboratory) for
reviewing portions of the report and for providing valuable insights and guidance at various
points in the development of this paper. Finally thanks to Scott Gossett and Linda Huff (National
Renewable Energy Laboratory) for editing assistance and Lynn Billman, David Kline, Robin
Newmark, and Brian Smith (National Renewable Energy Laboratory) for additional input and
direction in completing this work. Of course, any remaining errors or omissions are the sole
responsibility of the authors.

iv
Executive Summary
Over the past 30 years, wind power has become a mainstream source of electricity generation
around the world. However, the future of wind power will depend a great deal on the ability of
the industry to continue to achieve cost of energy reductions. This summary report, developed as
part of the International Energy Agency (IEA) Wind Implementing Agreement Task 26, The
Cost of Wind Energy, provides a review of historical costs, evaluates near-term market trends,
reviews the methods used to estimate long-term cost trajectories, and summarizes the range of
costs projected for onshore wind energy across an array of forward-looking studies and
scenarios. It also highlights high-level market variables that have influenced wind energy costs in
the past and are expected to do so into the future.
Historical and Near-Term Trends in the Levelized Cost of Wind Energy
Between 1980 and the early 2000s, significant reductions in capital cost and increases in
performance had the combined effect of dramatically reducing the levelized cost of energy
(LCOE) for onshore wind energy. Data from three different historical evaluations, including
internal analysis by the Lawrence Berkley National Laboratory (LBNL) and the National
Renewable Energy Laboratory (NREL) as well as published estimates from Lemming et al.
(2009) and the Danish Energy Agency (DEA) (1999), illustrate that the LCOE of wind power
declined by a factor of more than three, from more than $150/MWh to approximately $50/MWh
between 1980s and the early 2000s (Figure ES-1). However, beginning in about 2003 and
continuing through the latter half of the past decade, wind power capital costs increased—driven
by rising commodity and raw materials prices, increased labor costs, improved manufacturer
profitability, and turbine upscaling—thus pushing wind’s LCOE upward in spite of continued
performance improvements (Figure ES-1).
Figure ES-1. Estimated LCOE for wind energy between 1980 and 2009 for the United States and
Europe (excluding incentives)
Sources: LBNL/NREL (internal analysis), Lemming et al. 2009, and DEA 1999
$0
$50
$100
$150
$200
$250
$300
1980 1985 1990 1995 2000 2005 2010
Levelized Cost of Energy
(2010 USD/MWh)
LBNL/NREL Internal Analysis
DEA 1999
Lemming et al. 2009 (Coastal European Sites)