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Wind Power Costs Almost Equal To Natural Gas: Study


The costs of electricity from wind power and natural gas are virtually equal, claims a new study on federal tax credit for wind energy. The study says, without government pricing support, wind has not been a competitive form of energy use in most parts of the U.S., as the cost of carbon emissions is not included in the market price of gas. 

Current national average estimates from the U.S. Department of Energy peg costs for wind energy at 8.7 cents per kilowatt-hour (kWh) and gas-fired energy at 6.6 cents. The study's analysis, however, uses a new metric that takes into account long-term factors such as the social cost of carbon, cost of variability of wind power and hedging value against gas price volatility. Including these factors, the researchers show that the adjusted cost of electricity is 9.2 cents per kWh for wind and 8.85 cents per kWh for gas.

Since a pricing mechanism for carbon emissions, either through a carbon tax or cap-and-trade scheme, does not seem likely to materialize considering the current U.S political environment, the researchers argue that the recently-expired Production Tax Credit puts wind power on a more equal footing with natural gas.

PTC gives a credit to generators of wind energy for every kilowatt-hour they produce. Supporters of the Production Tax credit say the industry needs to be subsidized till it reaches cost parity with fossil fuels and nuclear power, while critics say that clean energy policies cost too much and distort the market.

Incorporation of the new metric shows that the tax credit "is actually compensating for a market failure to price the future cost to society of carbon emission," says Greg Linden, senior research associate at the University of California, Berkeley.

Names involved in the study were Jason Dedrick, associate professor at Syracuse University's School of Information Studies (iSchool), Kenneth L. Kraemer, research professor, University of California, Irvine; and Greg Linden, senior research associate at the University of California, Berkeley.

In many parts of the country, the study notes, the price difference between wind and gas power is actually less than 1.6 cents per kWh. Dedrick says this is where the PTC will have an effect. It should be noted that the amounts cited above are averages and the costs of wind and gas vary across U.S.

"Since the levelized value of the PTC happens to be very close to the average estimated cost of carbon from a natural gas plant, a long-term extension of the PTC would have a similar effect to a carbon tax in terms of the relative price of electricity from wind and gas," says Dedrick.

The project was supported by a grant from the Alfred P. Sloan Foundation. The study is titled  "Visualizing the Production Tax Credit for Wind Energy."

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