The Economics of Wind Energy

Krohn, Søren

2009

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One of the most important economic benefits of wind power is that it reduces the exposure of our economies to fuel price volatility. This benefit is so sizable that it could easily justify a larger share of wind energy in most European countries, even if wind were more expensive per kWh than other forms of power generation. This risk reduction from wind energy is presently not accounted for by standard methods for calculating the cost of energy, which have been used by public authorities for more than a century. Quite the contrary, current calculation methods blatantly favour the use of high-risk options for power generation. In a situation where the industrialised world is becoming ever more dependent on importing fuel from politically unstable areas at unpredictable and higher prices, this aspect merits immediate attention. As is demonstrated in this publication, markets will not solve these problems by themselves because markets do not properly value the external effects of power generation. Governments need to correct the market failures arising from external effects because costs and benefi ts for a household or a fi rm who buys or sells in the market are different from the cost and benefi ts to society. It is cheaper for power companies to dump their waste, e.g. in the form of fl y ashes, CO2, nitrous oxides, sulphur oxides and methane for free. The problem is that it creates cost for others, e.g. in the form of lung disease, damage from acid rain or global warming. Similarly, the benefi ts of using wind energy accrue to the economy and society as a whole, and not to individual market participants (the so-called common goods problem). This report provides a systematic framework for the economic dimension of wind energy and of the energy policy debate when comparing different power generation technologies. A second contribution is to put fuel price risk directly into the analysis of the optimal choice of energy sources for power generation. Adjusting for fuel-price risk when making cost comparisons between various energy technologies is unfortunately very uncommon and the approach is not yet applied at IEA, European Commission or government level. This report proposes a methodology for doing so. The methodology should be expanded to include carbon-price risk as well, especially given the European Union’s December 2008 agreement to introduce a real price on carbon pollution (100% auctioning of CO2 allowances in the power sector) in the EU.

Aspectos económicos; Energía eólica;