The Cost of Energy Generated by Wind Power

The current demand-driven rise in wind-energy costs, however, does not change one fundamental advantage of wind power over electricity generated from fossil fuels: a fixed price. Wind-farm developers might com­mand a higher price per kilowatt-hour from the purchasing utility than they did 2 years ago, owing to higher capital costs and the ability to charge what a market driven by high demand will bear. But that price is still locked in for the length of the contract, because wind is not subject to the vagaries of fuel costs.

But Ah, you might say, what if the wind doesn't blow and the utility has to supplement the wind-farm output with other power sources? It doesn't really change the pricing formula. Virtually all utility-scale wind farms are planned with highly sophisticated computer models predicting wind strength and consistency. It simply doesn't make financial sense to build them in places subject to frequent calm days, so most wind farms deliver pretty well on what their developers promise. And the vast majority of utility-scale wind farms deliver their output to the power grid, where their electrons mix with those coming from coal, natural gas, nuclear, geothermal, or hydroelectric plants. So in a sense, wind power is almost always supplemented by electricity from other sources; utility load plan­ners figure in the intermittent nature of wind already.

In many areas of the United States and around the world, utilities are making wind a bigger part of their energy mix because of renewable port­folio standard (RPS) mandates. Half the states now have such mandates, with voters making Washington State one of the newest RPS members via a successful ballot measure in the November 2006 election. The mandate requires Washington to get 15% of the state's power from clean sources by 2020. And in the fall of 2007, North Carolina's legislature made it the first state in the Southeast with an RPS—12.5% from clean energy by 2018. Many predict that the 111th Congress will move toward a national RPS for the United States. But whether national or state by state, since wind is usually the most cost-competitive clean power source, RPSs have been and will continue to be a major industry driver in states such as Texas, California, and Pennsylvania, and in much of the Midwest.

The incorporation of wind into a utility's overall electricity mix is also being driven by so-called green power. The term refers to residential or commercial electricity buyers' option to purchase a cleaner energy mix than their local utility's standard offering. Although green power can include electricity produced from landfill gas, geothermal sources, small hydroelectric, or solar, the vast majority of green power comes from wind farms. Austin Energy's GreenChoice and Xcel Energy's Windsource are two of the most successful green-power programs, but more than 750 others are offered by both investor-owned and public, municipal utilities in 38 states.

A variation on this is the option to purchase renewable energy certifi­cates (RECs), or "green tags." These are essentially direct payments to third-party agents such as 3Degrees in San Francisco; Sterling Planet in Norcross, Georgia; and NativeEnergy in Charlotte, Vermont, which spe­cializes in wind power generated on Native American land. REC compa­nies funnel the money to fund new wind farms and other clean-energy projects. For corporations, the purchase of RECs can be an important part of an overall sustainability strategy. Intel, for example, buys enough RECs from Sterling Planet (plus direct green power from utilities Austin Energy and PNM Resources) to offset 46% of its electricity use, making the technology giant the largest buyer of green power in the nation.

For businesses much of the financial payoff from RECs is an indirect one: positive public relations, goodwill, and improved attraction and retention of loyal customers and employees. But as GHG emissions man­dates and carbon-trading markets become more of a fact of doing busi-; ness in the United States and worldwide, RECs are becoming increasingly attractive.

That's why some of the nation's largest and best-known companies and organizations are turning to RECs as part of a green-power strategy. Combining RECs with direct purchases of wind energy and other forms of clean energy, pharmaceutical giant Johnson & Johnson bought 39% of its electricity in the United States from green-power sources in 2007. Sta­ples purchased 20%, Starbucks 20%, HSBC North America 93%, and PepsiCo and Whole Foods 100%. Some may be surprised to learn that the nation's third largest buyer of green power is the U.S. Air Force, purchas­ing 900,000 kilowatt-hours (kWh) of green electricity annually, or 9% of its total, in 2007.

Buying some utilities' green-power options, however, can yield direct, tangible business benefits. Green power can sometimes be cheaper than standard utility rates, but today that's a rare and often temporary phenomenon. The real financial advan­tage of green power is its fixed cost. A growing number of green-power customers are learning that the ability to lock in a consistent fuel charge for up to 10.years is a great business plum. It converts a variable budget line item into a fixed cost, or a volatile monthly household charge into something more consistent. Even if the initial green-power charge is a bit higher, many companies, government agencies, college campuses, and even military bases think it's worth it.

"Having to deal with the price volatility of natural gas-fired peaker plants is not a good way to do business," says J. Michael Horwitz, senior technology analyst of the clean technology and emerging industrial growth research team at Pacific Growth Equities, an investment bank in San Fran­cisco. "In my opinion, the higher highs and lower lows of natural gas prices are going to continue for some time. That is a business model killer."