The levelized cost of electricity (LCOE) is the present
value of total costs incurred to deliver electricity to
the point of grid connection, divided by the present
value of energy production over a defined duration. In
effect, LCOE is the cost of generating electricity from
a specific source—over an assumed financial lifetime—that
allows recovery of all project expenses and
meets investor return requirements. LCOE provides an
economic assessment of the cost of the energy-generating
system including all costs over its lifetime:
initial investment, operations, and maintenance; cost
of fuel; and cost of capital.
[/i]In sites with higher wind speeds, the LCOE of wind
declined by more than 33% from 2009–2013, and, in
some markets, wind power sales prices are competitive
with traditional fossil generation [6][i]
Significant variations, however, are seen in the LCOE of individual wind projects. The LCOE for wind is influenced
by capital and balance of system costs, operations
and maintenance (O&M) costs, financing costs, and
project performance. Incentives and policies also
have significant effects on project-specific LCOE,
most notably for wind project development costs and
power purchase agreement (PPA) terms.
Installation rates for wind projects are affected by
overall electricity demand, wholesale power prices,
and state and federal policies. A national boom in
natural gas reserves has created some uncertainties
for wind power in the near term. The Energy Information
Administration (EIA) confirmed 29% of the
nation’s electric power as coming from natural gas in
2012. This trend fell to 26% in 2013, but natural gas
still exerted downward pressure on wholesale power
prices. At the same time, overall energy demand since
2008 has remained constant due to a stagnant economy
coupled with energy efficiency improvements—
thus reducing overall growth for electricity generation
technologies, including wind.
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