Decision makers comparing wind power prices with apparently cheaper energy sources should take full account of the lower exposure to fuel and carbon price volatility that wind offers, a wind industry group said.
The European Wind Energy Association (EWEA) said the benefit was so substantial it could justify a larger share of wind energy in most European countries, even if wind was more expensive per kilowatt hour than other forms of power generation such as coal or gas.
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 International Energy Agency (IEA), European Commission or government level, the EWEA said in a report, released on Monday at a wind conference.
They are standard methods that you can borrow from finance theory that allow you to include those risks in comparing costs, Christian Kjaer, chief executive of EWEA, told Reuters.
The wind sector is suffering from the global economic crisis, which has dried up project finance, while a sharp fall in oil prices since July has weakened its competitiveness compared with gas. But it is aided by subsidies such as a guaranteed price premium in Germany, Spain and France.
With oil prices at around $50 a barrel it was probably cheaper to produce electricity from coal-fired power plants than wind energy, Kjaer said, but once fuel and carbon price risks were added wind power would become a more attractive option.
Over a 20-year period you can know how much the energy will cost within a one to three percent certainty, Kjaer said, adding that wind speeds averaged out over the years.
Wind power generates just over four percent of consumed electricity in the European Union, the EWEA said.
Power companies which are building new electricity generating capacity are taking on that risk but if fuel prices go up, that extra cost is transferred to consumers, he said.
It was vital for competition in electricity markets to be effective, so that the risk would be taken into account by those making the investment decisions.
If the markets don't work I can't prove that wind is cheaper and that's why, even though it makes economic sense, it doesn't have a market impact yet and that's why you still need frameworks (subsidies), Kjaer said.