In this post, the cost of conventionally-generated power is compared with the cost of wind-generated power. To obtain a comparable picture, calculations for conventional technologies are prepared utilising the Recabs-model, which was developed by the IEA in its Implementing Agreement on Renewable Energy Technology Deployment. The general cost of conventional
electricity production is determined by four components:
• Fuel cost
• Cost of CO2 emissions (as given by the European Trading System for CO2, the ETS)
• O&M costs
• Capital costs, including planning and site work
Fuel prices are given by the international markets and, in the reference case, are assumed to develop according to the IEA’s World Energy Outlook 2007, which assumes a crude oil price of $63 /barrel in 2007, gradually declining to $59 /barrel in 2010 (constant terms). Oil prices reached a high of $147/ barrel in July 2008. As is normally observed, natural gas prices are assumed to follow the crude oil price (basic assumptions on other fuel prices: Coal €1.6/GJ
and natural gas €6.05/GJ). As mentioned, the price of CO2 is determined by the EU ETS market; at present the CO2 price is around 25 €/t.
Here, calculations are carried out for two state-of-the art conventional plants: a coal-fired power plant and a combined cycle natural gas combined heat and power plant, based on the following assumptions:
• Plants are commercially available for commissioning by the year 2010
• Costs are levelised using a 7.5% real discount rate and a 40-year lifetime (national assumptions on plant lifetime might be shorter, but calculations were adjusted to 40 years.)
• 75% load factor
• Calculations are always carried out in €2006
When conventional power is replaced by wind-generated electricity, the avoided costs depend on the degree to which wind power substitutes for each of the four components. It is generally accepted that implementing wind power avoids the full costs of fuel and CO2, as well as a considerable portion of the O&M costs of the displaced conventional power plant. The level of avoided capital costs depends on the extent to which wind power capacity displace investments in new conventional power plants, and thus is directly tied to how wind power plants are integrated into the power system.
Studies of the Nordic power market, NordPool, show that the cost of integrating variable wind power in Denmark is, on average, approximately 0.3-0.4 c€/ kWh of wind power generated, at the present level of 20% electricity from wind power and in the existing transmission and market conditions. These costs are completely in line with experiences in other countries. Integration costs are expected to increase with higher levels of wind power penetration.
As shown in the reference case, the cost of power generated at conventional power plants is lower than the cost of wind-generated power under the given assumptions of lower fuel prices. When comparing to a European inland site, wind-generated power is approximately 33-34% more expensive than natural gas- and coal-generated power.
This case is based on the World Energy Outlook 2007 assumptions on fuel prices, including a crude oil price of $59/barrel in 2010(26). At the time of writing, (September 2008), the crude oil price is $120/barrel. Thus, the present price of oil is significantly higher than the forecast IEA oil price for 2010.

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