On the levelised cost of energy of windfarms

Abstract

As windfarms spread, so have the discussions concerning their economics. Some argue from a basic definition of Levelised Cost of Energy (LCOE), that wind energy is more cost effective than other energy sources. The opponents argue that the LCOE must be estimated taking a systemic view including opportunity costs, which changes the picture. The opportunity costs are assessed in this paper using a novel approach based on a simulation model to estimate the number of windfarms that will achieve a certain nameplate output. Then, this is combined with the LCOE of dispatchable energy sources to estimate the opportunity cost. A Monte Carlo simulation is run to estimate the effects of uncertainty and variations. The results are clear – windfarms are not cost effective when a certain output must be guaranteed as major opportunity costs are introduced. However, as a supplementary source of energy in specific situations, windfarms can be useful.