What is meant by “externalized costs”?
Externalized costs are real costs that are not quantified within the levelized cost calculations presented in the internalized cost articles. These costs are directly or indirectly paid by various sectors of the economy in forms such as pollution-related health costs, grid integration costs of intermittent renewables, and a reduction in the free services rendered by the biosphere.
Externalized costs of onshore wind
It is well known that wind power has very low climate change and pollution impacts. There are also some controversial external effects like noise, bird/bat fatalities and loss in property values, but I could not find compelling evidence that these effects are large enough to be valued.
Environmental impacts of wind and other renewable energy are well summarized in a recent review of ~100 case studies. The main result is shown below:
Key: AP = Acidification potential, EP = Eutrophication potential, GWP = Global warming potential, POCP = Photochemical ozone creation potential.
The global warming potential of wind power is about 10 kgCO2/MWh. Using a CO2 price of $36/ton as for other renewable energy technologies yields a very low cost of $0.36/MWh. Other environmental effects appear to be similarly low, but we will assume these impacts increase the externality to a round $1/MWh.
However, a much more important externalized cost of wind power is related to its intermittency. Three main costs are associated with this:
- Balancing costs: The need for spinning reserve because of imperfect forecasting of wind power output.
- Grid-related costs: The need for grid expansion to get wind power from regions of high wind resource and low NIMBYism to population centres.
- Profile costs: The underutilization of dispatchable generating capacity or, alternatively, the fact that most wind power is generated when the electricity price is low.
These costs have been recently reviewed from more than 100 published studies on the topic. Balancing costs (shown below) appear to be quite low: in the range of €2/MWh.
The study reviewed a wide scatter of data for grid related costs and finally presented a best estimate of €5/MWh based on data from Sweden where the market apparently is correctly structured to give locational price signals.
A review of profile costs is shown below. Given that most wind turbines are probably located in regions where the penetration is 5-10%, a cost of €5/MWh seems appropriate here as well. In practice, operators will try to find an optimum between grid-related costs and profile costs. More grid expansion can spread wind power out over a larger region, thereby decreasing the effective market share and overall variability to reduce profile costs. We will learn more about the quantification of this optimization exercise over coming years.
The total integration cost therefore amounts to $14/MWh. Adding the $1/MWh for environmental impact raises the final externalized cost to $15/MWh. Although the different metrics discussed above might vary slightly for offshore wind, the final number ($15/MWh) will also be used for offshore wind power, given the limited availability of data for offshore wind externalities. For perspective, the internalized costs of onshore and offshore wind power were estimated as $81/MWh and $174/MWh respectively.
If you have a number that differs significantly from the $15/MWh estimate given above, please add it in the comments section below. Please start your comment with the keyword “DATA”, followed by a brief explanation and preferably a linked reference. Each DATA comment will be weighted by the number of “likes” when the data is ultimately processed.
Many comments are welcome. More data = greater accuracy.