Wind Energy Economics

Wind energy is now cost-competitive with new natural gas generation due to continuing technological innovation. In fact, the price of American wind power has declined more than 90% since 1980, benefiting utilities and consumers. This is one reason that as of January 2018, there were more than 28,668 MW of new wind projecs under construction or in advanced development in the U.S. The following recent reports demonstrate how wind energy costs measure up against conventional energy sources:

  • According to Lazard, an asset management firm based in New York, new wind projects are often cheaper than coal and natural gas.
  • Wind is also now cost-competitive with coal in India, according to a report from HSBC Global Research.


Price per Kilowatt-Hour

The cost of energy from the wind is mostly a function of the wind resource – how fast it blows, how often, and when. Higher-speed winds are more easily and inexpensively captured. The more the wind blows, the more power will be produced by wind turbines. The term used to describe this is “average capacity,” which is simply the percentage of power a turbine produces compared to what it could produce if it were always spinning.

A more precise measurement of output is the “specific yield.” This measures the annual energy output per square meter of area swept by the turbine blades as they rotate. Overall, wind turbines capture between 20% and 40% of the energy in the wind. So at a site with average wind speeds of 7 m/s, a typical turbine will produce about 1,100 kWh per square meter of area per year. If the turbine’s blades are 35 meters long, for a total swept area of 1,000 square meters, the power output will be about 1.1 million kWh for the year.

The power output from a wind turbine is a function of the cube of the average wind speed. In other words, if wind speed doubles, the power output increases eight times. Also, wind speed increases as the height from the ground increases. For example, if the average wind speed at 10 meters above ground is 6 meters/second (m/s), it will typically be about 7.5 m/s (25% greater) at a height of 50 meters. Finally, the power in the wind varies with temperature and altitude, both of which affect the air density. Chilly winter winds in Minnesota will carry more power, due to greater air density, than warm summer winds of the same speed high in the passes of southern California.

On the other hand, wind turbines operate over a limited range of wind speeds. If the wind is too slow, they won’t be able to turn, and if too fast, they shut down to avoid being damaged. Ideally, a wind turbine should be matched to the speed and frequency of the resource to maximize power production.

Another factor in the cost of wind power is the turbines’ distance from transmission lines. It is not unusual for remote areas (for example, northern Canada or Siberia) to have high average wind speeds, but be too far from major electricity demand centers (cities) for the wind power to be used economically.  Considerable wind energy development has taken place in recent years in U.S. states like Indiana and Illinois, which are not as windy as North Dakota or Montana but have substantial transmission capacity.

For offshore wind projects, the economics depend on the distance from shore because turbine foundation costs increase rapidly with increasing water depth. Offshore wind turbines are generally much larger than land-based turbines. Larger rotors can be incorporated more easily because large rotor blades can easily be transported by ship.

Wind and Natural Gas

The U.S. is currently experiencing very low natural gas prices due to a massive increase in production of gas from shale deposits. Industry experts believe that the prices are too low to be sustained because they do not provide an adequate income stream to producers. Nevertheless, gas supplies are likely to be abundant for some time.

Although abundant natural gas presents competitive challenges for wind power, there is still an important place for wind as part of a diversified electric utility portfolio and a hedge against volatility in fuel prices. Wind energy’s fuel cost is zero, so the price of electricity from a wind farm is predictable over the long term—which is not true for any fueled power plant.

In addition, wind and natural gas complement each other well in a utility system—gas turbines can easily be turned up and down as needed to match variations in the output of wind farms. The combination of these two energy sources can provide abundant electricity with lower price volatility and greenhouse gas emissions than natural gas alone.



The availability of incentives may greatly affect the economics of a wind project, large or small. The Database for State Incentives for Renewables and Efficiency (DSIRE) is the most current and comprehensive source of state incentives, policies, regulations and contacts pertaining to the purchase and installation of small wind systems and other technologies.

Established in 1995, DSIRE is an ongoing project of the North Carolina Solar Center and the Interstate Renewable Energy Council. It is funded by the U.S. Department of Energy’s Office of Energy Efficiency and Renewable Energy and administered by the National Renewable Energy Laboratory.

Important incentives for utility-scale projects are the Production Tax Credit (PTC) and the Investment Tax Credit (ITC). The PTC, created by the Energy Policy Act of 1992, is a commercial tax credit that applies to wholesale electrical generators of wind energy facilities based on the amount of energy they generate. The ITC is a tax credit granted for specific investment types, such as wind projects.



Financing can also affect the economics of wind projects.

Brookings. (2012). Smarter Finance for Cleaner Energy: Open Up Master Limited Partnerships (MLPs) and Real Estate Investment Trusts (REITs) to Renewable Energy Investment (PDF)

Environmental and Energy Study Institute. (2012). Issue Brief: New Approaches in Renewable Energy Finance

Frankfurt School – UNEP Collaborating Centre for Climate & Sustainable Energy Finance. (2014). Global Trends in Renewable Energy Investment 2014

New York Green Bank: A state-sponsored investment fund dedicated to overcoming current obstacles in clean energy financing markets and increasing overall capital availability through various forms of financial support such as credit enhancement, project aggregation, and securitization.


More Information on Wind Energy Economics

American Planning Association. (2011). Planning for Wind Energy (PDF 5.6 MB)

See pages 26-33 of this report for a detailed discussion of wind costs, incentives, impacts of economies of scale, and a cost comparison of electricity options.

Bloomberg New Energy Finance. (2013). Global Trends in Renewable Energy Investment 2013 (PDF 4.5 MB)

For the first time in several years, 2012 saw a decline, not a new record, for global investment in renewable energy. Dollar investment worldwide was facing a down-draft from uncertainty over support policies in Europe and the United States and from sharp declines in technology costs. This report summarizes the trends.

Lawrence Berkeley National Laboratory. (2013). Re-Visiting the Long-Term Hedge Value of Wind Power in an Era of Low Natural Gas Prices.

This report investigates the degree to which wind power can serve as a cost-effective hedge against rising natural gas prices, given the significant reduction in gas prices in recent years and expectations that gas prices will remain low for many years to come.

Lawrence Berkeley National Laboratory; National Renewable Energy Laboratory. (2012).Recent Developments in the Levelized Cost of Energy from U.S. Wind Power Projects

This presentation summarizes recent work on wind energy costs. The LBNL-NREL work analyzes wind energy costs in three time periods: projects installed in 2002-2003, projects installed in 2009-2010, and projects based on current wind turbine pricing to be installed in 2012-2013.

U.S. Department of Energy. Wind Power Economics: Past, Present, and Future Trends Webinar

This webinar, which is available for online viewing, featured three related presentations that explore historical trends and provide insight on what the future may hold. Mark Bolinger of Lawrence Berkeley National Laboratory covered highlights from the recent report Understanding Trends in Wind Turbine Prices Over the Past Decade, focusing in part on turbine scaling as a critical turbine price driver. Ryan Wiser of Lawrence Berkeley National Laboratory demonstrated that—despite putting upward pressure on turbine prices—turbine scaling and other design improvements over this period have provided a net benefit in terms of the cost of wind generation, and that with today’s lower turbine prices, the cost of wind generation from soon-to-be-built plants is lower than it has been in years. Finally, Eric Lantz of the National Renewable Energy Laboratory discussed the potential for further technology-based cost reductions, assuming ongoing turbine scaling and full realization of opportunities for technology improvement.

Windustry. Economics

This site offers information about the risks, costs, and benefits involved with siting a wind turbine.


Wind Energy Markets

At the end of September 2014, wind project developers reported more than 13,600 megawatts (MW) of wind capacity under construction across 105 projects in 21 states. The majority of wind construction activity continues to be focused within Texas (>7,600 MW). There are more than 1,170 MW under construction in Oklahoma, more than 1,050 MW under construction in Iowa, more than 780 MW under construction in North Dakota, and more than 670 MW under construction in Kansas.

More current statistics are available in the U.S. Wind Industry 2014 Market Reports. You can access AWEA’s U.S. wind industry market reports from 2009 to the present here.



Some of the best wind resources in the country are located in areas remote from the largest load centers and markets for electricity. By expanding and upgrading transmission systems, the nation could better access wind energy, which could be more easily moved from distant areas to population centers where electricity demand is greatest. Also, by facilitating the expansion and geographical dispersion of wind power across a wide area, an upgraded transmission grid improves the reliability of wind. When wind output is slowing at one location, it is usually increasing somewhere else. Thus, dispersed wind power compensates for short-term fluctuations.

Aside from leveraging our wind resources, there are a number of other reasons why America needs to invest in its power grid. A congested and obsolete power grid limits consumers’ access to lower-cost power. It is also inefficient and prone to blackouts. These factors alone cost American consumers tens of billions of dollars per year in elevated electric rates and lost productivity.

The U.S. Department of Energy has also identified transmission limitations as the largest obstacle to realizing the economic, environmental, and energy security benefits of obtaining 20% of our electricity from wind power. Wind power projects totaling 127,071 MW were in the interconnection queue at the end of 2012, waiting to connect to the electricity transmission system because there is not enough transmission capacity to carry the electricity they would produce.


More Information on Wind Energy Markets

Transmission is a large topic area. The National Wind Coordinating Collaborative publishes reports and case studies related to transmission and maintains a comprehensive research section on the NWCC website.

The National Renewable Energy Laboratory maintains a Transmission Grid Integration website that includes publications, data and resources, and FAQs.

During 2011, the American Recovery and Reinvestment Act supported a groundbreaking study that identifies the challenges associated with increasing variable generation. The U.S. Department of Energy recently published a report, Strategies and Decision Support Systems for Integrating Variable Energy Resources in Control Centers for Reliable Grid Operations: Global Practices, Examples of Excellence and Lessons Learned (PDF 6.56 MB), that discusses the study’s findings regarding wind energy grid integration. The report provides utilities with recommendations and examples of success stories aimed at informing the design of decision-support tools, solutions, and strategies for integrating more wind energy into power systems. An executive summary (PDF 439 KB) of the report is also available.