7 Calculating the costs of wind energy
The costs of electricity from wind depend principally on:
- the annual energy production from the wind turbine installation
- the capital cost of the installation
- the discount rate being applied to the capital cost of the project
- the length of the contract with the purchaser of the electricity being produced
- the number of years over which the investment in the project is to be recovered (or any loan repaid)
- the operation and maintenance costs, including maintenance of the wind turbines, insurance, land leasing, offshore leasing etc.
Taking all these factors into consideration, the UK Government as part of its 2013 Energy Bill set up a system called ‘Contracts for Difference’ which introduced ‘strike prices’ for various renewable and non-renewable electricity generators from 2015, see Figure 18.
If the prevailing market price for electricity is lower than the strike price, the generator will be paid the difference; and if higher, the generator will have to refund the difference.
In the next section you will take a look at offshore wind energy.