The cost of wind-generated electric power has dropped substantially since the first modern turbines were installed in the 1980's. By 2004, according to some sources, the price in the United States was lower than the cost of fuel-generated electric power, even without taking externalities into account.[1][2][3] At this time, wind energy was reported to cost one-fifth as much as it did in the 1980s, and some expected that downward trend to continue as larger multi-megawatt turbines are mass-produced.[4] However, in the U.S., installation costs have increased significantly over the past couple of years, and according to the major U.S. wind industry trade group, now average over 1600 U.S. dollars per kilowatt[5], compared to $1200/kW just a few years ago. A British Wind Energy Association report gives an average generation cost of onshore wind power of around 3.2 pence per kilowatt hour.[6] Wind power is growing quickly, at about 38% in 2003,[7] up from 25% growth in 2002. In the United States, as of 2003, wind power was the fastest growing form of electricity generation on a percentage basis.[8]
Most major forms of electric generation are capital intensive, meaning that they require substantial investments at project inception, and low ongoing costs (generally for fuel and maintenance). This is particularly true for wind and hydropower, which have fuel costs close to zero and relatively low maintenance costs; in economic terms, wind power has an extremely low marginal cost and a high proportion of up-front costs. The "cost" of wind energy per unit of production is generally based on average cost per unit, which incorporates the cost of construction, borrowed funds, return to investors (including cost of risk), estimated annual production, and other components. Since these costs are averaged over the projected useful life of the equipment, which may be in excess of twenty years, cost estimates per unit of generation are highly dependent on these assumptions. Figures for cost of wind energy per unit of production cited in various studies can therefore differ substantially.
Estimates for cost of production use similar methodologies for other sources of electricity generation. Existing generation capacity represents sunk costs, and the decision to continue production will depend on marginal costs going forward, not estimated average costs at project inception. For example, the estimated cost of new wind power capacity may be lower than that for "new coal" (estimated average costs for new generation capacity) but higher than for "old coal" (marginal cost of production for existing capacity). Therefore, the choice to increase wind capacity by building new facilities will depend on more complex factors than cost estimates, including the profile of existing generation capacity.