In Brazil Auction, Wind Power is Cheaper than Natural Gas

Brazil’s national electric company just wrapped up an auction for contracts with wind, biomass, hydro and natural gas developers. And for the first time ever, the price per megawatt-hour from the wind plants came in below the price for natural gas.

The auctions covered 44 new wind projects worth 2 GW of capacity. The owners of those wind farms signed contracts to sell electricity for 99.58 reais ($61.93) a megawatt-hour — about 6.2 cents per kilowatt-hour. The prices for natural gas projects came in at 103 reais per MWh ($64.48). The price difference isn’t staggering, but it marks a major downward pricing trend for wind, which was priced 19% higher on average in auctions last year.

The Brazilian government issued a press release after the auctions:

These energy auctions were the first in Brazil for 2011. [The President and CEO of Brazil’s Energy Research Company (EPE), Mauricio] Tolmasquim noted that they were significant for two key reasons:  they reflect a new feasibility of market competition between wind and natural gas sources – something unheard of internationally; and they demonstrate that wind prices continue to fall in Brazil.

“That wind power plants have been contracted at two digit prices, below R$ 100/MWh, showcases the energy market competition through auctions.  That wind power could reach these lows vs. natural gas was unimaginable until recently,” said Mr. Tolmasquim.

Brazil has an import tariff on foreign wind turbines, which has encouraged companies like GE, Siemens and Vestas to open manufacturing operations in the country. That has helped push down the cost of developing projects in Brazil.

While these latest projects are a product of that downward cost trend, they still need to get financed and built – and it remains to be seen if developers will be able to make the wind farms pencil out with such low contracts.

Here in the U.S., the cost trend is increasingly positive. According to a Ryan Wiser of the Lawrence Berkeley National Laboratory who co-authored a report on 2010 technology trends, some developers are signing contracts for around 3 cents per kilowatt-hour in the U.S., making them competitive with large natural gas plants.

The slowdown in installations after the 2008 financial crisis has pushed international prices for turbines downward more than 20%. Larger blades, bigger turbines, and lighter materials are also helping push down the cost of developing projects.

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