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The Economics of Wind Power

Gerrit van Kooten

Annual Review of Resource Economics, 2016, vol. 8, issue 1, 181-205

Abstract: Many countries have incentivized wind power projects to reduce their reliance on fossil fuels for generating electricity. As shown in this review, the benefits and costs of integrating electricity from an intermittent wind source into a preexisting electricity grid depend on the operating protocols of the electricity system, the preexisting generation mix, wind profiles, and the nature of economic incentives. Electricity systems are discussed from generation through transmission and distribution to retail demand, including how wind energy impacts investment in marginal (peak time) generating assets. The discussion also examines issues that could limit the usefulness of wind power at the high penetration rates now envisioned: the inability to store electricity, the need for fast-responding backup-generating capacity, network instability, low-capacity factors, and inappropriate incentives. Overall, this review finds that the costs of wind power likely exceed the benefits and that there may be limits to the proportion of electricity that can be generated by wind.

Keywords: climate change; intermittent energy; electricity market deregulation; peak load pricing; electricity storage; demand management; fossil fuel externalities; generating-capacity investment (search for similar items in EconPapers)
JEL-codes: L51 L94 Q42 Q48 Q54 (search for similar items in EconPapers)
Date: 2016
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