The Truth about Wind Power and the 2022 UK Gas Crisis – Watts Up With That?

Bill Ponton, Princeton Venture Advisory

There is a pervasive belief among green policy adherents that wind power saved the UK hundreds of millions during the natural gas crisis brought on by the disruption of gas flow to Europe from Russia. During a 15-month period, Oct 2021- Dec 2022, natural gas prices reached levels not seen during the prior 20-year period or in the subsequent years of 2023 -2024. If there were savings, then there should be a way to quantify it. Moreover, there should also be a way to quantify the savings or cost incurred from the use of wind power outside this window of interest. In the following article, I will describe a model for costing wind generation, gas generation and wind and gas generation together. From this model, I will determine the savings or cost that wind power incurred inside and outside the period in question.

In 2023, the UK had wind power capacity of 30 GW with onshore and offshore capacity of 15 GW each. The onshore capacity generated 38TWh, while the offshore capacity generated 53 TWh, for total wind generation of 91 TWh. The onshore and offshore capacity factors were 29% and 40%, respectively, with an overall capacity factor of 35%.

Wind power can not work in isolation but must be paired with natural gas-powered turbines. Gas turbine power capacity of which the UK has 32 GW must be available at a moment’s notice to ramp up and compensate for vacillations in wind power. The cost of operating and maintaining (O&M) gas turbine generation is not diminished with the advent of wind power. It is more expensive to operate as it must recoup capital, operating, and maintenance costs across a smaller window of power generation time as wind substitutes for gas turbine power. For this reason, it is best to conceive of wind and gas as working in tandem. In 2023, gas turbine generation was 99 TWh. Together, wind and gas generated 190 TWh.

The EIA estimate of offshore and onshore capital costs are 6,041 USD/kW and 1,718 USD/kW, respectively. Its estimate of offshore and onshore O&M costs is 115 USD/kW-yr and 27 USD/kW-yr, respectively. Assuming a useful project life of 20 years and a weighted average capital cost (WACC) of 6%, the yearly finance payment and O&M cost for offshore and onshore are 9.7 Billion USD/yr and 2.7 Billion USD/yr, respectively, for a total of 12.3 Billion USD/yr. That makes offshore and onshore wind energy cost 0.184 USD/kWh and 0.070 USD/kWh, respectively, or 0.135 USD/kWh combined. In terms of GBP/MWh, that would be 144 GBP/MWh for offshore, 55 GBP/MWh for onshore and 106 GBP/MWh combined.

The EIA estimate of gas turbine capital cost is 1201 USD/kW. Its estimate of O&M cost is 15USD/kW-yr. Assuming a useful project life of 20 years and a weighted average capital cost (WACC) of 6%, the yearly finance payment and O&M cost for gas turbine 3.9 billion USD/yr. Furthermore, assuming thermal efficiency of 60% and using the 25-year historical gas price average of 5 USD/mmBTU, the yearly fuel payment for 99TWh of gas generation is 3.2 billion USD/yr. The total yearly payment including capital finance, O&M and fuel is 7 billion USD/yr. That makes natural gas energy cost 0.071 USD/kWh. In terms of GBP/MWh, that would be 56 GBP/MWh. For comparison, without wind power, natural gas would need to generate 190 TWh. The yearly fuel payment would be 6.1 billion USD/yr. The total yearly payment including capital finance, O&M and fuel is 10 billion USD/yr. The natural gas energy cost is then 0.052 USD/kWh, or 41 GBP/MWh.

Together, natural gas and wind energy cost 0.102 USD/kWh or 80 GBP/MWh. The cost difference between natural gas and wind working in tandem versus natural gas working solo is 39 GBP/MWh. Energy from wind and gas combined is twice as expensive as gas alone. However, that inference is predicated on use of 25-year historical gas price average of 5 USD/mmBTU for fuel cost. As repeatedly pointed out by green advocates, natural gas price departed from the historic average from Oct 2021- Dec 2022. (see Fig 1)

Figure 1

The question is how much this departure from the historic norm impacted the relative cost of wind and gas working in tandem versus gas by itself. In order to answer it, I graphed wind power savings, defined as the difference in cost between wind and natural gas combined and natural gas alone, based on the price of natural gas in the UK at each period extending back five years to 2019. It shows that wind provided negative savings to the UK until the natural gas price spiked over the period Oct 2021- Dec 2022 where it provided positive savings, then it reverted to negative savings from Jan 2023 to present. (see Fig 2)

Figure 2

Even more revealing is the graph of cumulative wind power savings. It shows a steady decline in savings so that over the period from Jun 2019 – Sep 2021, wind power cost the UK cumulatively 18 billion GPB over gas power. From Oct 2021- Dec 2022, it recovered about 8 billion, but since then it has declined back to a cumulative loss of 18 billion GBP over the five-year period. (see Fig 3)

Figure 3

In a sense, wind power advocates are correct in saying that wind saved the UK billions during the gas crisis of 2022, but it was only within that narrow window of time that wind has provided the UK with any savings.

My excel calculations are here and here.