We’ve all heard that wind energy is too expensive, and that massive investments in wind will drive up electricity rates for consumers. This argument is based on the belief that wind energy is more expensive on a per kilowatt-hour basis than traditional fossil fuels. While even this premise is up for debate (for example, wind is now the least expensive option for new generation for some utilities in the upper Midwest), the bigger problem is that this argument ignores how electricity markets actually work.

According to a study by Synapse Energy Economics that was released today, electricity markets are structured in such a way that wind power will actually lower wholesale power prices, which can ultimately reduce consumers’ electric bills. The Synapse study, which was released at an event organized by Americans for a Clean Energy Grid, finds that making substantial investments in wind power (and the necessary transmission lines to bring that wind to market) could save the average Midwestern residential consumer as much as $200 per year in 2020.

The key to understanding how this works is something called “price suppression”. In competitive power markets, like the one managed by the Midwest Independent System Operator (MISO), power is sold through an auction. Generators bid in a certain amount of power at a certain price. When the market is functioning properly, the price is always the marginal cost of operating the power plant. For a natural gas plant, the marginal cost is primarily fuel, with some amount of labor and other expenses. For a wind turbine, the marginal cost is effectively zero, since there’s no fuel cost and there are minimal other operating expenses. MISO has a supply curve, ranging from very low marginal cost resources like wind, through nuclear and coal, and ultimately ending at very expensive power from inefficient peaking plants fired with natural gas.

via Building Wind Energy Can Save Midwestern Consumers $200 Per Year | ThinkProgress.