2. Wind Turbine Economics.
The return on investment, payback time and cost per kilowatt-hour for wind-generated power.
The return on the wind turbine investment, the payback period and the cost per kilowatt-hour of wind generated electricity are essential factors in determining whether a particular installation is worthwhile or not. These factors can be calculated in a number of ways depending on how the accounting is done and it is not feasible in a general program to include all the possible methods that might be used. Instead, in the WindPower program, a fairly basic approach is adopted that nonetheless is sufficiently flexible to take reasonable account of grants, interest payments and so on. The information that is necessary to make an assessment of the economic viability of a wind turbine installation are
- Turbine and installation costs
- Annual maintenance costs
- Reference price received and/or saved for the electricity produced
- Turbine lifetime
Turbine and installation costs
No attempt has been made to include the cost of turbines in the power curve database available from the download page because they will vary from country to country and also change with time. So, in order to look at the financial viability of a scheme, it will be necessary to approach wind turbine suppliers to obtain cost estimates. However, if a user of the WindPower program wants to obtain a general idea about a possible wind turbine installation then some general guidance can be given on costs. The figure on the right shows the costs per kilowatt of rated power output for a number of small turbines with rated outputs below 15 kilowatts. They were obtained from suppliers list prices valid for 2009. The figure shows that the price per kilowatt falls as the turbine power output increases. For small turbines of just one or two kilowatts, the price is in the range from around £4500 to £6500 per kilowatt of installed power. This falls to £2000 to £3000 in the region of 15 kilowatts. Above this, the figure flattens out and, for larger turbines in the megawatt category, the price per kilowatt of rated power drops to around £500 to £1000 per kilowatt of installed power.
On top of the cost of the turbine, installation costs have to be included. These will amount to something in the range from 10% to 20% of the turbine cost but will be strongly affected by the details of the particular site. For small 'domestic' turbines of a few kilowatts, installation costs range from about £2000 to £3000 but it is possible for someone to carry out most of this installation work themselves if they have the necessary skill and time.
For large wind farms, about 65% of the costs are the turbines themselves and installation and other costs account for the remaining 35%. In the case of offshore wind farms, the installation costs are about 20% higher than for onshore developments.
Annual maintenance costs.There has been no careful examination of wind turbine annual maintenance costs over the whole range of wind turbine sizes but the usual guideline is 1% to 3% of the turbine cost. The lower figure of 1% is probably more appropriate for small 'domestic turbines and one might expect maintenance costs to be higher towards the end of the turbine life.
Reference price received and/or saved for electricity generated.In the menu of financial options of the WindPower program, it is necessary to input a reference price per kilowatt-hour that the turbine operator receives and/or saves for electricity generated by the turbine. The notes below indicate how this can be done.
(with comments on incentive schemes and feed-in tariffs to encourage investment in wind power.)
There are a bewildering array from country to country of incentive schemes by which wind turbine operators receive payments for the kilowatt-hours of electrical energy generated by a wind turbine. The payment scheme might include different levels of payment for electricity used locally as compared to that exported to the grid. It can also include different tariffs depending on the time of day when the electricity is generated. The most common schemes are usually referred to as feed-in tariffs. An example of the UK's feed-in tariff scheme is shown in the figure on the right. This is a scheme which pays the turbine operator a fixed price for every kilowatt-hour of energy generated. This is usually a sum guaranteed typically for twenty years. For the purposes of the example, this 'generation' tariff is set for illustrative purposes at 20 pence (or whatever currency unit is appropriate). If the turbine produces 10,000 kilowatt-hours per year then the operator will receive £2,000 per year. In addition, the operator receives a further 'feed-in' tariff of, say, 3p for every unit exported to the grid system. In this case, 6,000 kilowatt-hours are exported giving an additional payment of £180. Finally, the operator uses 4,000 units locally in his home or business and so saves the cost of the electricity normally supplied by the local utility company. If we say that the charge for these units is 12 pence per kilowatt-hour then there will be a savings of £480. Overall, the turbine would generate an effective income of £2000 + £480 + £180 = £2660.
For larger turbines, the incentive schemes are slightly different. A large turbine operator who sells his energy output to a distribution company will receive the market rate for the energy - typically around 8 pence per kilowatt-hour in the UK. In addition, he will receive a Renewables Obligation Certificate for every megawatt-hour of electricity produced. This certificate can be traded and, at the moment, they sell for the equivalent of about 4 pence per kilowatt-hour. Different countries (and states within those countries) operate a range of schemes but they are all broadly similar to the above arrangements.
Whatever scheme is in operation, it is necessary in the WindPower program to have an average figure for the reference electricity price. In the scheme above, the price received per kilowatt-hour for exported electricity is 20p per kilowatt-hour but it is effectively 32p if the electricity is used locally (i.e. 20p generation tariff plus 12p for savings on electricity that would otherwise be supplied by the utility company). On the other hand, if the electricity was all delivered to the grid, the operator would receive only an extra 3p per kilowatt-hour and so the reference electricity price would be 23p per kilowastt-hour. Thus, in order to use the WindPower financial options, one could take the lower figure to give the most pessimistic estimate of payback period and return on investment or, say, an intermediate value like 27.5p per kilowatt-hour to give a more optimistic estimate.
As has already been mentioned, the range of incentive schemes is very large. Most European countries operate feed-in tariff schemes similar to the one described above. In the USA, the situation is more complex because apparently feed-in tariffs may not be legal and other types of incentive schemes vary from state-to-state. A good introduction to incentive schemes can be found on the website below.
In the UK, the tariff rates are in a state of flux with the movement towards lower payments than previously. The table below gives the feed-in generation and export tariffs for new installations as of August 2012 and beyond. The italicised figures will be the subject of small adjustments due to inflation. It is important to note that after December 2012, there will be a single tariff of 21p per kWh for all turbines below 100kW but the export tariff will be the subject of a small increase to 4.5p per kWh.
Full details of the tariff scheme and all the discussion documents on the subject can be found by clicking on the following link - feed-in tariffs website
Using the WindPower program for the return on investment.When the Finance → (Total return/Total cost) option is selected from the Menu bar, a screen is presented for calculating the ratio of the returns on the investment to the total turbine costs. The expression for the returns ratio is
The numerator (the bit above the line) is just the total payments received for the electricity generated by the turbine over its lifetime. The factor (365 x 24) just converts the turbine lifetime in years into lifetime in hours. Tref is the price received (including savings for local use) for the electricity produced by the turbine and Pm(Um) is the mean power produced by the turbine at a wind speed of Um. The denominator (the bit below the line) is the cost of the turbine and its installation and all the annual recurrent costs.
An example is shown below of a returns screen for a small 'domestic' wind turbine - the Skystream 3.7 metre diameter, 1.9 kilowatt wind turbine. The returns ratio is shown in both tabular and graphical form and can be exported for use in spreadsheet programmes like Excel. In addition to the returns ratio, the table also shows the equivalent compound interest rate if all the turbine costs had been invested upfront in a simple compound interest savings scheme. This is rather more meaningful measure of performance than some other equivalent interest rates used by accountants - like the internal rate of return - which are more appropriate to enterprises in which capital investments are spread throughout the lifetime of a business.
Using the WindPower program for the payback period.Some users will also be interested in the time it takes to recover the cost of a wind turbine installation. This might be a somewhat more complicated calculation because it depends on the cash flows of meeting the various costs. However, for present purposes, a first estimate can be obtained by assuming that the turbine and installation costs are all met upfront. Under these circumstances, an estimate of the payback period can be obtained from the expression
Using the WindPower program for the cost per kilowatt-hour.Although it is of less interest to the small turbine user than the return on the investment or the payback period, the intrinsic cost per kilowatt-hour maybe of interest to some wishing to compare the economics of different sources of renewable energy.
The expression used for the cost of the electricity per kilowatt-hour is
All the results on returns ratio, payback period and cost per kilowatt-hour can be printed or saved as comma-separated-variable files that can be imported into spreadsheet programmes like Excel.
Next, the power-output profile menu option.