Design of Wind Energy Systems

Chapter 11-Wind
Energy Economics
 Reliable Wind Energy

We can reliably produce wind energy.

That is, we have the capabilities for
1. Design and analysis
2. Manufacturing
3. Installation
4. Operation and maintenance (O&M)
5. Transportation
Given these capabilities, is wind
energy cost effective?

Market value
Cost of
generating
wind energy ≤ of the wind
energy
produced
Overview
+ In the previous chapters, the main
emphasis has been on the
technical and performance aspects
of wind turbines and their
associated systems.
+ As discussed there, in order for a
wind turbine to be a viable
contender for producing energy, it
must: (1) produce energy, (2)
survive, and (3) be cost effective.
4
Generating Costs of Grid-connected Wind
Turbines
+ The total generating costs for an electricity-producing wind
turbine system are determined by the following factors:
1. Wind regime;
2. Energy capture efficiency of the wind turbine(s);
3. Availability of the system;
4. Lifetime of the system;
5. Capital costs;
6. Financing costs;
7. Operation and maintenance costs. 5
Costs of generating wind energy

Capital

Costs => Operation

Maintenance

Economics: Predicting these costs and market values

•Economic analysis methods provide a basis to
determine cost effectiveness.
Wind energy system Economics
Introduction
Components of wind energy system
Availability/ capacity factor
Life time
Capital cost
Operation and Maintenance cost (O&M cost)
Economic Analysis Methods
Learning curves and progress ratio
Capital cost
Simple Payback period (SP)
Cost of energy (COE)
Life-cycle costing methods(LCC) 7
 Availability
+ The availability is the fraction of the time
that the wind turbine is able to generate
electricity.
+ The times when a wind turbine is not
available include downtime for
periodic maintenance or
unscheduled repairs.
Reliable numbers for availability can be
determined only if data for a large
number of turbines over an operation Availability of the best wind turbines in
California
period of many years are available.
+ By the mid 1990s, only the United
States and Denmark had enough data to
provide this information.
8
 Availability

~ 1990 95 % availability

~ 2009 97-99% availability

(comparable to other power-
generating plants)

What about the required maintenance costs?

Assessing the availability
“ When assessing the availability figures, the
required maintenance effort must not be ignored.
From an economic point of view, a technical
availability of 95%, achieved by servicing and
maintenance costing, e.g. 10% of the total
investment, is a disastrous result.
A commercially viable situation requires an
availability of at least 95% with annual
maintenance costs of no more than 2 to 3% of the
investment cost.”
Lifetime of the Wind System
+ It is common practice to equate the design life time with the
economic lifetime of a wind energy system. In Europe, a
period of 20 years is often assumed for the economic
assessment of wind energy systems (WEC, 1993).
+ This follows the recommendations of the Danish Wind
Industry Association (2006), which states that a 20-year
design lifetime is a useful economic compromise that is used
to guide engineers who develop components for wind
turbines.
11
 WT availability WT capacity factor (CF)

Capacity factor tells us how actual annual

energy output compares with the maximum (rated
power) annual energy output, that is, if the turbine
functioned at the rated capacity for the entire year.

(E a )annual energy output (kWh)

CF =
rated power (kW) . 8760 h
Typical numerical values: 0.2 ≤ CF ≤ 0.4
Small turbine with 15 m rotor diameter
55 kW rated power
rated power per rotor-swept area 311 W/m2
annual energy yield 110000 kWh,
capacity factor = 110000/(55*8760) =0.23

Large turbine with 60 m rotor diameter

1200 kW rated power
rated power per rotor-swept area 424 W/m2
annual energy yield 3.5 million kWh
capacity factor= 3.5*106/(1200*8760)=0.33
13
 Life Time

Life Time= 20 years for economic

assessment
[Expected to reach 30 years with
adequate annual maintenance and ten-
year major maintenance overhauls]

14
Capital Costs

Cost (2006) of Danish wind turbines as a

function of size: the ‘price banana’

15
Declining cost of wind energy
Wind power experts expect wind energy costs to decline up to 35% by 2035
Technology and commercial advancements are expected to continue to drive down
the cost of wind energy,
Experts anticipate cost reductions of 17%-35% by 2035 and 37%-49% by 2050,
driven by bigger and more efficient turbines, lower capital and operating costs, and
other advancements.
Financing Costs
+ Wind energy projects are capital intensive, and the majority of
the costs must be borne at the beginning. For that reason, the
purchase and installation costs are largely financed.
+ The purchaser or developer will pay a limited down
payment (perhaps 10% to 20%) and finance (borrow) the rest.
+ The source of capital may be a bank or investors. In either
case, the lenders will expect a return on the loan.
+ The return in the case of a bank is referred to as the interest.
Over the life of the project, the cumulative interest can add up
to a significant amount of the total costs. 18
Operation and Maintenance Costs
+ The Danish Wind Industry Association (2006) states
that annual operation and maintenance (O&M) costs
for wind turbines generally range from 1.5% to 3%
of the original turbine cost.
+ This organization also points out that regular service
to the turbine constitutes most of
the maintenance cost.

19
Capital Costs of Wind Energy Systems
+ The determination of the capital costs of a wind
energy system remains one of the more challenging
subjects in wind energy.
+ The problem is complicated because wind turbine
manufacturers are not particularly anxious to share
their own cost figures with the rest of the world, or, in
particular, with their competitors.

20
Cost comparisons of wind turbine research and
development projects are particularly difficult; that
is, the development costs cannot be compared
consistently.
Also, costs other than the turbine may be site
specific.
This problem can further complicate capital cost
estimates. This is especially true for offshore
systems, in which installation costs may be large
relative to the wind turbine costs.” p. 433
In determining the cost of the wind turbine itself, one must
distinguish between the following types of capital cost
estimates:

1. Cost of wind turbine(s) today. For this type of cost

estimate, a developer or engineer can contact the manufacturer
of the machine of interest and obtain a formal price quote.
2. Cost of wind turbine(s) in the future. For this type of cost
estimate (assuming present wind turbine state of the art), one
has a number of tools that can be applied, namely: (1) historical
trends, (2) learning curves and (3) detailed examination of
present designs (including the total machine and components)
to determine where costs may be lowered. (p. 433)

22
3. Cost of a new (not previously built) wind turbine
design. This type of capital cost estimate is much more
complex since it must first include a preliminary design of the
new turbine. Price estimates and quotes for the various
components must be obtained. The total capital cost estimate
must also include other costs such as design, fabrication,
testing, etc.
4. Future cost of a large number of wind turbines of a
new design. This type of cost estimate will involve a mixture
of second and third types of cost estimates. (p. 433)

23
Historical Overview

24
Wind Turbine installed prices in the US
(Wind Energy Explained, second edition, Figure 11.5, p. 509)
25
Wind Farm Costs
+ The determination of total system capital cost, or installed capital cost,
involves more than just the cost for the turbines themselves. For
example, the installed capital cost of a wind farm could include the
following:
1. Wind resource assessment and analysis;
2. Permitting, surveying, and financing;
3. Construction of service roads;
4. Construction of foundations for wind turbines, pad mount
transformers, and substation;
5. Wind turbine and tower delivery to the site and installation;
6. Construction and installation of wind speed and direction sensors; 26
Wind Farm Costs
7. Construction of power collection system including the power wiring
from each wind turbine to the pad mount transformer and from the
pad mount transformer to the substation;
8. Construction of operations and maintenance facilities;
9. Construction and installation of a wind farm communication system
supporting control commands and data flow from each wind turbine to
a central operations facility;
10. Provision of power measurement and wind turbine computer control,
display and data archiving facilities;
11. Integration and checkout of all systems for correct operation;
12.Commissioning and shakedown;
13. Final turnover to owner or operating agency. 27
Wind Farm Costs

28
Operation and Maintenance Costs
+ Next to the purchase and installation of the wind
turbines, operation and maintenance (O & M) are the
most significant sources of costs.
+ It is especially important to project O&M costs if the
owner of a wind farm seeks to refinance or sell the
project.
Operation and maintenance costs (p. 510)
≈ 1.5 % to 3% of the original turbine cost
[Caution: O & M costs ≤ 2 to 3% of the investment cost]29
Operation and Maintenance Costs
+ The operation costs can include a cost for insurance on the
wind turbine, taxes, and land rental costs, while the
maintenance costs can include the following typical
components:
1. Routine checks;
2. Periodic maintenance;
3. Periodic testing;
4. Blade cleaning;
5. Electrical equipment maintenance;
6. Unscheduled maintenance costs.
E N G . Z A ID A L - A T A R I 30
Operation and Maintenance Costs

31
Value of Wind Energy
+ The traditional way to assess the value of wind energy is to
equate it to the direct savings that would result due to
the use of the wind rather than the most likely alternative.
+ These savings are often referred to as ‘avoided costs’.
from the reduction of fuel that Avoided costs result primarily
would be consumed by a conventional generating plant.
+ They may also result from a decrease in total conventional
generating capacity that a utility requires.

32
Value of Wind Energy
+ Given the cost reductions in wind turbines themselves
over the last several decades, there are already some
locations where wind may be the most economic option
for new generation.
+ Basing wind energy’s value exclusively on the avoided costs,
however, would result in many potential applications being
uneconomic.
+ Equating wind energy’s value exclusively to the avoided
costs misses the substantial environmental benefit that results
from its use.
33
Value of Wind Energy
+ The environmental benefits are those which arise because wind
generation does not result in any significant amount of air
emissions, particularly oxides of nitrogen and sulfur and carbon
dioxide.
+ Reduction in emissions translates into a variety of health benefits.
+ It also decreases the concentration of atmospheric chemicals that
cause acid rain and global warming.
+ Converting wind energy’s environmental benefits into monetary
(economic) form can be difficult.
+ Nonetheless, the results of doing so can be quite significant,
because when that is done, many more projects can be economic.
34
Value of Wind Energy
+ The incorporation of environmental benefits into the market for wind
energy is done through two steps:
+ (1) quantifying the benefits and (2) ‘monetizing’ those benefits.
+ Quantifying the benefits involves identifying the net positive effects on
society as a result of wind’s use.
+ Monetizing involves assigning a financial value to the benefits. It
allows a financial return to be captured by the prospective owner or
developer of the project.
+ Monetization is usually accomplished by government regulation.
+ The process frequently considers the cost of alternative measures to
reduce emissions (such as scrubbers on coal plants) to assign a monetary
value to the avoided emissions.
35
Value of Wind Energy
+ The effect of this method of incorporating
environmental benefits is to create two categories of
potential revenue for a wind project:
(1) revenue based on avoided costs and
(2) revenue based on the monetized environmental
benefits.

36
Avoided Cost-based Value of Wind Energy
+ the traditional way of assigning value to wind energy,
particularly to a utility, has been to base the value on
calculations of avoided fuel and capacity costs.
+ Fuel Savings
+ The inclusion of wind turbines in an electricity producing
system can reduce the demand for other generating plants
that require a fossil fuel input. It might appear that the
calculation of fuel saving would be quite straightforward,
but this is not generally the case.
+ The electrical system as a whole must be modeled in
order to estimate the avoided consumption of fuel. 37
Avoided Cost-based Value of Wind Energy
+ Capacity Value
+ The capacity value (or credit) of a wind system is simply defined as: ‘the
amount of conventional capacity which must be installed to maintain the
ability of the power system to meet the consumers’ demand if the wind power
installation is deleted’.
+ There are two main methods for the calculation of capacity value:
1- The contribution of the wind system during peak demand on a utility is
assessed over a period of years and the average power at these times is defined
as the capacity value.
2- The loss of load probability (LOLP) or loss of load expectation
(LOLE) is calculated, initially, with no wind generators in the system. It is then
recalculated with wind generation on the system, and then conventional plant
capacity is subtracted until the initial level of LOLP is obtained. The subtracted
conventional plant capacity is the capacity value of the wind.
38
Environmental Value of Wind Energy
+ The primary environmental value of electricity generated from wind energy
systems is that the wind offsets emissions that would be generated by
conventional fossil fuel based power plants.
+ These emissions include sulfur dioxide (SO2), oxides of nitrogen (NOx),
carbon dioxide (CO 2), particulates, slag, and ash.
+ The amount of emissions saved via the use of wind energy depends on
the types of power plant that are replaced by the wind system, and the
particular emissions control systems currently installed on the various fossil-
fired plants.
+ In general, depending on the country and/or region, there are major
differences in the amount of emissions that can be saved per unit of
electricity generated. This depends mainly on the mix of conventional
generating units and the emissions control status of the individual units.
39
Environmental Value of Wind Energy
+ The primary environmental value of electricity generated from wind energy
systems is that the wind offsets emissions that would be generated by
conventional fossil fuel based power plants.
+ These emissions include sulfur dioxide (SO2), oxides of nitrogen (NOx),
carbon dioxide (CO 2), particulates, slag, and ash.
+ The amount of emissions saved via the use of wind energy depends on
the types of power plant that are replaced by the wind system, and the
particular emissions control systems currently installed on the various fossil-
fired plants.
+ In general, depending on the country and/or region, there are major
differences in the amount of emissions that can be saved per unit of
electricity generated. This depends mainly on the mix of conventional
generating units and the emissions control status of the individual units.
40
Economic Analysis Methods
+ An economic analysis is used to evaluate the
profitability of a wind energy project and to compare it
with alternative investments. Economic analysis methods
can be applied for wind energy systems, assuming that
one has a reliable estimate for the capital costs and
O&M costs.
+ Each of these economic analysis techniques has its
own definitions of key economic parameters and each
has its particular advantages and disadvantages.
42
For the evaluation of economic performance
we consider three different types of
economic analysis methods:
1.Simplified models
2.Life-cycle cost models
3.Electricity utility economic model (text)
(Cost of wind –generated electricity in $/kWh
and its comparison with revenue)
We consider the first two models, and
consider a simplified version of the third
model. (Why?)
43
Simplified Economic Analysis Methods
+ For a preliminary estimate of a wind energy system’s
feasibility, it is desirable to have a method for a quick
determination of its relative economic benefits.
Such a method should be easy to understand, free of
detailed economic variables, and easy to calculate.
Two methods that are often used are:
(1) simple payback and (2) cost of energy.

44
 Simplified Models

Simple Payback period analysis

Cost of Energy analysis

SP = Simple Payback period

COE = Cost of Energy

45
 Simple Payback Period Analysis

1. Basically, we determine the length of time

required to recoup (recover) our initial investment.
2. Free of detailed economic variables.
3. Neglects several variables such as loan costs,
depreciation on capital costs, O&M.
4. Suitable for a preliminary estimate of wind
energy system’s feasibility.

46
 Simple Payback Period Analysis
A payback calculation compares revenue with costs and determines the length of time
required to recoup an initial investment. The payback period (in years) is equal to
the total capital cost of the wind system divided by the average annual return from
the energy produced. In its simplest form (simple payback period), it is expressed in
equation form as:

where SP is the simple payback period, Cc is the installed capital cost, and
AAR is the average annual return. The latter can be expressed by:

where Ea is the annual energy production (kWh/year), and Pe is the price

obtained for electricity ($/kWh). Thus, the simple payback period is given by:

47
Simple Payback Period=SP=Cc/AAR
Cc =installed capital cost
AAR= average annual return from energy production
=(Ea) Annual Energy Production (kWh/year) x
(Pe) Price obtained for electricity ($ /kWh)

SP =Cc/(Ea. Pe) --- (11.5), P. 530

Cost of Energy Analysis
The cost of energy, COE, is defined as the unit cost to produce
energy (in $/kWh) from the wind energy system. That is:

the simplest calculation of COE is given

by:

+ where C O&M is the average annual operation and maintenance cost and
FCR is the fixed charge rate.
+ The fixed charge rate is a term that reflects the interest one pays or the
value of interest received if money were displaced from savings.
+ For utilities, FCR is an average annual charge used to account for
debt, equity costs, taxes, etc. 49
Cost of Energy Analysis

An improved version of the simple payback period

analysis in that it includes loan costs and costs of
O&M.
COE=unit cost to produce energy ($/kWh)
from the wind energy system
COE=(Operating cost)/(Energy produced)
COE=[(Cc x FCR)+CO&M]/Ea
50
Cc =Capital cost of system
(as in Simple Payback Period Analysis)

CO&M=(Average annual) Operation and

Maintenance (O&M) costs

FCR=Fixed Charge Rate

(usually expressed as a percentage of the initial
capital investment); we revisit FCR after introducing
the concept of Present Value in economic analysis.)

51
Energy produced a wind turbine
• A modern wind turbine begins to produce electricity when wind
speed reaches 6-9 mph (9-14 km/hr) and has to shut down if it
exceeds 55 mph (88.5 km/hour) when its mechanism would be
in danger of sustaining damage.
• So, while they can generate electricity for much of the time,
there are other times they have to be shut down.
• There is also a reduction caused by the unavoidable
inefficiencies involved in the mechanism, most wind turbines
operate at around 30% – 40% efficiency though this may rise
to 50% in ideal wind conditions.
• It is estimated that an average onshore wind turbine rated at 2.5
– 3 megawatts can produce in excess of 6 million kWh every
year. A 3.6 MW offshore turbine may double that.
The Capacity Factor
Another way of stating the annual energy output from a wind
turbine is to look at the capacity factor for the turbine in its
particular location.
By capacity factor we mean its actual annual energy output
divided by the theoretical maximum output, if the machine
were running at its rated (maximum) power during all of the
8766 hours of the year.
Example: If a 600 kW turbine produces 1.5 million kWh in a year,
its capacity factor is = 1500000 / ( 365.25 * 24 * 600 ) =
1500000 / 5259600 = 0.285 = 28.5 %.
Capacity factors may theoretically vary from 0 to 100 per cent,
but in practice they will usually range from 20 to 70 %, and
mostly be around 25-45 per cent.
• The output of a wind turbine depends on the turbine's size and the wind's speed
through the rotor.
• An average onshore wind turbine with a capacity of 2.5–3 MW can produce
more than 6 million kWh in a year
• The capacity factor of a wind turbine is its average power output divided by its
maximum power capability.
• On land, capacity factors range from 0.26 to 0.52.
• The average 2019 capacity factor for projects built between 2014 and 2018 was
41%.
• Offshore winds are generally stronger than on land, and capacity factors are
higher on average (expected to reach 51% by 2022 for new projects), but
offshore wind farms are more expensive to build and maintain.
• Offshore turbines are currently placed in depths up to 40-50m but floating
offshore wind technologies could greatly expand generation potential as 58% of
the total technical wind resource in the U.S.
lies in depths greater than 60m
Estimating annual energy production
If the mean annual wind speed at a site is known, or can be
estimated, the following formula (Beurskens and Jensen, 2001)
can be used to make a rough initial estimate of the electricity
production (in kilowatt-hours per year) from a number of wind
turbines:
The previous formula should be used with caution because it is
based on an average of the characteristics of the medium- to
large-scale wind turbines currently available.
It also assumes an approximate relationship between annual
mean wind speed (ideally, the mean speed at turbine hub height)
and the a frequency distribution of wind speeds that may not be
accurate for an individual site.
It also does not allow for the different power curves of wind
turbines that have been optimized either for low or high wind
speed sites.
If it is not possible to carry out wind measurements at a
proposed site, or where a preliminary analysis is required prior to
installing instrumentation, there are techniques that can give an
approximate estimate of the wind speed characteristics of a site.
You’ll study these in the next section
wind turbines cost
Home or Farm Scale Wind Turbines
Wind turbines under 100 kilowatts cost roughly $3,000 to $8,000 per kilowatt of capacity. A 10
kilowatt machine (the size needed to power a large home) might have an installed cost of
$50,000-$80,000 (or more).
Wind turbines have significant economies of scale. Smaller farm or residential scale turbines
cost less overall, but are more expensive per kilowatt of energy producing capacity. Oftentimes
there are tax and other incentives that can dramatically reduce the cost of a wind project.
Commercial Wind Turbines
The costs for a utility scale wind turbine range from about $1.3 million to $2.2 million per
MW of nameplate capacity installed. Most of the commercial-scale turbines installed today
are 2 MW in size and cost roughly $3-$4 million installed.
Total costs for installing a commercial-scale wind turbine will vary significantly depending on the
number of turbines ordered, cost of financing, when the turbine purchase agreement was
executed, construction contracts, the location of the project, and other factors. Cost
components for wind projects include things other than the turbines, such as wind resource
assessment and site analysis expenses; construction expenses; permitting and interconnection
studies; utility system upgrades, transformers, protection and metering equipment; insurance;
operations, warranty, maintenance, and repair; legal and consultation fees. Other factors that
will impact your project economics include taxes and incentives.
The Breakdown of Initial Wind Turbine Costs

• $2.6 – $4 million per average-sized commercial wind

turbine
• Typical cost is $1.3 million per megawatt (MW) of
electricity-producing capacity
• Most commercial wind turbines have a capacity of 2-3
MW, but offshore turbines can be as large as 12 MW
• Cost increases as turbine size increases, though
there are benefits to using fewer, larger turbines –
complexity and construction of the overall farm site is
greatly reduced with fewer and larger turbines.
Cost of Energy Analysis
+ Example 1: Fujeij Wind Power Company (Hussania) has a capacity
of 89 M. Its capital cost is $1.3 million per Megawat., and the price
obtained for electricity is 0.10 (JD/kWh). Calculate
1. The annual energy production in (kWh/year) if capacity factor
of 42%
2. The payback period.
1- Ea=Capacity* capacity factor =(89000*350*24)*042
=747600000*0.42=313992000 kWh/year
2- SP=CC/(Ea*Pa)
CC=89*1.3=115.7 MUSD=115.7*0.71=82.15 MJD
SP=(82.15*1000000)/(313992000*0.1)= 2.62 Years=2 Years and
7 months
3-The average annual return= AAR =
Ea*Pa=313992000*.1=31.3993 MJD 59
Example 2: Given
Cc=installed capital cost= $ 50,000
Ea=annual energy production (kWh/y)
=100,000 kWh/y
Pe=price obtained for electricity ($/kWh)
= $ 0.10 $/kWh
SP=Cc/AAR
= Cc/(Ea. Pe)
=$ 50,000/100,000 kWh/y x 0.1 $/kWh)
SP=5 years
60
Example 3: Given

Cc = $50,000 = initial capital cost

Ea = annual energy production
=100,000 kWh/y
FCR =10%
CO&M =2% of Cc
=2/100 x 50000
=$1000 /y
COE =[50,000 x 0.1+1000]/100,000
=6000/100,000=$ 0.06 /kWh
61
Problem.11.3 Simple Cost of Energy, p.
656
A small 50 kW wind turbine with an initial cost
of $50,000 is installed in Nebraska. The fixed charge
rate is 15% and the annual operation and
maintenance cost (CO&M) is 2% of the initial cost.
This system produces 65,000 kWh/yr (Ea).
Determine the cost of energy (COE) for this system.
62
Soultion
COE =[(Cc x FCR)+CO&M]/Ea ---(11.17), p. 531

Thus, for this example:

COE = [($50,000 x 0.15) + ((0.02) x

$50,000] / (65,000)
= $0.131/kWh

63
Life-Cycle Costing Methods
(LCC methods, pp. 453-458)
The value of money can increase because
of interest from some investment;
or
The value of money can decrease because
of inflation.
Time value of money
LCC method accounts for this time value of
money.
LCC method requires some key concepts
of engineering economics:
Time value of money:
Present value (PV), Future Value (FV),
and Present worth factor (PWF)
Levelizing
Capital Recovery Factor (CRF)
Net Present Value

65
Present Value (PV)

r= interest (or discount) rate with annual

compounding
(discount rate ≡ “the next best rate of return
which one could expect to obtain”, p. 454)
We take a loan of value PV, and repay it in N equal
installments of A

66
 A A A A

Year 0
~
Year 1 Year 2 Year 3 Year N

PV

Present value of uniform series of end-of-period

payments
PV=the series of N payments, each of value A
67
  (1 + r )N − 1 
PV = A  N 
− − − − − − (9.6.9), P.455
 r (1 + r ) 

1 − (1 + r )− N 
= A  − − − − − − (9.6.9), P.455
 r 

(1.10) and (1.11) p. 533

68
Example: What is the present value of a yearly
payment of $100 for 20 years with 12%
interest rate
From Eq (9.6.9), p. 455

1 − (1 + r )− N   (1 + r )N − 1 
PV = A   = A N 
 r   r (1 + r ) 

 (1 + 0.12)20 − 1 
= 100 20 
 0.12(1 + 0.12) 

= $746.94

Total amount paid = $100(20)=$2000

69
Equivalently :

Say we deposit $ 746.94 in the bank at 12%

interest compounded annually.
We withdraw $ 100 at the end of each year.
At the end of 20 years, the balance is zero.

70
Example: A wind turbine generates 1576800 kWh in a
year. The generated electricity is sold to the utility at a
rate of 5 cents/kWh. The discount rate is 5 percent.
Calculate the present worth of electricity generated by
the turbine throughout its life period of 20 years.
Yearly revenue from the project is
1576800 x 0.05 =$78840
The cash flow during the 20 years is shown in the
following figure.

71
PV(A)1-20

$78840 $78840 $78840 $78840=A

~
0 1 2 3 n

Cash flow from electricity sales

72
 PV=$ 982521

1 2 3 4 5 6 7 8 9 10 20
~
A A A A A A A A A A A

Cash flow of loan repayment A=$ 78,840

Accumulated present value of electricity generated is :

 (1 + 0.05)20 − 1 
PV(A) 1−20 = 78840   = $ 982521
 0.05(1 + 0.05) 
20
73
Example : A WT has a maximum or rated power
of 4.2 kW. The rotor diameter is 6 m. The installed
cost at the location is $10,000. The capacity factor
CF=0.38. The interest rate is 11% and the period of
loan or desired payback period is 15 years. Find the
cost per unit area Ca, cost per kilowatt Ckw, the cost
per kW of energy Ce *. Neglect tax credits, inflation,
or operation and maintenance costs.
* A simplified version of COE (eq. 11.7, p. 531)

74
 The area is

πd 2 π(6 )2
A= = = 28.27m 2
4 4
The cost per unit area is then

C c 10,000
Ca = = = $ 354/m 2
A 28.27
The cost per kilowatt is

10,000
C kw = = $ 2380 /kW
4.2
We need the total yearly energy production Ea to find the unit cost of
electricity. The capacity factor CF=0.380. The yearly energy production is
then
Ea=4.2(0.380)(8760)=13,980 kWh/y 75
 The annual payment A is found from equation (11.11); p 533

10,000
A= = $1390.65
 (1 + 0.11)20 − 1 
 
 0.11(1 + 0.11) 
20

The unit cost of electricity is then

A 1390.65 $/y
Cu = = = $0.099/kWh
E a 13,980 kWh/y
76
 The future value FV of a present value of PV with annually
compounded interest rate of r:
FV=PV(1+r)N ----- (11.8) p. 532

The ratio PV/FV is called the present worth

factor PWF:
PWF=PV/FV=(1+r)-N ……… (11.9), p. 532
Consider r=10% and N=20 years
PWF=(1+0.1)-20 =0.1486
(See table 11.7, p. 533)
77
78
Capital recovery factor CRF is defined as the ratio of A to PV

 (1 + r )N − 1 
PV = A  N 
 r (1 + r ) 

A  r (1 + r )N 
CRF = =  
 (1 + r ) − 1 
N
PV

r
CRF = − − − (9.6.10)
1 − (1 + r )
−N
(11.12) p. 534

A = PV (CRF)

= end of year cost

79
Present Value of annual cost
and
Effect of capacity factor CF on
energy cost

80
Cost of wind-generated electricity (kWh/y)

1) Operation and maintenance costs

2) Present value of annual costs
3) The role of capacity factor

81 81
We considered earlier
COE =[(Cc x FCR)+CO&M]/Ea -- (11.7), p. 531
(11.6.1.2), p. 531

Cc = initial investment or Capital cost of system

CO&M = (Average annual) Operation and

Maintenance (O&M) costs

FCR=Fixed Charge Rate

(average annual charge used to account for debt,
equity costs, taxes; a “present value factor” used to
evaluate the PV)
Ea = average annual energy output (kWh/year)
82 82
COE =[(Cc x FCR)+CO&M]/Ea -- (11.7) p. 531
(11.6.1.2)

From an investment perspective, this equation

does not provide any basis. What is needed is the
corresponding present value in a more realistic
setting.

Realistic Setting => (involving interest rate, actual

yearly energy production.)
NPV=net present value

83 83
Now we wish to express COE in its PV form and
in a more realistic form (e.g. without FCR)
Note: (11.11) p. 533

1 − (1 + r )− N   (1 + r )N − 1
PV = A   = A  − − (9.6.9), p.455
 r (1 + r ) 
N
 r 

PV

1 2 3 N
~

A A A A

84 84
 Review
Cc mCc mCc mCc
mCc

1 2 3
~ N
year
mCc = Co&m is expressed as a percentage ‘m’ of capital cost
Cc (a modeling approximation)

 (1 + r ) N − 1
PV (C O&M ) = mC c  
 r (1 + r ) 
N

Net present value (PV) of all the costs:

  (1 + r ) N − 1  
NPV = C c 1 + m  
  r (1 + r )  
N
85 85
 Net present value (NPV) of yearly cost:


NPV C c 
=
 (1 + r ) − 1  
N
1 + m  
N   r (1 + r )  
N N

Ea= the actual energy generated by the

WT in a year
= 8760 (Pr)(CF)
Pr = rated power
CF=capacity factor
86 86
Revisit Capacity Factor :
CF= Capacity factor
Note: The rated power or rated capacity represents the
maximum output; it assumes that the WT is operating at
the rated wind speed. Average wind speeds are much
lower.

annual energy output (kWh)

CF =
rated power (kW) . 8760 h
0.22 ≤ CF ≤ 0.35
Small Large
machines machines
(D≤15 m) (D≥60 m) 87 87
 Therefore, the cost of wind-generated
electricity per kWh =PV/(COE)=c

NPV / N Net present value of yearly energy (kWh) output

c= =
Ea Yearly Energy generated

=
Cc 1 
  (1 + r ) − 1  
N
1 + m   
8760 N ( Prated )(CF )   r (1 + r )  
N

88 88
Example:
Cost of a 600 kW wind turbine is $ 550000. Other initial
costs including that for installation and grid integration are
30 percent of turbine cost. Useful life of the system is 20
years. Annual operation and maintenance costs plus the land
rent come to 3.5 percent of the turbine cost. Calculate the
cost of generating electricity from the turbine when it is
installed at a site having a capacity factor of 0.25. The real
rate of interest may be taken as 5 percent.

89 89
 Here, the installation cost of turbine is
550000 x 30/100=$165000
So the total initial investment for the project is
550000+165000=$ 715000.
Hence, the cost of one kWh of electricity is

c=
715000 1 
  (1 + 0.05) − 1  
20
1 + 0.035   = $ 0.04 /kWh
8760  20 (600)(0.25)   0.05(1 + 0.05)  
20

CF

90 90
Example

Illustrate the effect of capacity factor on cost/kWh in

the above example. If a utility company buys the

generated electricity at a rate of $ 0.03 /kWh, find

out the break-even capacity factor.

91 91
Effect of capacity factor on the unit cost of electricity is
shown in next Figure. The break-even capacity factor is
the CF for which the generating costs are equal to the
selling cost. Hence we have

715000 1   (1 + 0.05)20 − 1  
0.03 = 1 + 0.035 
8760  20 (600)(CF)   0.05(1 + 0.05)  
20

Solving for CF, we get the break even capacity factor

as 0.33.

92 92
 0.1

0.08
cost of generating $/kWh

0.06

0.04

0.02

0
0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4 0.45 0.5
capacity factor 93 93
Questions

E N G . Z A ID A L - A T A R I 94