Economics - Wind Energy: Renewable Energy and the Environment - page 243

the benefits received. Many people are willing to pay more for green power because they know it
produces less pollution. Past green power premiums were around $0.03/kWh for a 100 kWh block.
And finally, a few people want to be completely independent from the utility grid, no matter what
the cost.

12.3.1 S IMPLE P AYBACK
A simple payback calculation can provide a preliminary judgment of economic feasibility. The dif-
ference is usually around 3-7 % between borrowing money for a system and lost interest if you have
enough money to pay for the system. In 2003 and again in 2008, the lost interest rate was very low.
The easiest calculation is cost of the system divided by cost displaced per year, and assuming that
operation and maintenance is minimal and will be done by the owner.

SP IC/(AKWH * $/kWh) (12.1)

where SP simple payback, years; IC initial cost of installation, $; AKWH annual energy pro-
duction, kWh/year; and $/kWh price of energy displaced.

EXAMPLE 12.2

You purchase a 300 W wind turbine for battery charging. Installed cost $850, produces 220 kWh/year
at $0.50/kWh (the estimated cost for remote electricity).

SP $900/(220 kWh/year * 0.50 $/kWh)
SP 900/110 8 years

The next calculation would include the value of money, borrowed or lost interest, and annual
operation and maintenance costs:

IC

SP

¤
¦ ¥

(12.2)

$ ³

µ ´

AKWH * IC * FCR AOM

KWH

where FCR ixed charge rate, per year, and AOM annual operation and maintenance cost,
$/year.

EXAMPLE 12.3
You purchase a 3.5 kW wind turbine with inverter to connect to the grid, IC $14,000, produces 6,000
kWh/year. You are losing interest at 4% on the installed cost. Retail rate of electricity is $0.11/kWh.
Assume AOM $50/year.

SP 14,000/(6,000 * 0.11 14,000 * 0.04) 14,000/(660 560) 140 years

You would think twice before purchasing this system on an economic basis. And no O&M was
included.
The FCR could be the interest paid on a loan or the value of interest that would have been
received from displaced money from savings. An average value for a number of years (5) will have
to be assumed for $/kWh for electricity displaced, as future costs of electricity from the utility com-
pany may be difficult to estimate. In general, electric rates do not fluctuate much and do not increase
rapidly. The one change with deregulation is that the fuel adjustment cost can change quickly.