Economics - Wind Energy: Renewable Energy and the Environment - page 244

EXAMPLE 12.4

You purchase a 50 kW wind turbine, IC $120,000, produces 120,000 kWh/year, AOM 0.01 * IC
$1,200/year, FCR 0.07. Retail rate of electricity is $0.11/kWh.

SP 120,000/(120,000 * 0.11 120,000 * 0.07 1,200) 120,000/(13,200 8400 1200)
SP 33 years

Equation 12.2 involves several assumptions: the same kilowatt-hours are produced each year,
the value of the electricity is constant, and there is no inflation. More sophisticated analysis would
include details such as escalating fuel costs of conventional electricity and depreciation. In general,
these factors might reduce the payback.

12.3.2 C OST OF E NERGY
The cost of energy (value of the energy produced by the wind turbine) gives a levelized value over
the life of the system (assumed to be 20 to 25 years). The cost of energy (COE) is primarily driven
by the installed cost and the annual energy production.

COE (IC * FCR AOM)/AKWH (12.3)

The COE is one measure of economic feasibility, and is compared to the price of electricity
from other sources (primarily the utility company) or the price for which wind-generated energy
can be sold. If purchasing a wind turbine for displacing electricity on site, the COE should be
compared with an estimated average cost of electricity from the utility company over the next 10
years. The cost of energy for small systems is higher than for wind farms, with some economies
of scale for larger size of small wind turbines (Table 12.1). In general, the AOM is around $0.005/
kWh. In Equation 12.3, major replacement costs are included in the annual operation and main-
tenance costs.

EXAMPLE 12.5

Use same input data as Example 12.4, except FCR 0.08 and AOM 3% * IC.

COE (120,000 * 0.08 3600)/120,000 $0.11/kWh

A sensitivity analysis ( Figure 12.1 ) shows how the different factors in Equation 12.3 affect the cost
of energy. The most important factors are installed cost and annual energy production.
The cost of energy formula from Electric Power Research Institute (EPRI), tag-supply method
[2], is similar to Equation 12.3. There is the addition of levelized replacement costs (major repairs)

TABLE 12.1
Range of Cost of Energy for Small Systems, Wind Class 4
to 2 (Capacity Factors 35-25%)

System, kW $/kWh

1 0.20-0.30

10 0.18-0.23

50 0.10-0.18