Economics - Wind Energy: Renewable Energy and the Environment - page 249

discount rate. Adoption of unrealistically high discount rates can lead to unrealistic life cycle costs.
The cost of capital can be calculated from

1 l oa n interest rate

CC 1

1 inflation rate

If the total dollars are spread uniformly over the lifetime of the system, this operation is called
levelizing.

P

PW d (1 d )

(12.10)

annualized cost

(1 d )

P

1

where P number of years in the lifetime.
One further step has been utilized in assessing renewable energy systems versus other sources
of energy such as electricity. This is the calculation of the annualized cost of energy from each
alternative. The annualized cost calculated from Equation 12.8 is divided by the net annual energy
production of that alternative source;

COE annualized cost/AEP

It is important that annualized costs of energy calculated for renewable energy systems are com-
pared to annualized costs of energy from the other sources. Direct comparison of annualized cost
of energy to current cost of energy is not rational. Costs of energy calculated in the above manner
provide a better basis for the selection of the sources of energy.
RETFinance is an internet-based cost of electricity model [8] that simulates a 20-year nominal
dollar cash flow for a variety of renewable energy power projects. It is difficult to compare cost and
COE for different years without taking into account the effects of inflation. There are a number of
sites on the Web for calculating inflation from past years to the present [9]. As an example, installed
costs for wind farms in 2003 were $1,000/kW, which is equivalent to $1,160/kW in 2008. Of course,
the amount of inflation in the future is a guess.

12.6 EXTERNALITIES
Externalities are now playing a role in integrated resource planning (IRP), as future costs for pol-
lution, carbon dioxide, etc., are added to the life cycle costs. Values for externalities range from
zero (past and present value assigned by many utilities) to as high as $0.10/kWh for steam plants
fired with dirty coal. Again, values are being assigned by legislation and regulation (public utility
commissions).
As always, there is and will be litigation by both sides. The Lignite Energy Council petitioned
the Minnesota Public Utilities Commission to reconsider its interim externality values. The coun-
cil represents major producers of lignite, investor-owned utilities, rural electric cooperatives, and
others. They focused their protest on values assigned to CO 2 emissions, as their position was that
there was an acknowledged lack of reliable science that CO 2 emissions are harmful to society. In
Europe, different values have been assigned to CO 2 emissions, which makes wind energy more
cost-competitive.
Wind turbines have three main beneficial externalities: local source of energy, the generation
of electricity does not require water, and they do not emit greenhouse gasses. In Texas, fossil fuel
power plants use 1,670 L/MWh [10], so the 4,500 MW of wind power in Texas (2007) will save
water, 23 * 10 6 m 3 /year. An average of 700 kg of CO 2 /MWh is emitted from coal and natural gas
power plants. That 4,500 MW of wind in Texas will reduce CO 2 emissions by 9 * 10 6 metric tons