Economics - Wind Energy: Renewable Energy and the Environment - page 255

in the United States, the production tax credit is still the main driver. Sale contracts are higher, and
some wind farms are selling electricity in the wholesale or merchant market. One selling price is
the avoided cost, which is mandatory, and the minimum value that should be paid to the wind farm
is the fuel adjustment cost of the utility.
The COE is estimated for a 50 MW wind farm in the Panhandle of Texas, class 4 winds. The
wind turbines are rated at 1 MW and are on 70 m towers. The installed cost ($ 2007) is around
$1,600/kW, and from Example 12.6, the COE is $77/MWh. So with a production tax credit of $20/
MWh, the wind farm developer would need to obtain around $55/MWh. Other factors, such as
accelerated depreciation, would assist in the return.
The value to the landowner can be estimated as

AEP 50 * 3 * 106 kWh/year 1.5 * 108 kWh/year

The $0.55/MWh (landowners will not receive any of the PTC) generates $8 million/year at 4%
royalty $320,000/year.
At $4,000/MW, the minimum would be $200,000/year.
At 0.5 ha per turbine taken out of production, 20 ha are lost. The value at 4% royalty $16,000/
ha/year. This is much more than a farmer or rancher can make from crops and livestock.
The wind farm will also pay property taxes; however, in many cases wind farms try to obtain tax
abatements for some time period for the economic development. Instead, the wind farm will pay in
lieu of taxes, primarily for schools.
The megawatt hours generated, income, and the rate paid to the wind farm by yearly quarters can
be obtained from the Federal Energy Regulatory Commission ( http://eqrdds.ferc.gov/eqr2/frame-
summary-report.asp ) . The capacity factor can be calculated from the megawatt-hours generated
and the installed capacity of the wind farm. Also, the type of sale can be obtained from the rate:
power purchase agreement at fixed rate, power purchase agreement with peak and off-peak values,
or if it is market, it gives the high and low value plus the average. As an example, for 2008 Q1, the
Wildorado Wind Ranch received $5.4 million for 178,000 MWh from a power purchase agreement
of $30.77/MWh. Since the wind farm has an installed capacity of 161 MW, the capacity factor for
that quarter was 49.6%.

12.8 HYBRID SYSTEMS
When wind is added to an existing diesel generation plant, the cost of the turbine and controls is
compared to the dollars saved on diesel fuel. In 2004 for villages (under 1,000 people) in Alska,
Village Electric Cooperative powered by diesel gensets, the average price was $0.38/kWh, broken
down as follows:

2004 2008

Percent Percent

Fuel 46 77

Operation and maintenance 21 9

Renewal and replacement 19 8

General and administration 14 6

Since then, the cost of diesel has increased significantly and the percent cost of fuel and electricity
($0.55/kWh) has increased accordingly. This is the reason for the renewed interest in wind turbines.
For villages in Nunavik, Canada, served by Hydro Quebec, diesel fuel represented 54% of the
operation cost and, as above, that percent will increase.