A Utility Perspective of Wind Energy - Wind Turbine Technology: Fundamental Concepts of Wind Turbine Engineering - page 726

Introduction of New Technology into Utilities

Utilities in the United States and around the world are inherently conservative and cau-
tious about adopting new technologies such as wind power. Consumers of electricity demand
power that is high in quality, available on-demand, and reasonable in cost. Consequently,
utilities are allowed by their regulatory commissions to pass on to the consumer the high cost
of equipment needed to maximize reliability. New technologies represent uncertainty to both
the utilities and regulators, although the level of that uncertainty is rapidly being reduced for
wind power.
It is interesting to note that there was a time when wind was the established, reliable en-
ergy source and steam represented a new and uncertain technology. The first steam power in
Holland was a Newcomen engine and pump installed in 1776 by Steven Hoogendijk to drain
the inner city of Rotterdam [Lintsen 1991]. However, 100 years later wind machines still
performed about 50 percent of the polder draining in the country. Historians in The Neth-
erlands have recently been studying why Dutch industry was extremely slow to adopt steam
power, compared to the rest of Europe. Cautiousness was probably one of the main factors
delaying the introduction of this new technology. Concern on the part of the engineers of that
time and place is understandable when one considers the possible effects on the population if
the steam-driven pumps failed to work.
We see from this example that caution can be a force that is strong enough to influence
the energy policy of a nation or of an industry. Utilities need tangible assurance that wind
power plants are reliable and cost-effective. To meet this need, U.S. utilities work with the
wind power industry and DOE in wind turbine development, and field testing of new turn-
bines is done in partnership with a variety of utilities in different parts of the country. In
some cases, system demonstration programs are also performed on a cost-sharing basis.

Utility Cost Estimation Models

A utility's perspective of wind energy is often determined by its view of the costs as-
sociated with this form of generation. It is therefore important for wind power developers
and engineers alike to understand how a utility determines what is and is not cost effective.
Electric utilities and the wind industry commonly use two basic economic models to estimate
the COE produced by a wind power system. These are (1) the Electric Power Research In-
stitute, Technical Analysis Guide or “EPRI TAG” method [EPRI 1979], and (2) what will be
called the cash flow method. Each of these models will be discussed briefly in the following
sections. COE methodologies can be used to either create an index with which to rank com-
peting power supplies, or to create an actual price structure for a given power plant.

EPRI TAG Method

The EPRI TAG method produces a levelized COE. A levelized COE is the constant- an-
nual COE stream over time whose present value is equal to the present value of a variable-
annual COE stream over the same period of time. In its simplest form, COE is estimated by
the EPRI TAG method as follows:

8, 760 Capacity Factor + Fuel Cost

Capacity Cost

(13-1)

COE = FCR ´

Heat Rate + OM ´