Economics of a wind project

In this blog I will discuss the economics of a wind project, with a focus on total installed cost of a wind project.

The most recent source of total installed cost of wind project is from the January 2009 issue of WindPower Monthly. It reported that the average total cost of fully installed projects in 2008 was 1,502 Euros per KW (or $1,950/KW at 1.3 conversion rate). The average was take over 3,600MW of installs worldwide in 2008. The range of costs was 1,300 to 1,700 Euros per KW. Although this data is skewed towards large wind farm projects, it serves as a lower bound for a community wind project of size 1 MW to 10MW.

A second source of total installed cost is from NREL's May 2008 report "Annual Report on US Wind Power Installation, Cost and Performance Trends: 2007" It reports that an average cost in 2008 was $1,920/KW, $210/KW higher than the previous year. The average cost in 2007 was $1,710/KW with a range of $1,240 to $2,600/KW.

One would expect economies of scale in wind projects, meaning large wind farms would be cheaper to install compared to single turbine installation; the NREL data does not convincingly support this assertion. Personally, this is surprising. I would expect large wind farms to receive larger discounts on turbines, incur lower setup and mobilization costs for cranes and other equipments, and spread out the initial cost of wind measurement and consulting. Nevertheless this is what the data shows.

There seems to be a significant variation in cost by region. The Heartland region has the lowest cost; the Great Lakes region, Mountain states, Texas, the Northwest, and California have similar costs; with New England showing the highest costs.

The cost of turbine is the biggest component of the total installed cost. The turbine typically represents 60 to 70% of the cost. Turbine prices reached a low of $700/KW in 2000-2002, and have risen about $600/KW in 2006-2007. The prices stand at $1,125 to 1,240/KW. The other components of the total installed cost include: Consulting/design; construction of foundation and access roads; erection of turbine; electrical equipments like transformers, protective relays; commissioning of turbine; and other associative costs.

For smaller projects, the total installed cost (TIC) may be much higher. As examples consider the following single turbines and their TIC:

1. 10KW Bergey, the TIC is $6,000 to $7,500/kW
   
2. 100KW Northern Power, the TIC is $6,000 to $6,500/KW
   
3. 275KW Vergnet, the TIC is $2,500 or less
   
4. 1MW to 2.5MW, the TIC would be about $2,500 to as high as $3,000
   

The TIC depends on several factors: exchange rate, terrain, transportation costs, distance to transmission and others. The TIC has to be estimated for a specific project based on local conditions.

In the next blog, I will discuss Operations and Maintenance costs and the cost of producing electricity using wind.

Article written by Dr. Pramod Jain

Email Pramod at pramod@frombeginningtowind.com

Visit Wind Energy Consulting and Contracting Inc.