In this entry I will talk about the cost of energy for small wind projects. The previous blog addressed how the cost of energy is computed and presented the cost of energy generation for utility scale turbines. The focus of this blog entry will be on turbines that are rated 10KW or less.
To recap, the cost of energy production depends on average annual energy production (AEP), total cost of installation, recurring cost for operations and maintenance, and the discount rate.
Three turbines will be compared in this analysis: Bergey 10KW with 7m rotor diameter and 30.5m hub height; SkyStream 2.4KW with 3.7m rotor diameter and 13.7m hub height; and MariahPower 1.2KW with 1.2m width and 6.1m height. The first two are horizontal axis wind turbines (HAWT) and the third is a vertical axis wind turbine (VAWT).
The following parameters will be used for comparison purposes:
- Wind conditions: 7m/s at 50m, which is Class 3 wind regime
- Operations and maintenance costs: 1c per kWh of energy produced
- Annual sinking fund for repairs: 0.75% of total installed cost
- 3% inflation in costs
- Wind shear of 0.15; this is used to compute wind speed at hub height while assuming wind speed of 7m/s at 50m
- Life of wind project: 20 years
- Annual Energy Production (AEP) is computed based on power curves provided by the manufacturer
The following table contains average AEP, the installed cost and cost of energy.
Turbine | AEP | Total installed cost | Total installed cost per KW | Cost of Energy/ kWh |
Bergey 10KW | 18.76 MWh | $65K | $6,500 | $0.365 |
SkyStream 2.4KW | 5.3 MWh | $18- 20K | $7,500 – $8,333 | $0.3596 |
MariahPower 1.2kW | 2 MWh | $9 - 10K | $7,500 - $8,333 | $0.4672 |
Note the cost of energy does not include incentives or tax credits.
Since VAWT do have a hub-height, for computation purposes the hub height was assumed to be the height of pole plus half the height of the turbine, which is equal to 6m for the Mariah Power VAWT. If the VAWT is installed on a roof, then the hub-height would have to be appropriately adjusted, although the impact of turbulence due to air flow along the edge of the building would reduce energy production.
Next, let us examine the impact of the investment tax credit (ITC) grant of 30% that is part of the current stimulus package. In cases where the investment per KW is large, the ITC is preferable over the production tax credit (PTC). For a more detailed description, see WECC whitepaper on the stimulus package.
Turbine | Cost of Energy/ kWh with 30% ITC grant |
Bergey 10KW | $0.267 |
SkyStream 2.4KW | $0.2555 |
MariahPower 1.2kW | $0.3308 |
Note that as a result of the ITC grant the reduction in cost of energy is a little less than 30%.
Next, let us look at depreciation, the other major tax benefit. The stimulus package allows a bonus depreciation of 50%, in addition to the accelerated depreciation already allowed for renewable energy items, if the project is put in place before the end of 2009. When a project utilizes the 30% ITC grant, the depreciable basis of the project must be reduced by 50% of the grant amount. The following are costs per kWh when bonus depreciation is coupled with 5-year MACRS depreciation.
Turbine | Cost of Energy/ kWh with 30% ITC grant, bonus dep. & 5-yr MACRS |
Bergey 10KW | $0.1758 |
SkyStream 2.4KW | $0.1657 |
MariahPower 1.2kW | $0.2133 |
Note, bonus depreciation in addition to accelerated depreciation leads to a further reduction of about 33% of the cost of energy than with the 30% ITC grant.
On the benefits front one other item requires mention: Renewable Energy Credits (RECs). RECs are a tradable certificate of proof that 1 kWh of electricity was produced using a renewable source. They are typically sold to businesses seeking to reduce their carbon footprint or to government agencies trying to meet renewable portfolio standards set by state or national mandate. Their pricing depends on market conditions related to the current supply and demand of RECs. The price of a REC is typically in the range of 0.5c to 2c.
In conclusion, if a small wind project is able to use all of the tax benefits of ITC and depreciation, then the cost of electricity is reduced by more than 50% of the original installed cost without incentives.
Article written by Dr. Pramod Jain
Email Pramod at pramod@frombeginningtowind.com
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