Cost of Energy for Small Wind Projects

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

Visit Wind Energy Consulting and Contracting Inc.

Cost of Producing Wind Energy

In this entry I will describe how the cost of generating energy is computed, compare the cost of alternative sources of generating energy, and provide estimates for cost per kWh of energy from distributed wind projects of size 1MW to 3MW.

The debate about comparing costs of energy can become heated. People with vested interests in a project naturally want to predict lower cost per kWh for their favorite generation method and predict higher cost per kWh for the rest. In this article we will present a range of costs for comparison purposes. WECC understands wind energy and is very familiar with the various wind energy project costs; we rely on independent sources for costing information about non-wind projects.

A March 29, 2009 New York Times article quoted a Black & Veatch study that compared the cost of energy from new installations: “A modern coal plant of conventional design, without technology to capture carbon dioxide before it reaches the air, produces at about 7.8 cents a kilowatt-hour; a high-efficiency natural gas plant, 10.6 cents; and a new nuclear reactor, 10.8 cents. A wind plant in a favorable location would cost 9.9 cents per kilowatt hour.”

If the penetration of wind energy is high in a grid, then additional natural gas generators are needed to serve loads when there is no wind. So in these situations the article further states that … “But if a utility relied on a great many wind machines, it would need to back them up with conventional generators in places where demand tends to peak on hot summer days with no breeze. That pushes the price up to just over 12 cents, making it more than 50 percent more expensive than a kilowatt-hour for coal.” In the US such a situation has not arrived yet, because wind in less than 2% of the total energy generation.

This article elicited a response from Joseph Romm. According to him, the cost of nuclear power from a newly constructed plant would be in the range of 15c to 25c per kWh, and a new coal plant will produce electricity at 11c per kWh (with no cost of emitting CO2).

Moving along to the second source, a January 2009 article in WindPower Monthly compared cost of energy in Europe and USA. For Onshore wind farm installations at a total installed cost of 1,300 Euros/kW (or $1,690 /kW), the cost of wind energy is in the range of 0.105 Euros per kWh with wind speed at 6m/s, 0.078 Euros per kWh with wind speed of 7m/s, and 0.060 Euros per kWh with wind speed of 8m/s. All wind speeds are at a 50m elevation. In comparison according to this article the cost of coal is 0.060 Euros/kWh plus 0.020 Euros/kWh of CO2 cost (for countries that have a carbon emissions tax); cost of nuclear generated energy is 0.045 Euros/kWh; cost of natural gas generated energy is 0.045 Euros/kWh plus 0.012 Euros/kWh of CO2 cost. The article mentions that the cost of nuclear power has been underestimated.

The third source of wind energy cost data is from NREL: $0.085/kWh in areas with class 3 wind (6.4 to 7m/s at 50m); $0.075/kWh in areas of class 4 wind (7 to 7.5m/s at 50m). These costs exclude the cost of transmission and integration into the grid or connection behind the meter, and the benefits of Production Tax Credit (PTC), grants and other tax credits.

The final source of wind energy cost data is from us, WECC. For distributed wind projects of size of 1MW to 3MW that are typically installed at a school, municipality, factory or other facilities the cost of electricity is typically in the range of: $0.090/kWh to $0.107/kWh with wind speed of 7m/s. The assumptions for this cost estimate are: total installed cost of $2,600 per kW; $0.010/kWh for O&M cost; 0.75% of total install cost for annual sinking fund. For the above computations three turbines were used: Vergnet 1MW, Vensys 1.5MW and Fuhrlander 2.5MW. These computations assume no incentives and no tax credits. So the cost estimates are true cost numbers from which incentives like PTC of 2.1c may be subtracted.

In conclusion, in most class 3 areas, the cost of wind energy is lower than the retail rate of electricity for most consumers in the US.

As a footnote, let me explain cost of energy. In the electric generation industry cost of energy is defined in terms of Levelized Cost Of Energy (LCOE). A more detailed description of LCOE including a formula, are presented in http://en.wikipedia.org/wiki/Levelised_energy_cost. In the case of a wind project, LCOE takes into account the total installed cost of project, the recurring O&M costs and other administrative costs, and the amount of annual energy production along with appropriate discount rate. To further elaborate, LCOE does not depend on tariffs, incentives, taxes, equity/loan structure, interest rates, etc.

Article written by Dr. Pramod Jain

Email Pramod at pramod@frombeginningtowind.com

Visit Wind Energy Consulting and Contracting Inc.