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Renewable Energy Sources

Wind Energy Economics

ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

ROLE OF RENEWABLES IS STARTING TO


HAVE IMPACT

ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

WIND FARMS

ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

2003 05 GLOBAL WIND CAPACITY


70000
60000
11,769

50000
MW

8,207
40000
30000
20000
10000
0

2003

2004

2005

2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.
Source: Global WindECE398RES
Energy Council

2005 INSTALLED WIND CAPACITY


total wind
59,322 MW

Asia
7,135 MW
12%

Americas
and
Africa
10,979 MW
19%

Australia
708 MW
1%

Europe
40,500 MW
68%
Source: Global Wind Energy Council
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

2005 INSTALLED WIND CAPACITY


G
er
m
an
y

18,428 MW

Sp
ai
n

10,027 MW

U
SA

9,149 MW

D
en
In
m
di
ar
a
a
k

4,430 MW
3,122 MW

Ch
in

1,260 MW

Au
str
a

lia

708 MW
0

00
0
,
2

00
0
,
4

00
0
,
6

00
0
,
8

00
00
00
00
0
0
0
0
,
,
,
,
10
12
14
16

00
00
0
0
,
,
18
20

Source: Global Wind Energy Council


ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

MW

2006 WIND ENERGY STATUS


Size ranges from 10 kW to 5 MW
Total installed capacity in the world is 59 GW with
some high penetration in specific countries
31% of installed capacity in Germany
16.9% of installed capacity in Spain
9,149 MW installed in the United States
Current costs in the 4 6 /kWh in
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

DOE WIND PROGRAM GOALS

3 /kWh in classes 4 and above onshore wind


areas
5 /kWh for off-shore regions
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

EXAMPLE: IMPACTS OF TECHNOLOGY


AND SITING
year

1981

2000

rated capacity (kW)

25

1,650

rotor diameter (m)

10

71

total costs (k$)

65

1,300

costs per kW ($/kW)

2,600

790

annual output (kWh)

45,000

5.6 million

ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

WIND SYSTEM CAPITAL COSTS


1600
150 kW

capital costs ( $/kW )

1400

225 kW
300 kW

1200

500 kW

1000

600 kW
1650 kW

800
600
400
200
0

1989

1991

1993

1995

1996

2000

capital costs include turbine, tower, grid connection, site


preparation controls and land
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

WIND ENERGY ECONOMICS


Key factors for the determination of utility-scale
wind energy economics:
wind speed at project site
hub height of the turbine tower
rotor radius
project scale
turbine configuration
costs of financing
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

WIND ENERGY ECONOMICS


Generally speaking, the costs of wind energy
production has decreased by 90% over the past
two decades due to
improvements in turbine design
increased efficiency of wind turbines
growth in the equipment production volume
improvements in siting of projects
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

AVERAGE WIND SPEED IS IMPORTANT


Since energy is a function of
increase in

, a slight

has major impacts: a change of

V
from 14 to 16 m.p.h. results in a nearly 50% in-

crease in energy generation, all other parameters


remain unchanged
For a 51-MW wind farm the costs figures
including the current wind production credit are
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

AVERAGE WIND SPEED IS IMPORTANT

average electricity costs


(/kWh)

6
5

4.8

3.6

2.6

2
1
0

7.15

8.08

9.32

V m/s

Source: AWEA, 2005

ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

WIND FARM EXAMPLE: CAPITAL


COSTS (M$)
interest during construction
3.51 (6%)

site preparation
9.15 (15%)

project development
0.97 (2%)

engineering
0.61 (1%)

total
capital costs
=
60.88
equipment costs for 40 1.5-MW
turbines plus spare parts,
46.64 (76%)
Source: Ministry of Natural Resources, Canada

ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

WIND FARM EXAMPLE: ANNUAL


COSTS (k$)
property taxes
68.00 (3%)
transmission maintenance
80.57 (4%)
land lease
90.00 (5%)
contingencies
100.00 (5%)
insurance
135.00 (7%)

general
110.04 (6%)

total
annual costs
=
1,965
parts and labor
1,381.00 (70%)

Source: Ministry of Natural Resources, Canada

ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

ANNUALIZED WIND GENERATED


ELECTRICTY COSTS
The annual costs are computed from the capital
costs allocated to each year over a projects life
time plus the O&M costs
The use of debt for financing a project allows the
annualization of capital costs by using an
appropriate capital recovery factor

annualized cost
over each of n
years

P
present worth

capital recovery
factor

ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

ANNUALIZED WIND GENERATED


ELECTRICTY COSTS
where

1

1 i
Recall that the capital recovery factor measures
the speed with which the initial investment is
repaid and can be easily found in tabulated form
in many sources
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

EXAMPLE: SMALL WIND TURBINE


We consider a 900-W wind turbine with a 2.13m
blade installed at a hub height where the average
wind speed is 6.7 m/s
The turbine costs $ 1,600 and the installation and
other capital costs involve an additional $ 900
The $ 2,500 total capital are financed by a 15-year
7% loan
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

EXAMPLE: SMALL WIND TURBINE


The annual O&M costs are $100
The capital recovery factor for i = .07, n = 15 is

0.07
0.1098
15
1

resulting in annual payments of

A 2, 500 0.1098 $ 274.49


The total annual costs are

$ 274.49 $ 100 $ 374.49


ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

EXAMPLE: SMALL WIND TURBINE


We use the capacity factor approach

CF 0.087 V

PR
D

0.087 6.7

0.9

0.385

2.13

to estimate the energy delivered by the turbine


2

energy 0.9 kW 8760 h 0.385

3, 035 kWh

We compute the average costs per kWh

total annual costs


374.49

0.123 $ / kWh
energy
3035
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

EXAMPLE: 1500-kW, 64-m BLADE TURBINE


We consider the installation of a 1500-kW, 64 m
blade turbine at various sites
The financial aspects are
7% loan repaid over 20 years
levelized O&M is 3% of capital costs
The average costs of electricity for three different
capital costs are plotted as a function of average
wind speed

ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

EXAMPLE: 1500-kW, 64-m BLADE TURBINE

cost of electricity ($/kW )

0.12
0.1
$1
20
0/

0.08
0.06

$8

00
/kW

$1
00
0/k

kW

0.04
0.02
6.0

6.5

7.0

7.5

8.0

8.5

average wind speed (m/s)


ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

EXAMPLE: WIND FARM GENERATION


We investigate the feasibility of a 40 unit wind
farm project
using 1.5-MW turbines with 64-m blades
sited at a location with V 8.5 m / s
The total capital costs are $60M and the levelized
annual O&M costs are $1.8M
The financing uses both equity and debt
$45M is covered by a loan repaid over 20
years at 7% interest
$15M equity requires a 15% annual return
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

EXAMPLE: WIND FARM GENERATION


We compute the capacity factor

PR
1500
CF 0.087V 2 0.087 8.5
0.373
2
D
64
The annual production is therefore

annual

40
1.5
8760
0.373

196,
000
MWh

energy
The annual equity return required is

A $ 45 0.09422 $ 4.24 M
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

EXAMPLE: WIND FARM GENERATION


The total annual costs are

annual
costs 2.25 4.24 1.8 $ 8.29 M
For feasibility the electricity price must be at the
least

8.29 M$
levelized price =
0.0423 $/kWh
196, 000 MWh
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

ECONOMIES OF SCALE
Typically, a large wind farm produces electricity
more economically than a small operation
The factors contributing to the lower costs are
transaction costs are spread over more kWh
for a large project
efficiencies in the management of a larger
wind farm typically lower the O&M costs
possibility of better financing terms for larger
projects
lower per kW permitting costs
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

TAX INCENTIVES FOR WIND


The federal tax code includes a production tax
credit (PTC) for wind and a 5-year accelerated
depreciation for wind turbines
The PTC was set at 1.5 /kWh and is inflation
adjusted: it is currently 1.8 /kWh
The PTC supports electricity generated from
utility-scale wind turbines for the first 10 years of
operation
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

TAX INCENTIVES FOR WIND


The PTC may be reduced or cancelled for
projects that apply for state incentives
Critics of the wind industry refer to the PTC as a
subsidy for the industry
The expiration of the PTC 3 times so far
caused marked drops in the wind capacity
additions
ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

MW

ANNUAL INSTALLED WIND CAPACITY

Source: 2005 Wind Outlook, AWEA

ECE398RES 2006GeorgeGross,UniversityofIllinoisatUrbanaChampaign,AllRightsReserved.

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