Cost of Wind

1. Cost of Wind James McCalley Harpole Professor of Electrical & Computer Engineering

2. Discount rate • Discount rate, i. • the annual payment as a percentage of the amount owed; • the value given to possession of money now rather than later, since having it now allows it to be invested to earn a return. In this sense, the discount rate is the annual income as a percentage of the amount invested, i.e., average interest rate.

3. Moving single amounts in time “Future” amount of money Number of time periods “Present” amount of money • Observe that “F” may be a cost or a revenue. In either case, the equivalent amount of money in the present is smaller. • I prefer to incur a $100 cost later than a $100 cost now. • I prefer to obtain a $100 revenue now than a $100 revenue later.

4. Annuitizing “Annual” amount of money Note that payment A is made at the end of a period, so there is no payment made at the beginning of period 1, but there is a payment made at the end of period N.

5. Inflation The discount rate does not reflect the effects of inflation. Inflation, e, changes the buying power of money. “Current dollars” are the actual cash flow that would occur during a particular year, m, accounting for inflation. “Constant dollars” are the dollars that would have been required if the cost was paid in the “base year,” n. We refer to this as “n dollars” as in “2012 dollars.” N=m-n

6. Inflation and discounting The discount rate in the absence of inflation is called the “real” discount rate, ir. The discount rate accounting for inflation is called the “nominal” discount rate, in. Current dollar amount at year N (accounting for inflation) Constant dollar amount at year N (without inflation)

7. Levelized cost of energy • Levelized fixed charge rate: • Capital cost • Return on investment • Depreciation • Fed and state income taxes • Property tax • Insurance costs The initial investment is ($1820/kw)*1500kW+600000=$3,300,000 The fixed annual charges are then 0.2*3,300,000=$660,000. This is called the levelized annual revenue requirements (LARR) The average annual energy production is =Capacity*8760hrs/yr*CapacityFactor =1.5MW*8760hrs/yr*.35=4599MWhrs

8. Levelized cost of energy • Levelized fixed charge rate: • Return on investment • Depreciation • Fed and state income taxes • Property tax • Insurance costs The initial investment is ($1820/kw)*1500kW+600000=$3,300,000 The fixed annual charges are then 0.116*3,300,000=$382,800. This is called the levelized annual revenue requirements (LARR) The average annual energy production is =Capacity*8760hrs/yr*CapacityFactor =1.5MW*8760hrs/yr*.35=4599MWhrs

9. Levelized cost of energy • Levelized fixed charge rate: • Return on investment • Depreciation • Fed and state income taxes • Property tax • Insurance costs The initial investment is ($1820/kw)*1500kW+600000=$3,300,000 The fixed annual charges are then 0.2*3,300,000=$660,000. This is called the levelized annual revenue requirements (LARR) The average annual energy production is =Capacity*8760hrs/yr*CapacityFactor =1.5MW*8760hrs/yr*.40=5256MWhrs

10. Levelized cost of energy • Levelized fixed charge rate: • Return on investment • Depreciation • Fed and state income taxes • Property tax • Insurance costs The initial investment is ($1820/kw)*1500kW+600000=$3,300,000 The fixed annual charges are then 0.116*3,300,000=$382,800. This is called the levelized annual revenue requirements (LARR) The average annual energy production is =Capacity*8760hrs/yr*CapacityFactor =1.5MW*8760hrs/yr*.40=5256MWhrs

11. Levelized cost of energy

12. Levelized cost of energy Additional note: Another term that should be added in is the annual operating expenses (AOE). This includes land lease cost, levelized O&M cost, and levelized replacement cost: AOE=LLC+LOM+LRC with units of $/year. So the expression for LCOE is AOE is generally only about 2% of the purchase cost. The above expression is sometimes expressed as: which implies AOE is given in $/MWhr.

13. Levelized cost of energy Data from Electric Power Research Institute Nuclear Energy Institute, “The cost of new generating capacity in perspective,” Sept., 2011, available online at www.nei.org/resourcesandstats/documentlibrary/newplants/graphicsandcharts/the-cost-of-new-generating-capacity-in-perspective.

14. Levelized cost of energy Data from US DOE Energy Information Administration Nuclear Energy Institute, “The cost of new generating capacity in perspective,” Sept., 2011, available online at www.nei.org/resourcesandstats/documentlibrary/newplants/graphicsandcharts/the-cost-of-new-generating-capacity-in-perspective.

15. Levelized cost of energy National Research Council (National Academies of Science and of Engineering) Nuclear Energy Institute, “The cost of new generating capacity in perspective,” Sept., 2011, available online at www.nei.org/resourcesandstats/documentlibrary/newplants/graphicsandcharts/the-cost-of-new-generating-capacity-in-perspective.

16. Representative split – capital costs This is for capital (investment) costs. It is for a representative wind turbine design, but one should recognize that there are different designs. But it does provide some indication of relative splits among major wind turbine components. Source: P. Jamieson, “Innovation in wind turbine design,” Wiley, 2011. Note – this book has an entire chapter dedicated to “Cost of Energy.”

17. Representative split - LCOE Source: P. Jamieson, “Innovation in wind turbine design,” Wiley, 2011. Note – this book has an entire chapter dedicated to “Cost of Energy.”