How the wind farm capacity factor and a tax subsidy can beef up a utility's bottom line.
Dr. Gary C. Young is a consulting engineer and founder of GYCO Inc.
Many interested by a profit motive or an environmental motive wax eloquently about the economy of wind farms to generate electricity, since wind energy is an environmentally friendly source of energy or "green power." Thus, the interest in wind farms attracts the attention of citizens, environmental groups, politicians, and commercial companies.
With this diverse interest, a sense of direction is needed to bring a reality check on the economics of wind farms. Consider the following example for a large-scale wind farm.
MidAmerican Energy Inc. plans to build the world's largest wind energy generation project in Iowa.1 The reportedly $323 million project will consist of 180 to 200 wind turbines and have a capacity of 310 MW. An additional capital cost of $15 million for interconnecting and development adds up to a total estimated capital cost of $338 million for the economic evaluation. Landowners will be paid $4,000 per turbine annually for easements.
With this data as a basis, consider the economics of this project in two case studies (see next page).
Case 1 uses a capacity factor of 35 percent to approximate a break-even cost of 3.4 cents kWh for wind-generated electric power from a large wind farm. If a more detailed economic analysis is done using the Modified Accelerated Cost Recovery System (MACRS), the break-even price for wind energy turns out to be 3.4 cents/kWh-illustrating that the approximation method can be useful. For another site where the capacity factor is lower and the site-specific case has a capacity factor of 20 percent,2 the break-even cost increases and the value becomes about 5.9 cents/kWh using the approximation method.