Wind Power Economics - Simple Payback Example

Example A:

We’re going to calculate a Simple Payback for a Home Power Grid-Tie Wind Power Net-Metering System. This hardware is an ARE442 Wind Generator rated at 10 Kw used in Example A, the installed cost (IC) is $48,000. Now, we can calculate its economic Simple Payback.

IC = $48,000

AKWH = 21,600 KWH (Using 1,800 KWH/month from Manufacturer)

$/KWH = 41 Cent/KWH in Kauai

FCR = Fixed Charge-Rate (Cost of Capital), 9%

AOM = Use 1% of IC which equals $480

Using the Simple Payback equation above this Wind Project as a Simple Payback (in years) can be written:

SP = IC/(AKWH * $/KWH – IC * FCR – AOM)

SP = 48,000/(21,600 * 0.41 – 48,000 * 0.09 – 480)

SP = 9.56 Years

As you can see from this example, these calculations are brutal. In this example the Annual Operations and Maintenance Costs are very high $480. For most wind projects, these costs are usually smaller, given normal operating conditions for Wind Zones I-IV. Calculating your Simple Payback gives you a gauge to measure the merit of your financial structure.

Furthering our example, you can see the immediate impact of State Rebate programs. In Oregon there is a Business Energy Tax Credit called BETC. This tax rebate is defined as either 50% over 5 years (10% per Year), or can be taken upfront for a Pass-through value of 35%. Applying this rebate, using the 35% up-front pass-through the Installed Cost (IC) of $48,000 becomes $31,200.

SP = $31,200/(21,600 * 0.41 – 31,200 * 0.09 – 480)

SP = 4.77 Years

Clearly, the impact of State Rebates and other mechanisms to be discussed can dramatically impact the profitability of your Wind Project.

NOTE: At the time of this writing State Rebates for Hawaii are still being formulated, this is included to illustrate the impact of state rebates, if they apply to your Wind Project.