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Economics of The Yankee Ridge Wind Farm Project

Economics of The Yankee Ridge Wind Farm Project. Mark E. Hardwidge Rachael Jabusch. Wind power has many advantages for society, including environmental friendliness and reduced reliance on foreign resources. Ultimately, however, economics is the primary factor

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Economics of The Yankee Ridge Wind Farm Project

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  1. Economics of The Yankee Ridge Wind Farm Project Mark E. Hardwidge Rachael Jabusch

  2. Wind power has many advantages for society, including environmental friendliness and reduced reliance on foreign resources. Ultimately, however, economics is the primary factor determining support for most projects. If wind power is “too expensive” it will receive little support. Once it becomes a net positive (that is, it generates a profit), it becomes a rational short term investment, and levels of adoption should increase rapidly. It appears that wind power is reaching this transition point, not because of increased environmental concern, but because simple economics now make wind turbines good investments.

  3. The Initial Economics Model There are several factors influencing the economics of wind turbines: • Initial cost of the turbine, construction, connection to the power grid, and so on • Recurring maintenance costs • Cost of capital and inflation rate • Cost of electricity • Government ecological (“green”) incentives http://www.windpower.org/en/tour/econ/econ.htm

  4. A Better Economics Model As a scoping study, we constructed a more in-depth model to determine the return on investment of various scenarios, and investigated to the sensitivity to changes in various inputs to assess risk. • Easy To Adjust Input Values • Easy To Enhance Further • Easy To Measure Sensitivity of Variables • Verifies Initial Model Is Correct

  5. Investor Concerns Investors care about a number of things, including: • Return on Investment • Payback time - A long time period increases the risk of the project • Risk - Numerous factors contribute to this risk, ranging from changes in electricity prices to physical damage to the wind turbine

  6. Economics Model Evaluation Example Scenario: • 225 kW Wind Turbine • Initial Cost: $260,000 • Cost of Electricity: $0.08/kWh • Cost of Capital: 5% annual • Yield: ~12% annual $30,000 annually • Net Present Value: $480,000 (“Profit”) • Break-Even Point: ~ 7 Years Yankee Ridge Scenario: • 1.5 MW Wind Turbine • Initial Cost: $1.2 Million • Cost of Electricity: $0.05/kWh • Cost of Capital: 5% annual • Yield: ~ 5.8% annual $70,000 annually • Net Present Value: $1.35 Million (“Profit”) • Break-Even Point: ~ 12 Years Two most viable options would be either selling to the grid, or selling to a single customer. Overall, there is a large potential for profit from the sale of wind power even in Central Illinois with a low average wind speed!

  7. Other Opportunities We can approximate the total electrical power requirement of the Champaign-Urbana area to be on the order of a few hundred megawatts. There are a few different ways we can take advantage of this market: Complete management: Purchase (or lease) land on Yankee Ridge and wind turbines, connect to the electrical grid, and sell the power Localized wind farm with a single customer Champaign-Urbana has several customers that could purchase 100% of the power supplied: The University of Illinois Apartment Complexes

  8. Suggestions • Start Small! • Opportunities in the area must be investigated more fully • Start Soon! • Become the leader in the area • Starting at all would instantly make us the leader in the local area.

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