Economical Feasibility of Wind Energy Projects

WORK in PROGRESS

Indicators for cost-effectiveness

Als Indikatoren für potenzielle Wirtschaftlichkeit dienen u.a.

• mind. Windgeschwindigkeit von 6 m/s auf 10m
• geplante, installierte Kapazität von rd. 20 MW
• günstige Rahmenbedingungen (lokal und national)
  2031_Drillisch-Suisse-Eole-6-2-04
  

Estimation of Costs

The level of investigation and cost estimates shall be of sufficient accuracy and detail to satisfy the needs of financiers and decision makers.
The outline of project costs should include:

• Itemized specification of investment costs (wind turbines, foundation, civil works, electrical work, consulting services, physical and price contingencies, etc.) in actual prices (year of study), including a financing cash flow broken down in foreign and local cost components. In arriving at final cost estimates, the Firm of Consultants shall investigate the effect of the possibility of increased use of local participation and local materials in as many aspects of the work as possible.
• If need be, computation of shadow prices for foreign exchange and local inputs
• Operational and maintenance costs (spare parts, insurance, administration, etc.)
• Assessment of adverse environmental impacts and, if applicable, estimation of costs of mitigatory measures required by environmental regulations
• Tentative description of project financing arrangements and costs
• Computation of long-run marginal costs (lifetime average costs) of wind energy generation
  

Estimation of Benefits

The focus should be on:

• Economic benefits: avoided energy and capacity costs taking into account the wind farm’s impact on merit order dispatch, and considering the (avoided) system costs associated with alternative power plants that would be needed in the absence of wind parks. If feasible, undertake probabilistic production cost modelling. Also, the associated effects on poverty alleviation through possible reduction of electricity prices are to be analyzed.
• Financial benefits: based on power purchase arrangements or feed-in tariffs (if different from economic benefits)
• Positive external effects: estimation/approximation of environmental benefits (avoided emissions from thermal plant) 

Economic and Financial Analysis

• The economic and financial appraisal of wind park projects should cover:
• Compliance with optimal power sector expansion plan
• Compliance with criteria/objectives used by international institutions and programs to promote wind energy utilization (e.g. German technical and financial cooperation)
• Selection of appropriate discount rates
• Computation of net present values (economic, financial)
• Calculation of unit costs of energy and comparison with other options
• Sensitivity analysis and determination of critical parameter values
• Outline of the projects’ expected financial performance and risks (cash-flow and liquidity analysis) according to internationally accepted accounting standards
• Description of possible financing options and discussion of financial support measures/schemes. This shall include an analysis of current lending strategies of major development banks, focal areas of the relevant institutions as well as a description of typical loan conditions in case the projects were considered suitable by the lenders.
• Discussion of alternative operational schemes for the wind park under support of an experienced wind park operator

Financial analysis - example from Namibia

Source: GIZ 2000: Wind Energy Projects in Morocco and Namibia pp. 10 - see also for the tables!

gtz2000-en-wind-energy-projects-marocco-namibia

The investment costs and expenditures on operation and maintenance (O+M) for these
sites and system configurations are given in the table below:
Cost Overview of Selected Wind Parks in Lüderitz (March 1999)

In a first step, the costs of electricity generated by wind farms were compared with the actual
electricity costs under status quo conditions. The economic analysis evaluated the utilisation
of wind energy for electricity generation from the country’s point of view, assuming that
Namibia continues to rely on imports from the RSA as per purchase agreement of 1996. This
assumption was changed in the sensitivity analysis, taking into account alternative supply
options and a different policy environment (e.g., greater degree of energy self-sufficiency).
In the financial analysis, the key assumption was that the benefits of wind energy are
measured in terms of avoided costs of bulk energy supplies from NamPower, valued in
terms of the currently prevailing wholesale tariffs, adjusted upwards by 12% to account for
the pending increase in tariffs. The forecast horizon (project lifetime) covers the period 2000
- 2020, with the pay-back period starting in 2001. Payments, i.e., cash in- and/or outflows,
are due at the beginning of each year, expressed in N$ at constant prices of 1999. The
above costs were then translated into “Long Run Marginal Costs” (LRMC), indicating the
generation costs of wind power during the lifetime of the wind park:

However, the economic benefits of wind energy according to the avoided costs of electricity
imports ranging from 32 N$/MWh to 74.5 N$/MWh (including line losses) depending on the
spot price of the South African Power Pool, make any wind park economically unfavourable,
and even the financial analysis adds little to this because it is based on the same
assumptions as the economic analysis, except for the financial value attached to wind
energy, which is 90 N$/MWh (the rate NamPower is assumed to charge for wholesale
energy supplies).
In a sensitivity analysis it was therefore investigated how the given parameters have to
be changed in order to achieve the financial viability of the wind park. Even by taking into
account increasing electricity tariffs due to new power generating facilities such as the
Kudu Gas Combined Cycle Power Plant, there is still a considerable amount of grant
financing or other financial support required to make a wind park at Lüderitz
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commercially viable. The following table presents these mutually exclusive options as
there are:
· A capital grant or
· an equivalent “wind energy levy” on electricity consumption (based on 1,700 GWh in
1997).
Alternative Break-Even Requirements for Wind Parks in Lüderitz

The above figures indicate that an assumed CO2 bonus of N$ 100 per ton of avoided CO2
would warrant the support schemes to a large extent, but sources for grant financing have
still to be found. As a result of the workshop held in March, all Namibian stakeholders gave
their firm committments to further pursue the wind energy option, provided that the
international donor community would make available the additional financial support required
to make the project economically and financially viable.

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