Baseline Cost of Energy

DOE uses a detailed Discounted Cash Flow Return on Investment (DCF ROI) model to calculate levelized cost of energy (COE). A spreadsheet-based model, called the Financial Analysis Tool for Electric Energy Projects (FATE-2P), was developed for NREL that can model a number of commercial project ownership approaches. All program analyses are done on the basis of current financing trends and are representative of corporate or balance sheet financing. The Wind Program refers to this as GenCo (Generation Company) financing.

The NWTC provides a simplified approach to calculating the cost of energy (COE) for its public/private partners to use in proposing new work and in tracking the progress of technology development efforts. The NWTC offers this approach strictly as a matter of convenience to its partners so that they do not have to run a detailed cash flow model of GenCo financing.

The NWTC's simplified approach uses a Fixed Charge Rate (FCR) derived from the FATE-2P model using a standard set of financial assumptions for a hypothetical GenCo project and a Reference Site that assumes Class 4 wind conditions. The FCR is used to annualize the capital, initial development, and carrying costs of the project. Obviously, as the market value of money changes this FCR also changes. For program management purposes, to allow comparison between projects on their technical merit, it is undesirable to allow the FCR to change. Requiring all partners to use this standardized approach allows project-to-project comparisons on an equivalent basis.

The simplified calculation method developed for NWTC partners is presented below. The FCR includes construction financing, financing fees, return on debt and equity, detailed lender requirements, depreciation, income tax, property tax, and insurance. Values for financial parameters and fixed costs embodied in the FCR were chosen for the underlying detailed cash flow analysis to reflect typical market conditions as of October, 2001. All costs are expressed in 2002 dollars.

The cost of money, investor confidence, and the type of financing that can be arranged by a developer can all drastically impact the COE.

Another major factor that will impact COE is the selected life of the project. The FCR used in these calculations is based on a project life of 30 years. Many current projects are bidding based on a 20-year project life. This difference in project life has a substantial impact on COE; amortizing the cost of capital over a 20-year life significantly increases the COE. The selection of a 20-year versus 30-year life is also strongly driven by current financial markets and investor confidence in the technology.

These COE numbers represent the cost of energy (cost per kilowatt-hour of electricity) to the utility at the utility bus bar or utility substation. They do not include factors such as production tax credits, state credits, or other production incentives. They also do not include ancillary service costs to provide power backup or other transmission or distribution services. These types of services will vary widely depending on the location of the project and where the power will be sold.

Technical Assumptions

To define a detailed, low wind speed technology baseline COE, the following operating conditions are assumed.

Class 4 wind site = 5.8 m/s at 10 m
Hub height = 65 m
Wind shear = 1/7 (power law exponent)
Availability = 98%
Rotor Cp = .47
Machine rating = 1.5 MW
Rotor diameter = 70 m (consistent with current GE designs)
Losses = 13% (Conversions efficiency [mechanical & electrical], soiling losses on blades, array losses from wind farm aerodynamic interference)

COE Calculation

The COE equation used in this method is:

Where:
FCR is equal to fixed charge rate
ICC is equal to initial capital cost (cost of turbines, installation, balance of station)
LRC is equal to levelized replacement cost (yearly sinking fund for overhauls and replacements)
O&M is equal to operations and maintenance cost (annual turbine maintenance)
LLC is equal to land lease cost
AEP is equal to net annual energy production in kWh.

The detailed baseline numbers were developed in the DOE WindPACT project started in 1999. These costs have been adjusted in certain categories to bring them in line with cost data available in late 2001, when the DOE Low Wind Speed Turbine project was established. At this time the factor for project uncertainties was added to account for higher markups than expected under WindPACT. These uncertainties are due to new products coming into production without adequate manufacturing learning and potential increases in markups that must account for the lack of a smooth production curve because of uncertainties in project starts. The WindPACT project was based on an 84-meter tower. This was decreased to a 60-meter tower to bring the projection in line with current plant installations. The FCR was also adjusted from WindPACT to reflect a January 2002 finance figure (See discussions of FCR above), as well as LRC, O&M, and LLC. There were also slight changes in projected losses in energy production and project availability. These new numbers were all validated to a range of new projects that came on line late in 2001.

Example COE Projection Sheet

An example of a COD projection sheet based on a Baseline Turbine 1.5 MW Bladed Upwind/Pitch Controlled - 70 Meter Rotor. For complete details of this sheet, please contact the Webmaster.

Annual Energy Production Calculations

Annual energy production is calculated by applying the predicted wind distributions for a given site to the power performance curve of a particular wind turbine. The site wind distributions are normally based on a Weibull distribution that describes how many hours each year the wind at a given site blows at a particular wind velocity. Many wind sites can be described by a subset of a Weibull distribution called a Rayleigh distribution, which has a Weibull shape factor of 2. Such a curve generally looks like Chart 2 below.

A wind energy chart displaying the Weibull probability distribution that describes how many hours each year the wind at a given site blows at a particular wind velocity. The peak is at 5 miles per hour over 220 hours. It tapers down to 1 hour at about 23 miles per hour.

The second step in this process requires the power curve for the chosen turbine. Chart 3 is an example of a power curve for a 1.5-MW turbine that is characteristic of current technology.

A chart showing the power curve for a 1.5-MW turbine characteristic of current technology. Wind speeds of 10 - 25 m/s result in the most efficient power output, approximately 1500 KW. Wind speeds of 0-5 m/s result in almost no power. Wind speeds of 25-40 result in almost no power.

The product of these two curves will be a curve such as that shown in Chart 4. By integrating the area under this curve, it is possible to determine the annual energy production. For a more accurate calculation it is necessary to account for both the mechanical and electrical power conversion efficiency, which varies at different turbine power level losses as described in the operating characteristics above, and the projected machine availability. The AEP numbers shown in the COE calculation chart (Chart 1) reflect these adjustments.

This chart demonstrates the annual energy production for a Baseline Turbine 1.5 MW Bladed Upwind/Pitch Controlled - 70 Meter Rotor based on chart 2 and chart 3. Peak wind speed is 180 KW/hrs at about 10 m/s windspeed.

Numbers will vary slightly from location to location based on actual annual average wind velocity and wind profile. The numbers shown here are just an example and do not necessarily match the baseline calculations shown in the Example COE Project Spread Sheet.

The calculations spread sheets available through the links below match those used to develop the detailed COE numbers for the Low Wind Speed Turbine (LWST) baseline and by LWST partner firms to evaluate their new technologies.

Example COE Projection Sheet (MS Excel 23 KB)
Annual Energy Production Calculator (MS Excel 253 KB)

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