CostEffectiveness Analysis for Wind Energy Projects


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1 15 CosEffeciveness Analysis for Wind Energy Projecs Wagner Sousa de Oliveira and Anonio Jorge Fernandes Deparmen of Economics, Managemen and Indusrial Engineering, Universiy of Aveiro, Porugal AbsracThis paper presens he cos effeciveness indicaors or mehods for economic cos analysis applied o wind energy projecs. I discusses abou Levelezed Cos of Energy (LCOE), Toal LifeCycle Cos (TLCC), Ne Presen Cos (NPC), Levelized Elecriciy Generaion Cos (LEGC) and Uniary Presen Average Cos (UPAC). For each indicaor sudied is poined ou is bolenecks abou he applicaion in evaluaion and managemen of wind energy projecs direcly. However, i is imporan o consider he purpose and scope of a paricular analysis a he ouse because his will prescribe he course o follow. The perspecive of he analysis is imporan, ofen dicaing he approach o be used. Also, he ulimae use of he resuls of an analysis will influence he level of deail underaken. KeywordsCosEffeciveness; Economic Analysis; Wind Energy; WECS I. INTRODUCTION Cos analysis of he elecriciy supplied by wind energy conversion sysems (WECS) is a raher difficul ask requiring he esimaion of oupu power generaion as well as he cos of he WECS, in addiion o he analysis of he wind disribuion parameers. Power generaion of he WECSs is closely relaed no only o he sysem s performance bu also o operaing condiions, which means he wind characerisics of he sie, as well. Therefore, he selecion and insalling of suiable wind elecric generaor o produce elecrical energy economically in he windy areas requires a number of aciviies ha include he invesigaion of he source, feasibiliy assessmen ec. The economic cos analysis of wind power is dependen upon he following facors: ( available wind resource, (i insalled capial coss and cos of capial, (ii operaion and mainenance coss, (iv) wind inegraion coss, (v) ransmission line inerconnecion and grid upgrade coss, (v value of available subsidies or incenives, and (vi willingness of cusomers o pay a premium for wind energy. A. Specific Measures of Economic Performance for Energy Projecs TableI EXAMPLE OF NET CASH FLOW FOR ECONOMIC PERFORMANCE IN ENERGY PROJECTS (NPV METHOD) Cash Flows Period (years) NPV years Alernaive 1 Ne Cash Flow ,1 Alernaive 2 Ne Cash Flow ,4 Source: [2]. The coss levelized (or revenue revenues levelized) is a echnique o compare invesmen alernaives (such as renewable energy projecs), involving differen amouns of capial (i.e., differen sizes) and/or differen ime periods wih differen lifecycles. Applying he NPV mehod is done implicily on assumpions necessary reinvesmen in renewable energy projecs. These implici assumpions can be avoided by smoohing of cash flows: even involves he calculaion of seady cash flow, ne presen value (NPV) is equal o a given cash flow variable [1]. Suppose ha wo invesmen alernaives for renewable energy projecs have he following ne cash flow per period, as shown in Table I. The alernaive 1 implies a higher iniial invesmen (capial requiremens) and provides higher absolue reurn han alernaive 2. Alernaive 2 has only a small iniial invesmen, bu also shorer lifeime (3 versus 5 years). I is difficul o make a direc comparison beween he wo projecs. In calculaing he NPV of he projec (wih a discoun rae of 10%) resuls in NPV = 14.1 for an alernaive 1 and NPV = 11.4 o alernaive 2. For he NPV rule suggess ha an alernaive 1 is chosen. The levelizing of cash flows (ne) is o find a consan amoun g during he life of he projec NPV wih his flow in equal amouns g o become equal o he NPV of he original projec, as shown in Fig. 1. Fig. 1 Schemaic of he cash flows levelizing process for renewable energy projecs [2]. This amoun g (also called "annuiy") is calculaed using he formula below: n i( 1+ g = NPV UCRF = NPV (1) n ( 1+ 1 The UCRF (Uniform Capial Recovery Facor), is he facor by which he NPV mus be muliplied o reach he consan value g given discoun rae i for a series of n periods. In he example in Table 6, he alernaive creaes an annuiy of 3.73 (in moneary unis). The five cash inflows of 3.73 are equal o a NPV of 14.1, exacly equal o he NPV of cash flows of he projec plan (including iniial invesmen). Alernaive 2 Vol.2 No PP C World Academic Publishing ~ 15 ~
2 16 generaes annuiy of 4.58 (in moneary unis). By comparing he poenial of heir projecs o generae sable cash flows, he alernaive 2 should be higher han he alernaive 1. Annuiies are no specific o renewable energy projecs. The concep LCOE is used o compare he differen alernaives of energy producion. Revenues are fixed and equal beween hese alernaives (e.g., because he price is se by he regulaor and does no depend on he echnology used o produce energy, hen he alernaives differ only in heir coss (cash flows of revenues are equal o all alernaives) [3]. The above concep is applied only o cash ouflows (coss). The sum of all coss involved in he projec during is full life cycle (Toal Life Cycle Cos  TLCC) are discouned o presen value and convered ino a sream of equal cash ouflows for each year of he projec ("annuiy negaive"). If he value is divided by he annual amoun of energy produced, he resul is called he Levelized Cos of Energy (LCOE  Levelezed Cos of Energy). The LCOE is assigned each uni of energy produced (or saved) by he projec during he analysis period is equal o he TLCC when discouned o he base year (period 0). The LCOE can be used o rank differen alernaives for producion (or consumpion) of energy, as shown in Fig. 2. Fig. 2 Values in $/kwh LCOE (Levelezed Cos of Energy) in 2005 for various convenional and renewable echnologies [3]. B. Levelezed Cos of Energy The Levelezed Cos of Energy (LCOE) is he real cos of producion of kilowahours (kwh) of elecriciy. Includes he oal consrucion, cenral producion coss of he power saion during is economic lifeime; financing coss, reurn on capial and depreciaion. Coss are leveled in curren moneary values, or adjused o eliminae he impac of inflaion. The LCOE is wha i would cos he owner of he faciliy o produce one kwh of energy. For elecriciy producion, he LCOE is a mehod o compare renewable energy echnologies adoped o produce elecriciy. The model LCOE mos known and used in energy projecs by he Naional Renewable Energy Laboraory [4]. The calculaion mehod is defined below. FCR ICC + LRC LCOE = + O & M + PTC (2) AEPne Where: FCR Fixed Charge Rae; ICC Iniial Capial Cos; LRC Levelezed Replacemen Cos; O&M Operaions and Mainenance; PTC Producion Tax Credi and AEPne Ne Annual Energy Producion. The calculaion of LRC can be accomplished wih he equaion 3, where MR Machine Raing [3]. LRC = $ MR (3) kw For correc analysis of he leveled cos of energy, he ne annual energy producion of he wind farm is given by equaion 4. The availabiliy is defined as he raio of hours he wind sysem is capable of producing energy relaive o he number of hours during he sudy period and losses represen loss of marix, dir on he blades and ice formaion, he cenral producion downime for mainenance and miscellaneous sysem losses in producion and disribuion of energy o he elecric grid [5]. ( losses) AEPne = AEPgross Availabili y 1 (4) Where: AEPgross Annual Energy Producion. The LCOE was adoped by he Unied Saes Deparmen of Energy in he Low Speed Wind Turbine Program (LWST) and makes reasonable approximaion of he COE (Cos of Energy), which is esimaed by he poenial invesor o consider he reliabiliy of he equipmen o deermine AEP (Annual Energy Producion), O&M (Operaions and Mainenance) and LRC (Levelezed Replacemen Cos). The AEP is affeced by he availabiliy of equipmen due o he shudown of wind urbines due o scheduled and unscheduled mainenance. The coss of O&M consis of programmed coss (prevenive) and coss unscheduled (repair) mainenance, including coss for replacemen pars, supplies, manpower, leases (royalies) of land, among oher expenses arising from he operaion of a wind farm. II. FIXED CHARGE RATE The capial cos componen of COE is deermined by he spread of insalled capial cos over he lifeime of he projec done in a linear basis over he years hrough he FCR (Fixed Charge Rae). The FCR is a percenage of he cos of insalled capial coss including deb service (financing coss) allocaed o each year of he projec. The componen of he cos of capial is analogous o a paymen of fixed rae morgage of a house, or fixed amoun per pay period during he erm of he deb. The analysis period may be he life of a physical plan for he producion or lifeime for accouning purposes. The lifeime of a wind farm ranges from 20 o 30 years, while lifeime used for financial accouning purposes may be smaller [2], [6]. The FCR is he annual value for each moneary uni of iniial capial cos needed o fully cover he iniial capial cos, reurn on equiy and deb, and oher overheads. The fee is charged from a hypoheical projec, spread over cash flow. The curren base model, FCR mus include funding for consrucion, financing raes, reurn on equiy and deb, amorizaion of equipmen and faciliies, ax revenue and profis all on an annual basis [4]. III. INITIAL CAPITAL COST The iniial capial cos (ICC) is he sum of he cos of wind power sysem and he cos srucure of he wind farm. No included is cos of financing he consrucion or financing raes, as hey are calculaed and added separaely hrough he FCR. Nor does i include he coss of he reserve fund for deb service (charges for financing coss). This cos measure includes all he Vol.2 No PP C World Academic Publishing ~ 16 ~
3 17 planning, equipmen acquisiion, consrucion and insallaion coss of he wind sysem, leaving he wind farm ready o operae. This cos includes wind urbine owers and delivered and insalled on sie along wih all mainenance, elecrical sysem and oher infrasrucure suppor. For a wind farm, he cos of insalled capial should include he sysem of collecion of elecriciy which exends from each wind urbine o he subsaion and poin of inerconnecion wih he grid. Depending on he policy and pracice of grid adminisraor and disribuor, he elecrical sysem may or may no be included in he cos of capial [2]. The ICC includes coss for buildings o suppor he operaion and mainenance, he iniial sock of spare pars and mainenance of diagnosic equipmen. Oher coss should be included as coss of preconsrucion planning, including assessmen and analysis of wind resources, surveying, and consulancy for obaining financing. The insalled capial cos of a wind farm includes he following elemens [1]: Assessmen and analysis of wind resources; Consrucion of service roads; Consrucion of foundaions for wind urbines, infrasrucure o moun ransformers and subsaions; Purchase of wind urbines and owers wih local delivery and insallaion; Consrucion and insallaion of wind sensors, able o communicae wind urbine unis for conrols; Consrucion of he power recepion sysem, including wiring of each wind urbine for he mouning of he ransformer and deck moun ransformers for he subsaion; Consrucion of faciliies needed for operaions and mainenance during he regular operaion of he wind farm; Consrucion and insallaion of he communicaion sysem of wind farms o suppor he command and conrol daa flow from each wind urbine o a cenral faciliy operaions; Inegraion and verificaion of all sysems for proper operaion of he wind farm; Commissioning for wind farm period of decommissioning. IV. LEVELEZED REPLACEMENT COST Depending on he deails of he projec, he major review of he wind urbine occurs every 5, 10 or 15 years. The review focuses on he large gears, bearings, seals and oher moving pars. Usually he nacelle and is machinery are removed from he ower and ranspored o he plan mainenance garage of he wind farm. Ofen, removal of he nacelle and equipmen is replaced immediaely by all already rebuil [3]. The replacemen of he blades of wind urbines is an example of his caegory of frequen replacemen of subsysems. Since hese coss occur a inervals of several years and infrequen during each year, correc accouning for hese coss requires annual exercise of funds (working capial). The aim is o make funds available when needed o repair or oal replacemen of occurrence. The exercise involves calculaing he ne presen value or even o allocae coss for review and replacemen on an annualized basis consisen wih oher cos elemens [1]. V. OPERATIONS AND MAINTENANCE COST The coss of operaions and mainenance (O&M) include coss normally associaed wih recurren rouine operaion of he plan insalled. The O&M coss do no include overime worked or infrequenly, such as major repairs of wind urbines and oher sysems. These coss are included in he cos componen LRC (Levelezed Repalcemen Coss). Mos of he O&M coss is associaed wih mainenance and generally grouped ino hree caegories [7]: Cos of unscheduled visis, bu saisically predicable, rouine mainenance visis o roubleshoo he operaion of wind urbines; Scheduled prevenive mainenance coss for wind urbines and energy collecion sysem; Coss of major repairs and replacemens scheduled subsysems of wind urbines. The firs wo coss occur during he course of a year in operaion and are included in he cos componen of O&M. The hird occurs a inervals of 5, 10 or 15 years and involves financial year over he nex few years, herefore, is included in he cos componen LRC. The purpose of prevenive mainenance is o replace componens and reform sysems ha have finie lifeime, generally smaller han he projeced life of he urbine. Tasks include periodic inspecions of equipmen, lubricaing oil and filer changes, calibraion and adjusmen of sensors and conrollers, replacemen of consumables such as brake pads. The cleaning of he blades in general, fis ino his caegory. The specific asks and frequency are usually explicily defined in he mainenance manuals provided by he manufacurer of he urbine. The coss associaed wih planned mainenance can be esimaed wih reasonable accuracy, bu may vary according o labor coss locaion, locaion and accessibiliy. The scheduled mainenance coss also depend on he ype and cos of consumables used [8]. The unscheduled mainenance should be anicipaed in any proposed wind energy producion. Commercial wind urbines conain a variey of complex sysems ha mus funcion correcly for he urbine work and ge bes possible performance. Failure or malfuncion of he smaller componen (subsysem), i ofen shus down he urbine and require he aenion of mainenance professionals. Unplanned coss can be separaed ino direc and indirec coss. Direc coss associaed wih labor and equipmen needed for repair or replacemen and consumables used in he process. The resul of he indirec coss associaed wih he revenue los due o sop he urbine. Depending on he deails of ownership and locaion of he wind farm, here may also be coss associaed wih negoiaing land use agreemens, conracs, power purchase agreemens and access o ransmission and disribuion of energy produced [9]. Besides he cos of operaions and mainenance, spare pars and oher mainenance iems in he cos elemen of O&M may also include: Taxes on propery where he wind farm operaes; Paymen of land use; Miscellaneous insurance; Access o ransmission and disribuion raes; Managemen fees and general and adminisraive expenses. Vol.2 No PP C World Academic Publishing ~ 17 ~
4 18 The values of cos of operaions vary wih he siuaion. The ax srucure is where he wind farm conrac, land use, insurance raes and oher fees vary from locaion o locaion and insallaion of wind farms o anoher. In comparison o mainenance coss, operaing coss are ypically very small relaive o he cos of producion of a cenral power generaion [7]. VI. PRODUCTION TAX CREDIT The Producion Tax Credi (PTC) is a ype of public incenive, usually graned by he Federal Governmen for he renewable energy secor. This incenive is offered in he form of ax credis for producing energy for a cerain period of operaion of he cenral producion of energy. The PTC is adjused for inflaion rae prevailing in he counry concerned, wihin 10 o 15 years, falling on each MWh of renewable energy produced and sold o he disribuion grid. For he producion of wind power in Porugal, DecreeLaw No. 33A/ sipulaes ha farms ha have already obained permission o esablish he dae of enry ino force of he law or hey may obain he license for esablishmen wihin one year afer he enry ino force, mainaining he curren ariff of /MWh from 2005, progressing a he rae of inflaion, for a period of 15 years from he dae of enry ino force of ha legislaion. A he end of his period, he rae will converge o marke price plus he premium for he sale of green cerificaes. The Levelezed Cos of Energy mehod has drawbacks ha limi is applicaion in he assessmen and managemen of projecs in renewable energy, paricularly in wind energy projecs: The echnical and economic parameers direcly impac he mehod LCOE and should be carefully considered in he analysis of he final cos of energy produced. The dramaic reducions in LCOE occur when he wind farm wind resource is above average, or when we obain improvemens in capaciy facor. This suggess ha he increase in capaciy facor from values below he levels of average capaciy facor can lead mainly o large reducions in LCOE [ 10]. The LRC ha maches he coss for equipmen replacemen in he long erm, i has been repored o be increasingly significan componen o he annual cos of wind power and if i is overvalued, can inflae he cos of energy currenly produced. The echnological improvemen in wind power can make he cos of capial is smaller in he coming years. The LCOE is a mehodology for deermining and analyzing he cos of energy producion resriced o cerain period of ime. The fac ha he analysis is for one year of producion (a single uni of ime) ignores gains economies of scale hroughou he projec life. A. Toal LifeCycle Cos The evaluaion mehod Toal LifeCycle Cos (TLCC) mehod is derived from he NPV, as i akes ino accoun only iems of coss (cash ouflows). The TLCC evaluaes he 1 Available in hp://www.edpdisribuicao.p/p/produor/renovaveis/edp%20documens/d L33A2005.pdf differences in cos (and ime of occurrence of coss) beween projec alernaives over he life cycle. Cash ouflows associaed wih he projec (alernaives) are evaluaed for each period and are hen discouned o presen value using a discoun rae as defined in he NPV approach [11]. The TLCC calculae he presen value of all cash ouflows (cos iems), bu no cash inflows (revenues). This only makes sense if: There is no revenue generaed by he projec (Noe ha he cos saved are recorded as revenue) or, Revenues are independen of he invesmen decision (e.g., because revenues are fixed, no maer wha he invesmen decision is chosen). The analysis may focus only on cash ouflows. Soon he TLCC akes no accoun of he projec income, which makes his indicaor no adequae o evaluae absolue araciveness of an invesmen alernaive. I can be used o evaluae he relaive araciveness of alernaive invesmens when considering he cos per uni of oupu as a facor of choice. By definiion, he calculaion of TLCC is defined by he following formula [10]: Co Co Co Co 1 2 TLCC = = 2 ( 1+ ( 1+ ( 1+ ( 1+ (5) Where: TLCC Toal Life Cycle Cos; Co Cash ouflows in period ; i Discoun rae and Number of periods. The TLCC has disadvanages ha limi is applicaion in assessing and managing projecs in wind energy projecs: The need o know he acual capial cos of he projec. As he ineres rae ha measures he cos of capial for an invesmen should include he risk of he projec, he ask of defining he real value of capial cos is no always easy o accomplish. The failure o consider he projec's revenues, here is inerference by he revenue coss, because here are coss ha are direcly influenced by income, as is he case of axes on income in energy projecs ha may or may no be suppored by incenive programs governmens on renewable energy. Coss are projeced for he life of he projec, which makes he financial cycle equal o he operaing cycle of he invesmen, which by classical rules of accouning does no always coincide. B. Ne Presen Cos The Ne Presen Cos (NPC) of a renewable energy projec is he sum of he curren value of all coss during he projec's ineres period (generally considered is lifeime), including residual values 2 as coss. The ne presen cos of a projec is he sum of all cos componens, including [ 13]: The invesmen of capial or iniial capial cos; O&M coss, excluding fuel (in case of wind); Coss of major replacemens; 2 I is undersood by residual values, he difference beween he book value of he commercial value of a fixed asse afer he projec lifeime. 12.Newnan, D.G. and Jerome P. Lavelle., Engineering Economic Analysis1998, Ausin, TX.: Engineering Press.. Vol.2 No PP C World Academic Publishing ~ 18 ~
5 19 Energy coss (fuel coss, including oher associaed coss); Any oher coss such as fees and legal fees, among ohers. If a series of projecs or invesmen opions are being considered, he lowes ne presen cos will be he bes opion. By definiion, he formula for calculaing he NPC is defined as [14], [3]: NPC Co Co.... Co D Co D 1 2 v v = = + N N 2 ( 1+ ( 1+ ( 1+ ( 1+ ( 1+ ( 1+ (6) Where: NPC Ne Presen Cos; Co Cash ouflows in period ; i Discoun rae; Number of periods of ouflows; N Lifeime of wind park and Dv disinvesmen value. The NPC has disadvanages ha limi heir applicaion in he evaluaion and managemen of wind energy projecs: The discoun rae or cos of capial remains unchanged hroughou he period under review he projec because he cos of capial depends on he behavior of he risk of he aciviy ha ends o be decreasing wih he years of operaion and echnological mauriy. The financial indicaors considered over he life of he projec (inflaion, discoun rae, insurance, axes, among ohers) also remain consan hroughou he period analyzed wha makes he NPC no o be influenced by he uncerainies of he economic scenario where he projecs are insered. The fac of considering he value of disinvesmen, especially for wind energy projecs, because i is capial inensive projec, makes he value of he divesmen is high compared o oher renewable echnologies. In he case of wind energy projecs reurn higher ne presen cos. C. Levelized Elecriciy Generaion Cos The Levelized Elecriciy Gereraion Cos (LEGC) per kw is he proporion of he oal cos over he lifeime of he projec from anicipaed resuls expressed in equivalen erms by he curren value. This cos is equivalen o he average cos being paid by consumers o cover producion coss included capial coss, operaions and mainenance, fuel, rae of reurn equivalen o he discoun rae. The formula used for calculaing he LEGC for one uni of elecriciy generaion is defined by IEA [2] ( I + M + F )( 1 + r) f LEGC = (7) AAR ( 1 + r) Where: LEGC Levelized Elecriciy Generaion Cos; I Invesmen expendiures in he year ; M Operaions and mainenance expendiures in he year ; F Fuel expendiures in he year ; AAR Average Annual Revenue based on hourly producion and r Discoun rae; Number of ouflows periods. By comparing LEGC for wind energy projecs in differen sies, i is imporan o define he limis of "producion sysem" and coss ha are included in i. For example, ransmission lines and disribuion sysems should be included in he cos? Usually only connecion coss o he producion source for he ransmission sysem is included as cos of producion. One mus be careful o delimi he border of cos analysis, wha should or should no be included in he cos of energy [8]. The LEGC has disadvanages ha limi applicaion in he assessmen and managemen of projecs in wind energy projecs: The discoun rae or cos of capial remains unchanged hroughou he period under review he projec because he cos of capial depends on he behavior of he risk of he aciviy ha ends o be decreasing wih he years of operaion and echnological mauriy. Capial coss are regarded as a lump sum a he beginning of he analysis; however here are oher capial coss as major equipmen insallaions and replacemens ha occur in oher periods of he plan's lifeime producion. All recurren coss begin o accumulae from he firs period and are grouped ogeher and considered o occur a he end of he curren period. By using he discoun rae o updae and add coss in differen periods, one runs he risk of his rae is differen from he rae a which raise coss and oher curren expendiure over he life of he projec. D. Uniary Presen Average Cos The Uniary Presen Average Cos (UPAC) is significan for each year. However i is less meaningful if he evaluaion period exends from he invesmen decision unil he end of he lifeime of he plan producion. The average annual cos per uni calculaed for he wo soluions, boh echnically and financially differen, may be he same and be differen han he ineres of such soluions. To obain he average uni cos updaed, updae separaely charges (invesmen, operaions and mainenance, fuel, and ohers) and oal oupu during he lifeime of he plan producion. Assigning charges generally updaed by PVCo and annual accumulaed and updaed by PVsAEP, UPAC ( /kw), is given by [3]: PVCo UPAC = PVs AEP (8) Where: PVCo Presen value of cash ouflows and PVsAEP Presen value of cumulaed annual energy producion. The acualizaion process i means calculae he amoun as paymens and receips made on various daes if made a ime = 0. To se he model o consider is necessary o esablish precisely wha is expeced escalaion for he exis and enries for cash. A fairly general model can admi ha boh he inpus (energy sales) and cash ouflows (invesmen, operaing coss) are irregularly spread over a period of n years of life. Alhough paymens and receips are disribued more or less irregulariy over ime, can be assumed: Expendiure is done on he firs day of he year during which hey pay, Revenues go ino he las day of he year in which hey acually receive i. The ineres and depreciaion depend on he condiions of financing, acceped he same for all projecs being compared. The following calculaion is he average cos o dae, considers iself neiher ineres nor amorizaion. Invesed capial and is depreciaion could never be considered simulaneously, i Vol.2 No PP C World Academic Publishing ~ 19 ~
6 20 would be duplicaion [15]. In his model of assessmen of coss, cash ouflows are classified as invesmen coss and operaing expenses. The invesmen coss include all cash ouflows arising from he physical srucure of he cenral producion (machinery and equipmen, civil works, roads and access, conrol sysems, among oher hings of ha naure). How operaing coss shall include O&M coss, fuel and oher charges relaed o he regular funcioning of he power plan. The calculaion of he UPAC, saring of he equaion 8, i is assumed he following parameers: Invesmen (ICC) focuses on he iniial momen of he projec ( = 0). The annual use of power (capaciy facor for wind projecs) insalled is consan hroughou he lifeime of he projec. The O&M coss are consan over he useful lifeime and equal o C O&M. There are no charges for fuel, will be he case of small hydroelecric plans, wind farms and phoovolaic cells. The various charges are void or may be included in he O&M coss. Accordingly, he UPAC is defined by: ICC( 1 + CO& M α ) ICC( β + CO& M ) UPAC = = ( AEP ) (8) α AEPs Where: UPAC Uniary Presen Average Cos; ICC Iniial Capial Cos; CO&M Operaions and Mainenance coss and AEPs Cumulaed annual energy producion. β = For hose facors ( 1+ α = i( 1+ i( 1+, UCRF = ( and Where: i = ineres rae and = number of ouflows or lifeime of he projec. The UPAC has disadvanages ha limi is use in evaluaing and managing projecs in wind energy: Capial coss (ICC) are considered as a fixed sum a he beginning of he projec; however here are oher capial coss as major equipmen insallaions and replacemens ha occur in oher periods of he plan's lifeime producion. The capaciy facor is no fixed hroughou he period of operaion of he projec (lifeime), which makes he wind producion variable over he years. By oscillaing energy producion, here is also flucuaion in wind energy revenues and coss. The O&M coss are no fixed over he lifeime of he projec. The mainenance conracs for wind farms are defined according o he warrany period given by equipmen manufacurers. The duraion of mainenance conrac ouside he manufacurer s warrany is 5 o 12 years, ye he life of he wind farms are for a leas 20 years. E. Peculiariies in he Cos Analysis of Wind Energy Projecs The adopion of sandardized mehodology for calculaing he cos of wind energy projecs is necessary in he efficien managemen of a wind farm. Some approaches can be used for economic assessmen in various conexs, o reflec he crieria and prioriies of differen economic agens involved in he venure. For he correc definiion and calculaion of he cos of one uni of energy produced by a cenral producion is essenial o characerize he boundaries of he projec under sudy. I is imporan o compare he power plans mee he cos of energy produced in isolaion, bu may no reflec he oal economic impac of new power when conneced o he nework wihin an exising elecrical sysem. I is imporan from he sandpoin of he producer o esimae he cos of producing one uni of energy for he managemen and evaluaion of he projec as a business uni mus ensure ha economic reurn for he invesor/manager [16]. The average cash cos mehodology for he series of coss o presen values a a given base year by applying he discoun rae. The discoun rae considered appropriae for he energy secor may differ from counry o counry, and in he same counry, from echnology o echnology. Applying he discoun rae akes ino accoun he ime value of money, or an amoun earned or spen in he pas or fuure, has he same value as he same amoun (in real erms) gained or spen on his. The discoun rae may be relaed o raes of reurns ha can be earned on invesmens ypical, which may be a fee required by regulaors incorporaing he provision for financial risks and/or derived from naional macroeconomic analysis. Despie he invesmen opion no o depend enirely on how i is financed, as i should be profiable by iself, funding may influence he araciveness of he projec. This is especially rue for renewable energy projecs. How ofen is very capial inensive and require large amoun of iniial deb and equiy. The financial condiions for such a loan, becoming an imporan facor in he projec evaluaion [6]. VII. SUMMARY AND CONCLUSIONS The objecive of an economic analysis is o provide he informaion needed o make a judgmen or a decision. The mos complee analysis of an invesmen in a echnology or a projec requires he analysis of each year of he life of he invesmen, aking ino accoun relevan direc coss, indirec and overhead coss, axes, and reurns on invesmen, plus my exernaliies, such as environmenal impacs, ha are relevan o he decision o be made. However, i is imporan o consider he purpose and scope of a paricular analysis a he ouse because his will prescribe he course o follow. The perspecive of he analysis is imporan, ofen dicaing he approach o be used. Also, he ulimae use of he resuls of an analysis will influence he level of deail underaken. The decisionmaking crieria of he poenial invesor mus also be considered. Among he economic indicaors presened in his paper, as shown in Table II, i is possible o summary up hese poins: LCOE is recommended for use when ranking alernaives given a limied budge simply because he measure will provide a proper ordering of he alernaives, which may hen be seleced unil he budge is expended. LCOE is no recommended when selecing among muually exclusive alernaives because differing invesmen sizes. TLCC is no recommended for economic evaluaion o decide wheher o accep or rejec an invesmen because TLCC provides no frame of reference for wha are accepable and unaccepable coss, and TLCC does no address benefis and Vol.2 No PP C World Academic Publishing ~ 20 ~
7 21 reurns. TLCC can be used for ranking or selecing among muually exclusive alernaives ha provide exacly he same benefis and reurns. NPC is no recommended for economic evaluaion o decide ino differen size invesmen because his indicaor TABLE II akes ino consideraion he value of disinvesmen, especially for wind energy projecs, as i is capial inensive projec. In he wind energy projecs reurn higher ne presen cos. OVERVIEW OF METHODS OF ECONOMIC COSTS EVALUATION TO SPECIFIC FEATURES AND DECISIONS Significan invesmens (negaive ne cash flow) afer firs reurn Mehods of economic coss evaluaion LCOE TLCC NPC LEGC UPAC Possible Possible Possible No useful No useful Invesmen subjec o regulaion Possible Possible Possible Possible Possible Projecspecific debfinancing needed Possible Possible Possible Possible No useful Social coss (exernaliies) Possible Possible Preferred No useful Possible Taxes Possible Possible Possible Possible Possible Selec from muually exclusive alernaives No useful Possible Preferred Possible Possible Ranking (Limied budge) Preferred Possible Possible Possible Possible Risks Possible Possible Possible Possible Possible LEGC is no recommended for economic evaluaion o decide abou significan invesmens and social coss (exernaliies) because he border of cos analysis is no specific and can change is dimension depends on he analys concepion. In wind energy projecs his border can be oally differen. UPAC is no recommended for economic evaluaion o wind projecs because his indicaor akes ino consideraion he ICC and O&M coss fixed in he beginning of he projec. Wind projecs differ from i due o is projec s naure. This paper canno provide an exhausive and complee exposiion of he heory and pracical pifalls of paricular economic mehods. No analysis will be valid if i is no based on sound and consisen daa. The economic measures described in deail in his paper can be used o compare alernaive invesmens or wind projecs. These mehods can be used as comparison ools. ACKNOWLEDGEMENT This work was suppored in par by he Sae Governmen of Maranhão hrough Foundaion for Research and Technological and Scienific Developmen of Maranhão (FAPEMA) Brazil under PhD scholarship (BD00007/08). REFERENCES [1] NWCC. Wind Energy Coss NWCC Wind Energy Series [cied 2009 February 2]; No.11.:[Naional Wind Coordinaing Collaboraive]. Available from: hp://www.naionalwind.org. [2] IEA. Guidelines for he Economic Analysis of Renewable Energy Technology Applicaions [cied 2010 March 23]; Inernaional Energy Agency]. Availablefrom:hp://www.iea.org/exbase/nppdf/free/1990/renew_ech 1991.pdf. [3] NREL, A Manual for he Economic Evaluaion of Energy Efficiency and Source: Adaped from [2],[3]. Renewable Energy Technologies., U.S. Deparmen of Energy, Edior 1995, Naional Renewable Energy Laboraory.: Springfield. p [4] Cohen, J.M. A Mehodology for Compuing Wind Turbine Cos of Elecriciy Using Uiliy Economic Assumpions. in Windpower San Francisco, California. [5] RETScreen Inernaional Clean Energy Decision Suppor Cenre. Clean Energy Projec Analysis: RETScreen Engineering & Cases Texbook [cied 2008 January 10]; Available from: [6] Harper, J., M. Karcher, and M. Bolinger, Wind Projec Financing Srucures: A Review & Comparaive Analysis., U.S. Deparmen of Energy, Edior 2007, Lawrence Berkeley Naional Laboraory. [7] Chrisopher A. Walford. Wind Turbine Reliabiliy: Undersanding and Minimizing Wind Turbine Operaion and Mainenance Coss [cied March ]; Available from: hp://prod.sandia.gov/echlib/accessconrol.cgi/2006/ pdf. [8] IEA. Projeced Coss of Generaing Elecriciy [cied 2010 March 27]; Inernaional Energy Agency]. Available from: hp://www.iea.org/exbase/nppdf/free/2005/eleccos.pdf. [9] Blanco, M.I., The economics of wind energy. Renewable & Susainable Energy Reviews, (67): p [10] K. Cory and P. Schwabe, Wind Levelized Cos of Energy: A Comparison of Technical and Financing Inpu Variables., U.S. Deparmen of Energy, Edior 2009, NREL. Colorado. [11] Kreih, F. and R.E. Wes, CRC Handbook of Energy Efficiency1997, USA: CRC Press [12] Newnan, D.G. and Jerome P. Lavelle., Engineering Economic Analysis1998, Ausin, TX. Engineering Press. [13] Blackler, T. and M.T. Iqbal, Prefeasibiliy sudy of wind power generaion in holyrood, newfoundland. Renewable Energy, (4): p [14] K. George and T. Schweizer., Primer: The DOE Wind Energy Program s Approach o Calculaing Cos of Energy., U.S. Deparmen of Energy, Edior 2008, NREL.: Rockville/Maryland. [15] Damodaran, A., Corporae Finance: Theory and Pracice. 2nd ed2001: John Wiley and Sons Ld, [16] Johasson, T.B., Renewable Energy: Sources for Fuels and Elecriciy1993, London: Earhscan Publicaions Vol.2 No PP C World Academic Publishing ~ 21 ~
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