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Power - Wind turbine - 600 kW / Canada
Case study assignment
You have been hired by an Independent Power Producer (IPP) to prepare a pre-feasibility study on their behalf. The IPP firm wants to enter the new deregulated electricity market, and is investigating how to do this. In order to be cautious, it is planning a single wind turbine installation to begin with. The IPP firm wants to use a proven wind turbine technology and has chosen a 600 kW model. To help minimise initial investment costs, it has chosen a 40-m tower over taller versions.
One of the challenges of this project is how to balance the costs of investigating the wind turbine location, preparatory work and equipment against the sources of potential revenue. The company has identified two sources of revenue: the new Power Pool or electricity exchange, which operates as a spot market for "merchant plants;" and the potential for a Green Power market.
Site information
The site is located in southwest Alberta. The nearest public wind data station is at Lethbridge. It is assumed that the site under investigation will have a wind speed at least 0.8 m/s higher than in Lethbridge because it has good wind site conditions. The site is less than 0.5 km from a suitable power line for interconnection, and there is good access for cranes and construction equipment. With communities nearby, the cost of travel and accommodation is modest.
Financial information
Typical financial figures for the analysis are provided by the firm (income tax rate of 28%, inflation at 2.5%, debt ratio of 60%, debt interest rate of 8.5%, discount rate of 9%, and a debt term of 10 years). If it can be shown that this turbine is the first of a planned windfarm, then Canadian tax law may permit the capital cost of the wind turbine, exploration activity costs and interconnection costs to be written-off immediately and in their entirety. Otherwise, the capital cost is depreciated at a 30% declining balance. The project is expected to last for 25 years. The average price on the Pool spot market over the past year is $0.044/kWh. Typical premium charges for Green Power are thought to be on the order of $0.035 to $0.040/kWh.
Prepare a RETScreen study, documenting any assumptions that you are required to make, and report on the significant conclusions from this analysis.
Solution
The worked-out solution is the data file selected from within the RETScreen Project Database. The user automatically downloads the Project Database file while downloading the RETScreen software.
Teacher's notes
Results
In 1996, Vision Quest Windelectric was investigating the new electricity market in Alberta. In deciding how to proceed in the new market, Vision Quest conducted an internal study to compare operations as a merchant plant and operations as a green power supplier. The firm also examined how to incorporate the new rules on investment flow-through announced in the 1996 federal budget, under Canadian Renewable and Conservation Expenses (CRCE).
The study showed that in order to be financially viable, the project would have to receive a green power premium for its output, and take advantage of all possible cost reductions, CRCE opportunities and new market advantages (such as system loss credits).
A contract for green power supply was sought and obtained, the wind turbine was installed in 1997, and it became the first new power plant installed in Alberta after deregulation began in 1996.
System description
The wind turbine is a Vestas V44/600, rated at 600 kW peak output. It generates electricity at 480 VAC, 3-phase. Energy is transformed to 25,000 volts at a transformer adjacent to the turbine, and delivered to the grid via a 300-m purpose built power line.
Public information available on the Power Pool of Alberta website indicates that the wind turbine produces about 1,800 MWh/yr. Projects of this scale, involving only a single turbine, typically cost around $2,000/kW. The nearest public wind data stations were too far away to provide enough confidence in data to proceed directly with the turbine installation. Therefore, the IPP firm first invested in the collection of wind data nearby at 10 m and found the average wind speed to be 6.2 m/s. The energy from the Belly River wind turbine is sold under the brand name Green Energy® to an electricity distribution company, ENMAX, which in turn sells it to commercial customers as an environmentally superior electricity product.
Lessons learned
The electricity markets in some parts of Canada are in transition, moving from regulated monopolies toward deregulated competitive markets. This provides challenges as well as opportunities for renewable energy resources such as wind energy. Companies interested in this market need to be very business "savvy," conduct very high quality preparatory investigations, look to the best equipment they can afford, and learn how to market and sell in competitive markets.
Photo
Wind turbine - 600 kW - Belly River, Alberta, Canada
References
Case study assignment
You have been hired by an Independent Power Producer (IPP) to prepare a pre-feasibility study on their behalf. The IPP firm wants to enter the new deregulated electricity market, and is investigating how to do this. In order to be cautious, it is planning a single wind turbine installation to begin with. The IPP firm wants to use a proven wind turbine technology and has chosen a 600 kW model. To help minimise initial investment costs, it has chosen a 40-m tower over taller versions.
One of the challenges of this project is how to balance the costs of investigating the wind turbine location, preparatory work and equipment against the sources of potential revenue. The company has identified two sources of revenue: the new Power Pool or electricity exchange, which operates as a spot market for "merchant plants;" and the potential for a Green Power market.
Site information
The site is located in southwest Alberta. The nearest public wind data station is at Lethbridge. It is assumed that the site under investigation will have a wind speed at least 0.8 m/s higher than in Lethbridge because it has good wind site conditions. The site is less than 0.5 km from a suitable power line for interconnection, and there is good access for cranes and construction equipment. With communities nearby, the cost of travel and accommodation is modest.
Financial information
Typical financial figures for the analysis are provided by the firm (income tax rate of 28%, inflation at 2.5%, debt ratio of 60%, debt interest rate of 8.5%, discount rate of 9%, and a debt term of 10 years). If it can be shown that this turbine is the first of a planned windfarm, then Canadian tax law may permit the capital cost of the wind turbine, exploration activity costs and interconnection costs to be written-off immediately and in their entirety. Otherwise, the capital cost is depreciated at a 30% declining balance. The project is expected to last for 25 years. The average price on the Pool spot market over the past year is $0.044/kWh. Typical premium charges for Green Power are thought to be on the order of $0.035 to $0.040/kWh.
Prepare a RETScreen study, documenting any assumptions that you are required to make, and report on the significant conclusions from this analysis.
Solution
The worked-out solution is the data file selected from within the RETScreen Project Database. The user automatically downloads the Project Database file while downloading the RETScreen software.
Teacher's notes
- With the green power premium included, the financial viability of the project is considerably improved, though still below the typical commercial investment hurdle value of 12-15% IRR on equity. For the first 10 years of the project, operating income does not cover debt service.
- The financial viability of the project would be enhanced by:
- taking advantage of renewable energy production credits, should they become available; and
- sales of greenhouse gas emission reduction credits, if available.
- For a single turbine with a distribution line nearby, no substation is required - the turbine transformer is specified to match the distribution line voltage. This accounts for the low transmission line and substation costs.
- It can be expected that at some point during the project lifetime a major component such as the blades or the drivetrain will need to be replaced due to failure. A set of blades or a drivetrain costs roughly 20% to 25% of the purchase price of the turbine. This has been accounted for as a periodic cost.
- Compared with typical figures, the insurance premium is high and the annual parts and labour costs are low; these numbers reflect actual experience at this site.
- The capital costs and exploration expenses of the project have been fully expensed in the first year by setting the depreciation tax basis to 0%. This assumes that, as the first turbine in a future windfarm, the project would satisfy Canadian Renewable and Conservation Expense (CRCE) investment flow-through requirements.
- The green power premium has been included in the electricity export rate. If it is included as a CE production credit then those annual costs which are calculated on the basis of the annual energy revenues (excluding the CE production credit) will need to be adjusted accordingly.
Results
In 1996, Vision Quest Windelectric was investigating the new electricity market in Alberta. In deciding how to proceed in the new market, Vision Quest conducted an internal study to compare operations as a merchant plant and operations as a green power supplier. The firm also examined how to incorporate the new rules on investment flow-through announced in the 1996 federal budget, under Canadian Renewable and Conservation Expenses (CRCE).
The study showed that in order to be financially viable, the project would have to receive a green power premium for its output, and take advantage of all possible cost reductions, CRCE opportunities and new market advantages (such as system loss credits).
A contract for green power supply was sought and obtained, the wind turbine was installed in 1997, and it became the first new power plant installed in Alberta after deregulation began in 1996.
System description
The wind turbine is a Vestas V44/600, rated at 600 kW peak output. It generates electricity at 480 VAC, 3-phase. Energy is transformed to 25,000 volts at a transformer adjacent to the turbine, and delivered to the grid via a 300-m purpose built power line.
Public information available on the Power Pool of Alberta website indicates that the wind turbine produces about 1,800 MWh/yr. Projects of this scale, involving only a single turbine, typically cost around $2,000/kW. The nearest public wind data stations were too far away to provide enough confidence in data to proceed directly with the turbine installation. Therefore, the IPP firm first invested in the collection of wind data nearby at 10 m and found the average wind speed to be 6.2 m/s. The energy from the Belly River wind turbine is sold under the brand name Green Energy® to an electricity distribution company, ENMAX, which in turn sells it to commercial customers as an environmentally superior electricity product.
Lessons learned
- Every possible measure to reduce costs, and to expense capital costs rapidly, is necessary to reduce the price of the energy produced.
- At this scale of development, it is not realistic to expect a marginal spot market to provide sufficient revenue, nor sufficient long-term market certainty, to allow a successful project to proceed. A green power premium or other method to recognise the value of wind energy is required.
- The capital costs, as well as the wind energy resources at a site, are critical to the financial viability of a project.
The electricity markets in some parts of Canada are in transition, moving from regulated monopolies toward deregulated competitive markets. This provides challenges as well as opportunities for renewable energy resources such as wind energy. Companies interested in this market need to be very business "savvy," conduct very high quality preparatory investigations, look to the best equipment they can afford, and learn how to market and sell in competitive markets.
Photo
Wind turbine - 600 kW - Belly River, Alberta, Canada
References
- Alberta Department of Natural Resources, Website: http://www.resdev.gov.ab.ca.
- Bourn, Mike, "Personal communication," Vision Quest Windelectric Inc., 2000.
- Power Pool of Alberta, Website: http://www.powerpool.ab.ca.
- Vision Quest Windelectric Inc., Website: http://www.greenenergy.com.
