05 Jun Question Background
Question
Background
The Town of Breezyville is considering initiating a wind power project to
provide electricity to its residents. The wind power project will be located on
the outskirts of Breezyville. The project is being considered for both its
economic and environmental benefits. The key question that the Town of
Breezyville is trying to address is: does the wind power project make sense
from an environmental and economic sense?
Below is some of the information that the Town has collected to estimate the
benefits and costs of the proposed wind power project. In this case examined
here, we assume a single turbine, 1.5 Megawatt (MW) project. The site being
considered has strong, predictable winds that make it a good candidate for a
wind power project. It is assumed that the Breezyville wind power project will
operate 33% of the time based upon the availability of wind. All monetary
values used in this exercise are in real $2012 dollars.
Capital Costs
Wind project costs are a function of many variables, but not limited to, project
size, ownership structure, location and characteristics of a particular site,
turbine and turbine manufacture, exchanges rates (i.e., if a foreign turbine is
used) and even commodity costs (i.e., the cost of steel). For this exercise,
some simplifying assumptions have been made. It is estimated that the capital
costs of the Breezyville wind power project can be divided into four
components: the turbine purchase, construction costs to install the turbine,
costs to connect the turbine to the local electricity grind, and soft costs such
as legal fees, engineering and siting plans etc. In total, the cost of installing
the wind turbine is roughly $1,880,000 in the first year of the project. Assume
for this exercise for simplicity, that the capital costs are a one-time expense
that occurs in the first year of the project.
Operating Costs
The operating costs of the Breezyville wind power project include a variety of
components such as operations and maintenance of the wind turbine, repair
costs, management and administrative costs, property taxes, the costs to
lease the land and insurance. Operating costs are estimates at roughly
$87,000 annually. The wind power project is anticipated to operate for twenty
years. Annual operating costs for this exercise are assumed to be constant
though time.
Scrappage Value
At the end of its useful life (i.e., 20 years), it is anticipated that the wind turbine
can be sold at roughly $100,000. This is the scrappage value of the wind
power project in twenty years.
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