Economics of The Yankee Ridge Wind Farm Project by juanagui


									Economics of The Yankee
Ridge Wind Farm Project

      Mark E. Hardwidge
      Rachael Jabusch
     Wind power has many advantages for society,
including environmental friendliness and reduced
            reliance on foreign resources.

                 Ultimately, however, economics is the primary factor
                 determining support for most projects. If wind power
                is “too expensive” it will receive little support. Once it
               becomes a net positive (that is, it generates a profit), it
               becomes a rational short term investment, and levels of
                           adoption should increase rapidly.

                               It appears that wind power is reaching this
                               transition point, not because of increased
                              environmental concern, but because simple
                  economics now make wind turbines good investments.
                 The Initial Economics Model

                                                       There are several factors
                                                  influencing the economics of wind

                                                 Initial cost of the turbine,
                                                 construction, connection to the
                                                 power grid, and so on

                                                 Recurring maintenance costs

                                                 Cost of capital and inflation rate

                                                 Cost of electricity

                                                 Government ecological (“green”)
                 A Better Economics Model

      As a scoping study, we constructed a more in-depth model to determine
the return on investment of various scenarios, and investigated to the sensitivity to
                     changes in various inputs to assess risk.

                                               Easy To Adjust Input Values

                                               Easy To Enhance Further

                                               Easy To Measure Sensitivity of

                                               Verifies Initial Model Is Correct
                   Investor Concerns

Investors care about a number
     of things, including:

Return on Investment

Payback time - A long time
period increases the risk of the

Risk - Numerous factors
contribute to this risk, ranging
from changes in electricity
prices to physical damage to
the wind turbine
                Economics Model Evaluation

        Example Scenario:                              Yankee Ridge Scenario:

    225 kW Wind Turbine                              1.5 MW Wind Turbine
    Initial Cost: $260,000                           Initial Cost: $1.2 Million
    Cost of Electricity: $0.08/kWh                   Cost of Electricity: $0.05/kWh
    Cost of Capital: 5% annual                       Cost of Capital: 5% annual
    Yield: ~12% annual                               Yield: ~ 5.8% annual
            $30,000 annually                                 $70,000 annually
    Net Present Value:                               Net Present Value:
            $480,000 (“Profit”)                              $1.35 Million (“Profit”)
    Break-Even Point:                                Break-Even Point:
            ~ 7 Years                                        ~ 12 Years

      Two most viable options would be either selling to the grid, or selling to a
single customer. Overall, there is a large potential for profit from the sale of wind
            power even in Central Illinois with a low average wind speed!
                     Other Opportunities

    We can approximate the total electrical power requirement of the
Champaign-Urbana area to be on the order of a few hundred megawatts.

   There are a few different ways we can take advantage of this market:

     Complete management: Purchase (or lease) land on Yankee Ridge
     and wind turbines, connect to the electrical grid, and sell the power

              Localized wind farm with a single customer

         Champaign-Urbana has several customers that could
              purchase 100% of the power supplied:
                     The University of Illinois
                      Apartment Complexes

Start Small!

Opportunities in the area must be investigated more fully

Start Soon!

Become the leader in the area

Starting at all would instantly make us the
leader in the local area.

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