Community Wind Handbook/Learn Project Economics Tools
Learn about Project Economics & Tools
The overall economics of a large community wind project include resource assessment and site analysis costs; the purchase and transportation of the turbine and tower; project construction; permitting and interconnection fees and upgrades; additional equipment and metering components; insurance; operations, warranty, maintenance, and potential repairs; legal and consultation fees; and potential good neighbor payments. Windustry’s Community Wind Toolbox, Chapter 8: Costs is dedicated to the various expenses associated with a project, including estimates for most of the project details listed above.
One economic factor that can be overlooked involves property tax implications. Property tax impacts due to the installation of a large community wind project will depend on the state and county where the project is located. Some states offer temporary tax exemptions or allow projects to be assessed at a different value for a limited period. Contact your state or county’s division of property taxation to determine the impact that the property's assessed value will have on property taxes. Project developers usually agree to pay all increases in property taxes when facilities are sited on lands owned by others and leased to the project so the landowner is made whole if his or her farm property tax bill increases due to hosting turbines.
Calculating the payback for your project and determining the internal rate of return (IRR) during the development process are essential in determining a project’s economic potential. The payback period is the amount of time needed for the project to pay for itself through the energy it has produced. If the project economics do not equal a favorable payback period, some details may have to be revisited.
The IRR compares the current value of a project’s expected revenues with the current value of its expected costs and is often used by utilities or businesses in assessing investments as a measure of profitability. A higher IRR tends to lead to a better economic potential for the wind energy system.
Multiple tools are available to help determine the IRR and payback period for a project. You will have to utilize some of the previously gathered information to calculate the payback for your large community wind project.
The System Advisor Model (SAM) is a performance and financial tool designed to facilitate decision-making for people involved in the renewable energy industry, ranging from project managers and engineers to incentive program designers, technology developers, and researchers. Its cash flow models are appropriate for distributed energy projects that buy and sell electricity at retail rates and for power generation projects that sell power at a price negotiated through a power purchase agreement. The model calculates the cost of generating electricity based on information provided about a project's location, installation and operating costs, type of financing, applicable tax credits and incentives, and system specifications.
Outputs from SAM include:
- Levelized cost of energy
- Power purchase price, internal rate of return, and other financial targets for utility-scale projects
- Payback period and net present value for residential and commercial projects
- Hourly, monthly, and annual average predictions of system performance, including net electric output and component efficiencies
- Annual cash flow table with cost details
- Customizable graphs.
An additional tool that can be used to help calculate project financing and economics is Windustry’s Wind Project Calculator. Developed to assist in conducting cash flow modeling for community wind projects, the Wind Project Calculator requires detailed information about the prospective turbine model, estimated annual average wind speed, electricity use and rates, and financing and income taxes. The program is designed to estimate cash flows for wind turbine investment and the rate of return on investments.
The National Renewable Energy Laboratory’s (NREL) Jobs and Economic Development Impact (JEDI) model assists in estimating the economic impacts of constructing and operating power plants, fuel production facilities, and other projects at the local (usually state) level. JEDI results are intended to be estimates, not precise predictions. Based on user-entered project-specific data or default inputs (derived from industry norms), the JEDI Wind Model estimates the number of jobs and economic impacts to a local area that can reasonably be supported by a power plant, fuel production facility, or other project. For example, JEDI estimates the number of in-state construction jobs from a new wind farm. Jobs, earnings, and output are distributed across three categories:
- Project Development and Onsite Labor Impacts
- Local Revenue and Supply Chain Impacts
- Induced Impacts.
JEDI model defaults are based on interviews with industry experts and project developers. Economic multipliers contained within the model are derived from Minnesota IMPLAN Group's IMPLAN accounting software and state data files.
American Wind Energy Association. Community Wind Case Studies.
Bolinger, M. (2011.) Community Wind: Once Again Pushing the Envelope of Project Finance. Lawrence Berkeley National Laboratory.
This report describes innovative new financing structures for community wind projects, using case studies.
Clean Energy States Alliance. (2010). State-Based Financing Tools to Support Distributed and Community Wind Projects.
This guide reviews the financing role that states, and specifically state clean energy funds, have played and can play in supporting community and distributed wind projects.
Lantz, E.; Tegen, S. (2009). Economic Development Impacts of Community Wind Projects: A Review and Empirical Evaluation. National Renewable Energy Laboratory.
This report provides a review of previous economic development analyses of community wind projects and compares these projected results with empirical impacts from projects currently in operation.