We saw in a previous article how much money a wind farm can generate, but to give a size to this money we need to compare it with the money that flows out of the pockets! Is it more or less then what we expect to earn in a long term?

Table 1 describes the investment costs for a 2MW turbine in 2006. The figures are taken from a study of the European Wind Energy Association (EWEA). The costs are calculated in sterling pounds at the February 2010 EUR-GBP exchange rate (1.14).

 

Table 1 - Investment costs for a 2MW wind turbine (source EWEA, 2006)

Figure 1 - Investment costs for a 2MW wind turbine (source EWEA, 2006)

The table shows that the average cost of a wind farm formed by 5 turbines of 2 MW each is £10,320,000. As usual, this is a rough estimation but it gives an idea of the size of investment we need to make upfront.

Once the wind farm has been built, there are Operation & Maintenance (O&M) costs to take into account. O&M costs are related to a number of cost components, including:

  • Land rent
  • Insurance
  • Regular maintenance
  • Repair
  • Spare parts
  • Own electricity consumption
  • Administration

It's not that easy to give a good estimation of O&M costs for a 2MW wind turbine over a period of 20 years, since there are no such turbines that have come to the end of their life time yet. Many of them are just 3-5 years old and typically the O&M costs grow with the age of a turbine, since repairs and spare parts are not covered by the manufacturer's warranty after the first 2-3 years and breakdowns are more frequent. What we do have though are some figures about O&M costs of older 50-150KW turbines, which tend to have higher costs then the new models, as Figure 2 illustrates.

Figure 2 - O&M costs as reported for selected types and ages of turbines (source EWEA, 2006)

Let's assume an O&M cost of 1p/KWh, which is equivalent to £10/MWh. Assuming the annual electricity production of a 10MW wind farm with an average wind speed of 7 m/s is 24500 MWh, the average annual O&M costs are £245,000. Since the diagram in Figure 1 doesn't include the land lease cost, let's add £70k to take it into account. The annual cost would add up to an average £315,000/yrs, which is £6,300,000 over 20 years.

We could also assume there will be the need of a refurbishment half way through the life time of the wind farm. According to a study of the EWEA for a 10MW wind farm, this might be around £1M at year 10.

The costs of the wind farm can be summarized as follows:

  • initial investment costs £10,320,000
  • annual operational costs £315,000
  • estimated refurbishment costs halfway through the life span £1M

Now, for all of you that love financial stuff, it's time to have a look at the cash flow: how could a business survive without a good old cash flow diagram?

Let me remind you the gross annual income. This was calculated considering a site with an average wind speed of 7 m/s for two different values of feed-in tariffs, £50/MWh and £75/MWh:

  • £1,225,000 @ £50/MWh
  • £1,837,500 @ £75/MWh

Figure 3 and 4 illustrate the cash flow for a 10 MW wind farm for different values of discount rates (6% and 10%). The discount rate is typically set between 5% and 10%, so usually for a first estimation, a value of 7.5% could be considered.

Figure 3 - Cumulative cash flow for a 10 MW wind farm @50 GBP/MWh
 

Figure 4 - Cumulative cash flow for a 10 MW wind farm @75 GBP/MWh

As we can see from the diagrams, the financial result of a wind farm business is highly dependent on several factors and the final outcome can be dramatically different. It is well clear that the main factors that affect the results of this business are the average wind speed and the feed-in tariffs set in the Power Purchase Agreement with the grid operator. The cost of capital (discount rate) also plays an important role.