Net-Present Value Analysis for a Wind Turbine Purchase

Nicholas H. Johnson (Principia College) and Barry D. Solomon (Department of Social Sciences, Michigan Technological University) have issued a new paper titled „A Net-Present Value Analysis for a Wind Turbine Purchase at a Small US College.“  This paper analyses projected costs and benefits associated with the installation of a wind turbine for electricity generation from a financial perspective, comparing a business-as-usual scenario to one with the use of renewable energy.  The introduction to this paper:

Principia College, a small liberal arts college located in Elsah, Illinois, is considering installing a Vestas V82 (1.65 MW) or another turbine of similar size. This paper calculates the costs and benefits of the proposed turbine and determines the discounted net present value (NPV). To calculate the costs and benefits a nine-step cost-benefit analysis (CBA) process is used.

The amount of wind energy that a wind turbine would generate is calculated using measured onsite wind velocity in conjunction with power curves provided by turbine manufacturers. Sensitivity analyses are run to examine how robust the results are. Specifically, the discount rate, the initial costs, the value of renewable energy credits (RECs), and the quantity and value of electricity generated are tested to determine their impact on the project’s NPV. Finally, the results are compared with a business as usual (BAU) scenario.

The results presented do not consider social, environmental, and educational costs and benefits. While these topics are important, they are externalities (i.e., they are not included in the market price of electricity).

Read the full paper here in PDF format.

Citation: Johnson N.H.,Solomon B.D. A Net-Present Value Analysis for a Wind Turbine Purchase at a Small US College. Energies. 2010; 3(5):943-959

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