Wind Power Cost of a Home Wind Power System

What will it cost me to own my own wind power system?

Wind power cost of buying, owning, and maintaining a wind energy system, this site will help you decide if a wind energy system is right for you.

Wind Power Cost:

The only way to lower your utility bills is by building/installing your own power production sytem. Even if the utility companies implement and use solar or wind energy technolgy to produce electricity...do you really believe they will charge less than they do now for providing you with electricity? Do you really believe they would be willing to give up their obsene profits that they've enjoyed for decades now?

Wind Power Economics of a Home System

Note: In this analysis, certain conditions were assumed, such as wind regime, maintenance costs, etc. Your analysis will differ for your set of circumstances. This example is for illustration purposes only.

A New England homeowner is considering taking out a 20 year loan to purchase a $10,000 wind system (turbine,tower, inverter, and battery storage) for generating her own electricity, instead of paying her full electricity bills for the next 20 years.

Assume that the wind turbine she has chosen is rated a 3 kilowatts with the turbine 80 feet (24 meters) above the ground, and that she lives in a class 4 wind regime (average wind speed of 12.5 to 13.4 miles per hour[5.6 to 6 meters per second] measured at 33 feet ( 10 meters) above the ground. Given these assumptions, the turbine can produce an estimated 9000 kilowatt hours (kWh) per year, or 750 kWh per month. Also assume, for the sake of simplicity, that she will use all of the electricity herself and will not sell any back to the utility. Therefore, the value of the electricity to her is equal to the retail price she pays the utility: in this case, 12 cents per kWh.

Continuing to Pay Electricity Bills

If she continues to pay her electricity bills without the wind turbine, the retail value of the electricity is $1,080 the first year. In later years, the price of electricity increases. For this analysis, we assume that the cost of electricity increases at the same rate as inflation-3% a year. Thus, the 9000 kWh will cost $1,112 in the second year, $1,146 the third year, and so forth, until the total inflation-adjusted cost of electricity for 20 years is $29,020.

Purchasing a Wind System:

She can obtain the least expensive loan by taking out a second mortgage on her home. She can borrow $10,000 at 8%, and make payments of $1,019 for 20 years. But she can deduct the portion of her payments that go toward interest at he 30% combined federal and state tax rate. Thus, after taxes, her annual payment is $779 for the first year, and increases to $996 as the interest deduction decreases in later years.

However, there are other costs to owning a wind turbine. Her property taxes will be higher because the wind turbine increases the value of her property. She will pay additional insurance since her standard homeowner's policy does not cover liability from the wind tower. And she will hire a local mechanic to climb the tower and grease the bearings every year. Altogether, she figures these operations and maintenance (O&M) costs will be about 1 cent/kWh or $100 per year in today's dollars. Let us assume for this example that taxes, insurance, and labor rates increase at the same rate as inflation. Thus, annual O&M costs increase to $175 in the 20th year. So, over 20 years, her total inflation-adjusted cost for buying a wind system is $19,678.

Net Present Value of Both Options:

However, our example is still not complete. Economists tell us that future dollars are worth less than present dollars. It is better to have money now, rather than in the future, so we can use it to invest and earn more money. Even though inflation increases her annual electricity payments after 20 years to $1,894, those are future dollars, so they are worth less than today's dollars. Economists refer to this devaluation as the net present value factor, the rate at which future dollars are discounted compared to present dollars. This discount rate is equal to the rate of return that she could make on an investment of equivivalent risk and liquidity to a wind turbine. In this evaluation, assume her opportunity for return on investment with today's dollars (i.e.,the discount rate for her future dollars) is 10% a year.

Therefore, projecting her electric utility payments into the future to, say, the end of the first year, the dollars are worth 90% of what they were at the beginning of the year. At the end of the second year, the dollars are worth 90% of what they were at end of the previous year. (Notice the value of her future dollars depreciates at a compounded rate) Considering these adjustments, her annual electricity payment in the 20th year is actually worth only $156 in today's dollars. Thus, her total cost of buying electricity for 20 years, adjusted for inflation and present value factors, is only $8,927 in today's dollars.

Another way to think of it is that her payment in the 20th year is really a deferred payment. She does not have to pay $29,020 today. Since the utility company allows her to pay her bills as she uses the electricity, she does not have to make any large capital expenditures. So she has more of her money to invest for 20 years. This would not be true if she had to pay for 20 years of electricity up front.

But net present value factors also apply to purchasing a wind system, because she is making deferred payments on her loan. Her payments of $1,154 in year 20 are really worth only $95 in today's dollars, for instance. Therefore, her total cost for buying a wind system, adjusted for inflation and net present value, is only $6,426 in today's dollars.

The Final Analysis:

So in real terms, she saves $2,501 over 20 years by purchasing a wind system, as opposed to continuing to pay her electricity bills. An added benefit is that she would avoid the release of 40 tons (40 metric tons) of carbon dioxide, 800 pounds ( 363 kilograms) of nitrogen oxide into the atmosphere-the amount of pollution that a utility company in the Northeast would emit to supply her electric load for 20 years, on average.

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