Attachment_No._4_-_Small_wind_LCOE_(under_200m2).pdf

Attachment No. 4

FIGURE OF MERIT – COST OF ENERGY FOR SMALL WIND

Residential Distributed Generation (<200 m2)

11/5/14

This attachment describes the method and assumptions that shall be used to define and support economic figures of merit for small wind turbines used in residential applications, behind the meter. The figure of merit is levelized cost of energy (LCOE), calculated using National Renewable Energy Laboratory (NREL) assumptions for conditions at a reference site. This figure of merit will be used to evaluate an improvement in technology; as such, costs not associated with the manufacturing of the wind turbine component/installation (i.e., profit, training, dealer fees) shall not be included in individual component costs, but rather in the “other” categories as defined below.

Assumptions

NREL has made several assumptions to differentiate the residential small wind turbine (SWT) LCOE from the basis of comparison used for large scale wind as the typical wind resources, financing structure, and tax treatments are quite different. These assumptions shall be used for the reference site. Calculations that are made using other assumptions must clearly show which assumptions have been changed and their new values.

1. Annual average wind speed at hub height of 6.0 m/s with a Rayleigh distribution.

2. Economic parameters: constant January 2015 dollars, FCR=5%

Levelized Cost of Energy

The primary figure-of-merit is the LCOE, which is to be provided in constant, January 2015 dollars. LCOE is calculated for a wind power plant (or an individual turbine installation), using the following equation:

LCOE = (FCR x ICC) + AOE AEPnet where: LCOE ≡ Levelized Cost of Energy ($/kWh) FCR ≡ Fixed Charge Rate = (0.05) ICC ≡ Installed Capital Cost ($) AEPnet ≡ Net Annual Energy Production (kWh/yr)

AOE ≡ Annual Operating Expenses ($/kWh)

≡ O&M + LRC

O&M ≡ Levelized O&M Cost ($/kWh) LRC ≡ Levelized Replacement/Overhaul Cost ($/kWh)

Fixed Charge Rate

A fixed charge rate (FCR) allows LCOE estimates by relying on a single coefficient. For small wind turbines in residential applications the FCR is calculated to produce the annual cost to the owner assuming a 25 year loan at an interest rate of 1.3%. Earned interest on savings accounts is ~ 1% and 30-year T-Bills are currently paying ~ 3%. Interest earned in both cases is taxable as ordinary income. With an average return of 2% and an assumed 35% combined tax rate the net return is 1.3%. This is taken as the cost of capital for homeowner investments in energy generation. FCR is generally representative of a specific ownership and cash flow structure and may vary over time. However, a fixed value is required for comparisons across technologies and a composite or average FCR may be used to represent an array of financing structures. Due to the diversity of financing structures applied by the wind industry today, the FCR used in this analysis is not indicative of one particular financing approach in particular; rather it is a composite of possible financing terms, strategies, and market influences.

Initial Capital Cost

The Installed Capital Cost is the sum of the Turbine System Cost and the Balance of Station Cost.

Neither cost should include financing fees, because these are added through the fixed charge rate.

The Turbine System Cost shall be supported by a tabular listing of component costs. Costs shall be based on a full scale manufacturing volume1. In estimating the cost of components manufactured in-house, assembly labor and manufacturing overhead shall be included. The following breakdown of component costs shall be used where applicable. As mentioned above, costs not associated with the manufacturing and installation of the wind turbine (i.e., profit, training, dealer fees, etc.) shall not be included in component costs, but rather in the “other” category. The “other” category is intended as a catchall category to bring the total cost up to what a consumer would pay. This includes components not accounted for in other categories, as well as any other soft costs such as profit, training, fees etc. This list is representative and may not be inclusive; proposers are encouraged to include a list that supports their turbine design, in addition to the applicable information below.

Turbine Component Costs Baseline Proposal End of Project Wind turbine (rotor nacelle assembly) Inverter/controller and related electronics (if sold separately)

Tower Tower wiring Shipping and delivery Extended warranty (define # of years) Other

Total Cost to Consumer

The Balance of Station Cost shall be supported by a tabular listing of the costs shown below. As mentioned above, costs not associated with the manufacturing and installation of the wind turbine (i.e., profit, training, dealer fees, etc.) shall not be included in component costs, but rather in the “other” category. The “other” category is intended as a catchall category to bring the total cost up

1 An arbitrary volume of 50 turbines per year is reasonable for a full scale manufacturing throughput.

to what a consumer would pay. This includes components not accounted for in other categories, as well as any other soft costs such as profit, training, fees etc. This list is representative and may not be inclusive; proposers are encouraged to develop a list that supports their turbine design in addition to the applicable information below.

Balance of Station Costs Baseline Proposal End of Project Wind resource assessment and feasibility studies

Site preparation, including roads, grading and fences

Electrical (wire run) Foundations and engineering design Installation (labor and other costs, e.g.

cranes, electrical subcontractor)

Wind turbine control and monitoring equipment (if applicable)

Permits and licenses, including environmental assessments

Sales tax Construction contingency Other

Total Cost to Consumer

Annual Operating Expenses

Levelized O&M Cost

Operations and Maintenance Cost (O&M) is a component of Annual Operating Expenses. The O&M Cost shall include, and be supported by, a tabular listing of the following annual costs:

Operations and Maintenance Costs Baseline Proposal End of Project Labor, parts and supplies for scheduled turbine maintenance

Labor, parts and supplies for unscheduled turbine maintenance

Labor for administration and support Other (define)

Total Cost to Consumer

Because O&M costs can vary by year, an annual average value shall be used as a reasonable approximation of the long-term costs. Thus, the levelized O&M cost calculation is:

O&M = Yearly O&M Cost (in 2015 dollars) AEPnet

Levelized Replacement/Overhaul Cost

Levelized Replacement/Overhaul Cost distributes the cost of major replacements (such as gearboxes, blades and other high cost components) and overhauls over the life of the wind turbine. This cost shall be supported by a tabular listing of:

Levelized Replacement/Overhaul Baseline Proposal End of Project For each replacement or overhaul, indicate the year in which it is required relative to the year of installation

For each replacement or overhaul, including parts, supplies and labor, provide the cost in current year dollars for the year of the replacement or overhaul

Downtime leading up to and during replacements and overhauls shall be included in the determination of overall turbine availability regardless of its impact, even if it is very small. In the pro forma cash flow model, one “saves” for replacements and overhauls with deposits to a reserve fund in the years preceding the maintenance event. If maintenance reserve fund payments will be used, the following calculations shall be performed.

(1) Use the following equation to determine the Present Value of each stream of reserve fund deposits incurred for each discrete replacement and overhaul event:

PV(n) ≡ PVF(nmidpoint) x RC(2015) x 1.03n where: PV(n) ≡ Present Value of annual stream of reserve fund payments for event occurring in year (n)

PVF(nmidpoint) ≡ Present Value Factor for mid-point year of reserve fund payment stream

= (1 + d)-nmidpoint d ≡ Nominal discount rate = i/(1+i) = 0.0291, assuming an interest rate (i) of 3%

RC(2015) ≡ Replacement/Overhaul Cost in year 2015 (in the formula above, 1.03n is an inflation factor)

For example, if a replacement is made in year 10, the mid-point year (nmidpoint) is 5, because reserve fund payments are made from years 1 through 10. If second identical replacement follows in year 20, the mid-point year for that event is 15, because the reserve fund payments for that replacement were made from years 10 through 20. However, if replacement is made only in year 20, the mid-point year is 10.

(2) Calculate the Levelized Replacement/Overhaul Cost (in constant dollars) by multiplying the sum of present values of the reserve fund payment streams by the Capital Recovery Factor.

LRC = CRF x ∑ PV(n) where: CRF ≡ Capital Recovery Factor ≡ iconst/(1-(1/(1+iconst)^ 25))= (0.057) iconst ≡ Constant dollar discount rate = (0.03)

Net Annual Energy Production

The Net Annual Energy Production shall be calculated for one Reference Site, using wind-turbine performance specifications, estimated energy losses, and turbine availability. AEP calculations shall be supported by a tabular listing of the parameters shown below. Values in parentheses shall be used for the Reference Site.

• Reference Site #1: annual average wind speed at a hub height of 30m = (6 m/s)

• Vertical wind-shear exponent = (0.25)

• Wind distribution table or specification = (Rayleigh)

Generic Annual Energy Production shall be calculated using the methodology described in the latest draft2 of the International Electrotechnical Commission (IEC) Standard 61400-12-1. For calculations of LCOE, the wind speed range may be divided into 1.0 m/s bins rather than the IEC-specified 0.5 m/s bins. The following equations shall be used.

N AEP = Nh ∑ [ F(Vi) - F(Vi-1)] [(Pi + Pi-1) / 2] i=1 where: AEP ≡ Annual Energy Production (kWh/yr/turbine) Nh ≡ Number of hours in one year (8760) N ≡ Number of wind speed bins Vi ≡ Normalized and averaged wind speed in bin (i) (m/s) Pi ≡ Normalized and averaged power output in bin (i) (kW) and: F(V) = 1- exp [-π/4 x (V/V ave)2] where: F(V) ≡ Rayleigh cumulative probability distribution function for wind speed V ≡ Actual wind speed (m/s) V ave ≡ Annual average wind speed at hub height (m/s)

The summation is initiated by setting Vi-1 equal to Vi - 0,5 m/s and Pi-1 equal to 0,0 kW.

2 IEC 61400-12-1, Wind Turbines, Part 12-1: Power performance measurements of electricity producing wind turbines, 2005

Turbine Performance shall be tabulated as electrical power output at the bus bar versus wind speed at hub height. The table shall show power output for wind speeds from 0 to 30 m/s in 1.0 m/s increments starting with 0.5 m/s. If the table is based upon measurements, normalizations and averaging using the IEC methodology, it shall identify which bins include "measured" data (based on three, 10-minute data sets) and which bins are extrapolations of measured data. If the table is based on projected performance, the rotor configuration and analysis method (e.g. PROP) shall be clearly stated.

Net Annual Energy Production shall account for energy losses and availability as follows.

AEPnet = AEP x (1 - EL) x Availability where: EL = Product of individual energy losses (% losses expressed as a decimal) EL = 1 - (1 - Lsoiling) x (1 - Lcontrol) x (1 - Lcollect) Lsoiling = Blade soiling losses Lcontrol = Controls and miscellaneous losses Lcollect = Collection system losses from the turbines to the substation

Energy Losses and Availability shall be specified in a tabular listing. Availability is the ratio of the number of hours that the turbine was capable of operating during a certain period (excludes the number of hours that it could not operate because of grid outage situations) to the total number of hours in the period.

Wind Resource Regimes

Using the methods described above, LCOE will be calculated at one wind regime – outlined below, with a Rayleigh distribution (k=2).

Wind Speed Bin Center (m/s)

Rayleigh distribution Vave = 6 m/s @ 30m

Turbine Power Annual Energy Production

0.5 1.5 2.5 3.5 4.5 5.5 6.5 7.5 8.5 9.5 10.5 11.5 12.5 13.5 14.5 15.5 16.5 17.5 18.5 19.5 20.5 21.5 22.5 23.5 24.5

4.3 8.06 10.83 12.38 12.69 11.96 10.48 8.61 6.66 4.87 3.38 2.22 1.39 0.83 0.47 0.25 0.13 0.06 0.03 0.01 0.01 0.00 0.00 0.00 0.00

AEP = __________

The following equation shall be used to compute the wind speed as a function of height above the ground. For the LCOE Reference Site, the wind shear exponent α = 0.25.

V(z) = V30m (z/30m)α

Note that turbulence levels and extreme gust conditions used for design analyses are not described by the wind-speed probability distributions given above. These values shall be clearly defined by the Subcontractor and reported to NREL in appropriate deliverable reports.

Total

All calculated numbers from the above categories should be summarized in the below table and used to calculate an LCOE.

LCOE Summary Baseline Proposal End of Project Turbine Component ($) Balance of Station ($) Annual Operating Expenses ($/kWh) Annual Energy Production (kWh/yr)

LCOE ($/kWh)

Annual Operating Expenses