Wind Levelized Cost of Energy: A Comparison of Technical and Financing Input Variable

http://www.nrel.gov/docs/fy10osti/46671.pdf

Karlynn Cory and Paul Schwab

Technical Report, NREL/TP-6A2-46671, October 2009

As part of a multinational collaborative study, the National Renewable Energy Laboratory
(NREL) conducted a comparison of the relative impacts of various financial, technological, and wind resource variables on the levelized cost of energy (LCOE) from a typical wind project.
The parametric analysis identified and compared key factors in the cost of wind energy in the United States. Analysts used a LCOE pro forma cash flow model to reflect recent U.S. wind project financing structures and wind energy market trends. However, the financial crisis of 2008-2009 and subsequent U.S. federal legislation is not considered in detail because it is still early to discern and model the exact impacts.  
Analysts first examined the impacts of wind resource, financial, and technical variables on the LCOE independently. Each variable’s impact was tested across a range of high- and low-cost values for six wind project financing structures, which are described in the report. As expected, the wind resource variable and all-in installation costs have the largest incremental effect on LCOE. These technical variables reveal that incremental improvements through improved R&D or manufacturing practices can yield sizeable cost savings, especially for those projects with below-average wind resource characteristics. A less obvious, yet moderate LCOE impact resulted from variations in the target equity internal rate of return (IRR), the operations and maintenance costs (O&M), as well as the return on debt and loan duration (debt-financed structures only). The smallest impact resulted from the cost of replacing a specific wind turbine component. Figure ES-1 plots the input variables with the largest impact on the estimated LCOE.

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