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Indicators for Cost-effectiveness
Indicators for potential cost-effectiveness can be a.o.
- min. wind speed 6 m/s for 10m
- planned, installed capacity of about 20 MW
- supportive framework conditions (local and national)
Estimation of Costs
The level of investigation and cost estimates shall be of sufficient accuracy and detail to satisfy the needs of financiers and decision makers.
The outline of project costs should include:
- Itemized specification of investment costs (wind turbines, foundation, civil works, electrical work, consulting services, physical and price contingencies, etc.) in actual prices (year of study), including a financing cash flow broken down in foreign and local cost components. In arriving at final cost estimates, the Firm of Consultants shall investigate the effect of the possibility of increased use of local participation and local materials in as many aspects of the work as possible.
- If need be, computation of shadow prices for foreign exchange and local inputs
- Operational and maintenance costs (spare parts, insurance, administration, etc.)
- Assessment of adverse environmental impacts and, if applicable, estimation of costs of mitigatory measures required by environmental regulations
- Tentative description of project financing arrangements and costs
- Computation of long-run marginal costs (lifetime average costs) of wind energy generation
Estimation of Benefits
The focus should be on:
- Economic benefits: avoided energy and capacity costs taking into account the wind farm’s impact on merit order dispatch, and considering the (avoided) system costs associated with alternative power plants that would be needed in the absence of wind parks. If feasible, undertake probabilistic production cost modelling. Also, the associated effects on poverty alleviation through possible reduction of electricity prices are to be analyzed.
- Financial benefits: based on power purchase arrangements or feed-in tariffs (if different from economic benefits)
- Positive external effects: estimation/approximation of environmental benefits (avoided emissions from thermal plant)
Economic and Financial Analysis
The economic and financial appraisal of wind park projects should cover:
- Compliance with optimal power sector expansion plan
- Compliance with criteria/objectives used by international institutions and programs to promote wind energy utilization (e.g. German technical and financial cooperation)
- Selection of appropriate discount rates
- Computation of net present values (economic, financial)
- Calculation of unit costs of energy and comparison with other options
- Sensitivity analysis and determination of critical parameter values
- Outline of the projects’ expected financial performance and risks (cash-flow and liquidity analysis) according to internationally accepted accounting standards
- Description of possible financing options and discussion of financial support measures/schemes. This shall include an analysis of current lending strategies of major development banks, focal areas of the relevant institutions as well as a description of typical loan conditions in case the projects were considered suitable by the lenders.
- Discussion of alternative operational schemes for the wind park under support of an experienced wind park operator 
Financial Analysis - Example from Namibia
The investment costs and expenditures on operation and maintenance (O&M) for the sites and system configurations are given in the table below: Cost Overview of Selected Wind Parks in Lüderitz (March 1999)
| Turbine (N$)
|| 66 kV
In a first step, the costs of electricity generated by wind farms were compared with the actual electricity costs under status quo conditions. The economic analysis evaluated the utilisation of wind energy for electricity generation from the country’s point of view, assuming that Namibia continues to rely on imports from the RSA as per purchase agreement of 1996. This assumption was changed in the sensitivity analysis, taking into account alternative supply options and a different policy environment (e.g., greater degree of energy self-sufficiency).
In the financial analysis, the key assumption was that the benefits of wind energy are measured in terms of avoided costs of bulk energy supplies from NamPower, valued in terms of the currently prevailing wholesale tariffs, adjusted upwards by 12% to account for the pending increase in tariffs. The forecast horizon (project lifetime) covers the period 2000 - 2020, with the pay-back period starting in 2001. Payments, i.e., cash in- and/or outflows, are due at the beginning of each year, expressed in N$ at constant prices of 1999.
The above costs were then translated into “Long Run Marginal Costs” (LRMC), indicating the generation costs of wind power during the lifetime of the wind park:
| Wind Park Lüderitz
| 10% Discount Rate
| 6% Discount Rate|
| Golf Course 2.4MW
| Golf Course 9.6MW
| Reservoir 2.4MW
| Reservoir 9.6MW
| Grosse Bucht 19.2MW
However, the economic benefits of wind energy according to the avoided costs of electricity imports ranging from 32 N$/MWh to 74.5 N$/MWh (including line losses) depending on the spot price of the South African Power Pool, make any wind park economically unfavourable, and even the financial analysis adds little to this because it is based on the same assumptions as the economic analysis, except for the financial value attached to wind energy, which is 90 N$/MWh (the rate NamPower is assumed to charge for wholesale energy supplies).
In a sensitivity analysis it was therefore investigated how the given parameters have to be changed in order to achieve the financial viability of the wind park. Even by taking into account increasing electricity tariffs due to new power generating facilities such as the
Kudu Gas Combined Cycle Power Plant, there is still a considerable amount of grant financing or other financial support required to make a wind park at Lüderitz commercially viable.
The following table presents these mutually exclusive options as there are:
- A capital grant or
- an equivalent “wind energy levy” on electricity consumption (based on 1,700 GWh in 1997).
Alternative Break-Even Requirements for Wind Parks in Lüderitz
Value of CO2
| G. Course 2.4 MW
| G. Course 9.6 MW
| Reservoir 2.4 MW
| Reservoir 9.6 MW
| G. Bucht 19.2 MW
The above figures indicate that an assumed CO2 bonus of N$ 100 per ton of avoided CO2 would warrant the support schemes to a large extent, but sources for grant financing have still to be found. As a result of the workshop held in March, all Namibian stakeholders gave their firm committments to further pursue the wind energy option, provided that the international donor community would make available the additional financial support required to make the project economically and financially viable.
- ↑ Contents of this page are from: GTZ/TERNA (n.D.): Feasibility Study for Wind Park Development in Ethiopia. Eschborn
- ↑ GTZ/TERNA (n.D.): Feasibility Study for Wind Park Development in Ethiopia. Eschborn
- ↑ Source: GIZ 2000: Wind Energy Projects in Morocco and Namibia pp. 10fckLRgtz2000-en-wind-energy-projects-marocco-namibia
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