Bobby Rupp and Jamie Scovern
Enst 480: Interdisciplinary Investigation of the Environment
5/6/08
Economics of Wind Energy at Colgate University
Introduction
Efforts to mitigate the effects of carbon dioxide emission has become a topic of
interest at academic institutions across the nation, as evidenced by the American College
& University Presidents Climate Commitment; a voluntary carbon abatement pledge
currently signed by 514 institutions. While Colgate currently has no plans to endorse the
commitment due to its dubious goals of 100% Carbon abatement, we still believe that
Colgate University has an interest in cost-effective carbon reduction programs. As
Colgate’s campus is situated in close proximity to numerous upstate wind farms, we
thought that this would be an intriguing way to lower Colgate’s carbon footprint. We
chose to look at utility scale wind turbines because they are more efficient at producing
electricity than residential scale turbines. Throughout this paper we will explain our
research and the results that we gained from the research and how that is applicable to the
Colgate University situation.
Interview with Sean Graham, Municipal Utilities Commission
Colgate faces a unique set of obstacles to renewable energy implementation due
to the cheap price of electricity in Hamilton. In order to better understand the nuances of
Colgate’s power purchase agreement, our group met with Sean Graham, director of
Hamilton’s Municipal Utilities Commission.
Our electrical power is purchased from the Hamilton Municipal Utilities
Commission (MUC). The MUC negotiates electrical power procurement for the village
of Hamilton, including Colgate University. Power in Hamilton is purchased mainly from
NY Power, a state owned and operated utility. Cheap hydroelectric power constitutes
Hamilton’s main source of power, and our contract was recently extended until 2025.
While NY Power provides Hamilton’s fixed electricity supply (baseload), supplemental
power is purchased through the New York Municipal Power Agency (NYMPA), a
privately owned utility, with whom we have a contract extending to 2013. Sean indicated
that the capacity purchased by the M.U.C. is 10,660 kw/month of baseload at
approximately $1.00 per kilowatt capacity. The price of supplemental power increases
significantly to $7.00 per kilowatt, and is made up of a blend of power including coal,
natural gas, and nuclear.
Colgate plays a large role in Hamilton’s power purchase decisions, and we
constitute about one-third of the total electricity demand. The electrical infrastructure on
campus is made up of transformers, underground conductors and meters owned by the
Hamilton MUC and worth over one million dollars. The campus has a well-looped
distribution network, meaning that an external power source could be integrated nearly
anywhere on campus. If Colgate were to produce its own power via 1.65 MW turbine,
the effects on the community would mainly stem from a change in the town’s electrical
demand. Prices would rise substantially because of a decrease in demand and the fact
that our contract with NY Power dictates a fixed supply of 10,660 kw/month until 2025.
Offsetting this effect is the fact that the extra available baseload would reduce Hamilton’s
purchase of expensive supplemental electricity from NYMPA. Depending on the size
and capacity of a turbine, Colgate would have to renegotiate their power purchase
agreement or buy the on campus electrical infrastructure from the MUC. Other major
obstacles exist to installing a wind turbine, including possible local opposition based on
real estate values and issues regarding suitable nearby sites.
Another of our major questions regarded the environmental effects of erecting a
Colgate-owned turbine. We currently purchase power from a clean renewable resource,
meaning that building a wind turbine might not actually result in a decrease in carbon
emissions. In reality though, hydroelectric produced power is a very desirable and cheap
power source, and any abatement in our purchase of Hydro power would result in that
power being purchased by another municipality. This theoretically means that coal fired
capacity would be shut down elsewhere, resulting in an overall reduction in carbon
emissions.
A smaller scale option would be to install a .5 MW capacity turbine to supplement
power purchased from the Hamilton MUC. Such a project would face similar protests by
the local community. It would still alter the price of power paid by residents, though the
effects would be much smaller, and it would likely be visible from most locations in the
village, because it would have to be built nearer to the distribution loop to minimize
installation of new power lines. The payouts of a smaller turbine would make it
necessary to reduce the percentage of total cost attributed to new distribution
infrastructure. Although such a turbine would need to be nearer to town, it would be
substantially smaller than an industrial size turbine, making it unclear which framework
would be less visually invasive. A major benefit of a smaller turbine is that Colgate
would not need to purchase electrical infrastructure from the MUC, and the only
adjustment would be a rewrite of the power purchase agreement.
An alternative to producing power for use by Colgate would be to build a turbine
to feed the grid and use any earnings to continue buying electricity from the Hamilton
MUC. Nearby 46 kV lines feed other municipalities with more typical electricity rates, in
the 10-12 cent/kWh range. It remains unclear if Colgate-owned property (most likely the
Bewkes center) near the lines would make a suitable wind resource. The distance from a
likely turbine site is uncertain; however our estimated yearly income from an industrial
turbine is large enough to pay off the infrastructure in a short time. From a policy
standpoint, it is unclear whether the grid would be obligated to purchase power from a
small producer under the Public Utilities Regulatory Policy Act (PURPA), but this type
of project seems most attractive in terms of both political and economic viability.
In this example, the turbine is not directly abating Colgate power usage. By
connecting a wind turbine to the grid Colgate would be providing renewable energy to
the houses served by those transmission lines. By doing this, we assumed that some
amount of older, high emission electrical production capacity would be shut down to
keep the total power fed into the grid stationary. This type of project would be preferable
from an economic perspective because the price paid for electricity is likely higher than
what Colgate pays the M.U.C.
St. Olaf Background
St. Olaf College in Northfield, Minnesota is a school that has utilized wind power
for about a hundred years now. Originally, they had a windmill that was used to provide
water for students. More recently, in 2004, St. Olaf College embarked on a project to
install a 1.65 mW capacity wind turbine at the base of their campus. This project was
completed in 2005 when they finished erecting the Danish NEG Micon NM82 1.65 mW
windmill1.
Pete Sandberg, Assistant Vice President for Facilities at St. Olaf College was the
man who got St. Olaf rolling on their wind turbine project. He is the one who applied for
all of the funding and is the one who coordinated many of their other efforts involved
with choosing a location and then building the turbine there. Through many
conversations with him, we found out that he had many motivations for wanting a wind
turbine for St. Olaf College. Many of these motivations were based off of the St. Olaf
Sustainability Principles which include “Rely increasingly on natural energy flows”,
“Build for the future” and to “Put our money where our values are” 1.
Mr. Sandberg elaborated more on the principle of building for the future by
explaining that this was one of the most important reasons for their procurement of a
wind turbine. They are building a new Science Center for their school and are wary of
incremental increases in operating costs for new buildings. The wind turbine, they
believed, would be able to offset much of these costs as science centers are known to be
energy sinks as the air in them must be constantly circulated and filtered. Also, related to
incremental increases in operating costs that worried Mr. Sandberg is the increase in
electricity prices that occurs throughout time. He figured, if St. Olaf produces a good
portion of their energy through the wind turbine, they will be better off in the long run
when electricity prices increase. Furthermore, the estimated $300,000 per year that St.
Olaf will be saving as avoided costs for energy bills can be used to support their
academic program which was very important to Pete1,2.
St. Olaf was in a very special situation due to their location. Xcel energy,
operating in 8 Western and Midwestern states, is forced to pay $500,000 per cask of
nuclear fuel waste towards renewable energy projects. St. Olaf applied for $1.5 million
of funding from this Xcel Energy Renewable Development Fund and received all of it.
This represented almost all of the estimated $1.85 million that they believed it would cost
them to construct their wind turbine. However, prices went up to $2.5 million during
their process due to a federal tax incentive ending. This did not deter Pete Sandberg as he
was still able to come up with the money for the project through “internal sources of
1
The information in this paragraph was obtained via the St. Olaf College black & gold & green website
(http://www.stolaf.edu/green/turbine/index.html), or via a Powerpoint presentation created by Pete
Sandberg about their wind turbine for use during one of our conversations
1
The information in this paragraph was obtained via the St. Olaf College black & gold & green website
(http://www.stolaf.edu/green/turbine/index.html), or via a Powerpoint presentation created by Pete
Sandberg about their wind turbine for use during one of our conversations
2
The information in this paragraph was obtained via a personal conversation with Pete Sandberg, Assistant
Vice President for Facilities, St. Olaf College, 3/25/2008
capital”2. Of this $2.5 million total cost, $2,005,000 was for the turbine itself. The
remaining $495,000 was used for construction, consultations and other fees necessary to
erect a turbine.3
The turbine that St. Olaf’s erected was 70 meters in height with a 270 foot
diameter blade assembly. They knew that an 80 meter tower would provide them with a
better wind resource but the crane that they would need in order to erect the 80 meter
tower was prohibitively more expensive to rent so they decided on the 70 meter tower.
The extra wind speed that accompanies higher altitudes would have been a welcome
resource for the St. Olaf turbine because they only have a moderate wind resource.
However, they made up for some of the lack of wind with the turbine they chose, the
NEG Micon NM82 1.65 mW utility scale windmill, as it is known to perform well in low
wind resources and to operate very quietly2.
From their turbine, St. Olaf’s projects an annual production of 5,700,000 kWh.
They power their campus directly with this power through their “internal distribution
loop”. They chose to do this because they could save more money via avoided costs of
electricity than they would have earned by selling their electricity to the grid because they
buy electricity for $0.056/kWh and are able to sell it for only $0.033. The only time they
are selling to the grid is if their campus demand is less than the amount of electricity they
are currently producing. The power they generate cannot be counted on as “standby”
power if the campus were to lose electricity because there is no guarantee that the wind
will be blowing when the power outage occurs. They have a series of diesel generators to
deal with this problem. St. Olaf College projects a 12-14 year payback for their turbine
and a rebuild of their generator in 25 years as that is the expected life of a generator.
Beyond the construction and operations costs of the machine, there are very few
additional expenses as the machine is serviced quarterly by Vestas and monitored at all
times by Vestas2.
Carleton College Background
Carleton College, also located in Northfield, Minnesota, finished construction on
their wind turbine on September 25, 2004. By doing so, they became the first College in
the country to have a utility grade wind turbine. The wind turbine that they chose to erect
was a Vestas 82, a 1.65 mW turbine. Like St. Olaf, their tower is 70 meters. While St.
Olaf’s turbine is at the base of campus, Carleton’s turbine is located approximately 1.5
miles from campus. So, instead of building 1.5 miles of electricity transmission lines,
Carleton decided to sell their electricity to the grid for $0.033/kWh to Xcel Energy. They
have this price contracted for 20 years. However, in addition to the $0.033/kWh that they
are earning from Xcel Energy, they are also earning a Federal Tax Credit of $0.015/kWh
3
Email conversation with Pete Sandberg, 4/21/2008
for their first ten years of production4. Carleton buys their electricity for $0.076/kWh5,6.
The costs of purchasing and erecting Carleton’s wind turbine are summarized in the table
below7.
Breakdown:
Cost:
Turbine
$1,515,000
Road
$26,000
Site Electrical
$18,000
Power Line Upgrade
$47,000
Phone Line (monitoring)
$5,000
Turbine Installation and Foundation
$215,000
Consult./permits/fees
$39,000
Total:
$1,865,000
Table 1: Carleton College Wind Turbine Cost Breakdown
All has not been smooth sailing with Carleton College’s wind turbine. In
October, 2007, the computer monitoring system on Carleton’s wind turbine indicated that
the wind turbine was overheating. After shutting down the wind turbine, the internals
were inspected and the inspection showed that the teeth in a gearbox had been destroyed.
This meant that Carleton had to bring out a crane to bring down the blade assembly for
repairs. Luckily, Carleton had an extended warranty on the turbine so they did not have
to spend the $28,000 on setting up the crane and then an additional $5,000 per day on
renting the device. However, they did lose all of the income that they would have earned
via selling electricity to the grid which would have been substantial as this malfunction
occurred during their windy season. This, has been the only problem that Carleton has
encountered in the nearly four years that it has been operating its wind turbine.8
This one major problem with their wind turbine has not stopped Carleton’s
Director of Energy Management, Robert Lamppa, from starting the process of looking
into purchasing a second wind turbine. The costs for the machines have grown
significantly as demand has increased. Furthermore, many companies are unwilling to
construct a single turbine. This is because they do not wish to bring all of the
construction equipment for a single turbine and would rather capitalize on economies of
scale from a larger project. The costs of the new turbines that Carleton is looking into are
summarized in the table below5.
Machine:
Vestas 82
4
Cost / kW of Production
$2,300
kW of Production
1,650
Total Cost:
$3,795,000
Note: St. Olaf was unable to get this Federal Tax Credit because the $1.5 million they obtained from the
Xcel Renewable Energy Fund made them exempt from the tax credit.
5
Personal conversation with Robert Lamppa, Director of Energy Management Carleton College, 4/23/2008
6
Much of the information in this paragraph was taken from “The History of Carleton’s Wind Turbine”
webpage located at http://apps.carleton.edu/campus/facilities/sustainability/wind_turbine/
7
Note: The power line upgrade for Carleton College was actually closer to $150,000 but the power utility
paid for 2/3 of it because it was being used to sell electricity back to the grid
8
From the Chronicle of Higher Education, issue dated 12/14/2007, article entitled “Wind Turbines: Not
always a Breeze for Colleges”. Seen at http://chronicle.com/weekly/v54/i16/16a01901.htm
Suzlon 88
$2,050
GE
$2,200
Table 2: New Turbine Costs
2,100
1,500
$4,305,000
$3,300,000
Introduction to Our Model
When approaching a major investment like installing a wind turbine, it is
important to analyze the expected costs and benefits to decide if the project is worth
undertaking. Because many of the costs and benefits of a wind turbine occur in the
future, they must be discounted back to the present in order to be comparable. To do this,
economists use discounting as a way to adjust values from different time periods for
comparison in the present. Discounting occurs for 3 main reasons: 1. Opportunity Cost –
the opportunity cost of a project is the sacrificed earnings of the next best alternative use
of the money. On a very basic level, the money used to install a turbine could simply be
put in a savings account and earn interest. For this reason, we discount future values to
reflect lost interest payments. 2. Uncertainty – Because our future status is uncertain,
rational agents prefer to have money in the present. For example, if inflation were to
grow substantially, money in the future would be worth less than in the present, and this
uncertainty is generally provided for by interest. 3. Richer Future – the belief that we
will be better off in the future means that a payment in the future will constitute a lesser
percentage of our income and thus be worth relatively less to us.
A basic calculation of interest occurs in the equation:
Future Value (FV) = Present Value (PV) * (1+ interest rate) ^Year (t).
This reflects annual compounding of interest. In Discounting, we know the future value
of some payment and want to find out it’s present value, and thus by solving for PV we
get:
PV= FV (1/(1+d)^t), where d = discount rate.
The discount rate used in our analysis was 5%, which is the standard used by the Colgate
Treasurer’s Office9.
The objective of our model is to allow individuals to analyze the payoff period of
a wind energy project based on any unique set of cost and benefit parameters. The output
of our model shows graphically the net present value costs and benefits of a project to
quantify the payoff period of a project. Our model produces a number of outputs
reflecting changes in various parameters in order to yield a comprehensive outlook of
different market situations and assumptions. The payoff period followed the basic
equation:
Σ Costs = Σ Yearly Benefits + Σ Carbon Abatement Benefits + Σ Non-Monetary Benefits
9
Email from the Treasurer’s Office, via Professor Robert Turner
In the following sections we will discuss our model in more depth, with a breakdown of
user inputs and how they produce our graphical results.
Costs
The costs that go into this model are split into two different categories. The first
of these categories is the up-front costs that Colgate University will have to pay from the
outset of the project. All of the costs listed in Carleton College’s breakdown of costs,
shown in Table 1 above, were up-front costs. These include the price of the turbine, the
road, the electrical upgrades, the phone line, the installation and foundation costs and the
consultations, permits and fees that go into the planning of the turbine. These are all
considered up-front costs because they are paid in full either at the time of construction or
beforehand. Due to this, the up-front costs do not need to be put in terms of Net Present
Value.
The second category of costs in our model are the future costs. These costs
include any additional costs that will need to be paid after construction of the turbine is
completed. In our model, the only future cost that we have calculated is that of a
service/operations contract with the installer of the turbine. This service contract cost,
which we have estimated at $36,000 per year10, must be paid every year. Therefore, its
value needs to be discounted to be put in terms of its Net Present Value. This makes the
service contract seem to be less expensive as you move farther into the future as the
$36,000 is discounted into the future.
In our Wind Turbine Payback excel file, in the worksheet entitled “Costs +
Benefits Input Price”, we have consolidated the up-front costs into two columns. The
first is the “Wind Turbine Cost ($)” which is meant to be a sum of the total cost of the
turbine itself and the costs for its construction. Basically, the “Wind Turbine Cost ($)”
column includes the total sum of all of the costs that are broken down by Carleton
College, in Table 1, above. The second up-front cost in our model has to do with our
column entitled “# Quarter Miles Transmission Lines”. The reason we ask the user to input
this in terms of quarter miles is that we were given estimates of $25,00011 per quarter
mile of transmission lines. Therefore, we take the number of quarter miles and multiply
it by $25,000 to come up with the Transmission Line cost that is seen in column H of the
“Costs + Benefits Input Price” sheet of our excel files. The total up-front cost (Column I,
Total Fixed Costs, in Costs and Benefits Input Price worksheet) is thus the sum of the
transmission line costs and the Wind Turbine Cost that was given by the user.
Technically, the first year of the service and monitoring contract might be
considered an up-front cost. This is because it is paid in full at the beginning of year 0.
However, we decided that it is really a variable cost that happens to be paid during year
0. Since it is paid in year 0, it does not need to be discounted as it is already in terms of
Net Present Value.
10
Email conversation with Pete Sandberg, Assistant Vice President for Facilities, St. Olaf College,
4/9/2008
11
Personal conversation with Robert Lamppa Director of Energy Management, Carleton College,
4/23/2008
As mentioned before, the only future cost in our model is the cost of the
operations contract. This cost is discounted in order to put it in terms of Net Present
Value. The yearly Net Present Value of this service contract is shown in Column J of the
Costs and Benefits Input Price sheet of the Wind Turbine Payback excel file. These
yearly discounted operations costs are then summed in Column K to reflect the total
operations costs throughout the lifetime of the Wind Turbine. A possible future cost that
we have decided not to include in our analysis is the costs of breakdowns and other
unexpected maintenance. Since these occurrences are seemingly random and rare, we
figured that there was no way to estimate these costs accurately and thus decided not to
include them in our model.
Additionally, the cost of a loan could be analyzed in a further analysis of the costs
of a wind turbine. The interest that would have to be paid on each loan payment would
increase the total cost of a wind turbine for Colgate and would thus increase the payback
period. However, for the sake of simplicity, this was not considered in our model.
Another cost that was not considered in our model for the sake of simplicity is the
unrelated business income taxes (UBI) that would be paid on any earnings from the sales
of electricity to the grid. However, these earnings would be offset by “the related
depreciation expense and any other maintenance costs attributed to the wind turbines.”12
Benefits
As noted in the Background section, our investigation into the economics of wind
energy at Colgate followed two basic paradigms: 1. A wind turbine located near campus
which would directly provide some large percentage of Colgate’s total electrical energy
demand, and 2. A wind turbine located away from campus which would sell electricity to
the grid (most likely nearby 46kV lines). Situation 1 utilizes an “avoided cost” analysis
of benefits, which means that in calculating the revenue stream of a wind turbine, we
used the price per kWh that we avoid paying by utilizing Colgate generated wind energy.
We assumed that we would use all electricity produced at any given time, and therefore
would not sell any power back to the grid. We believe this assumption to be justified
based on the fact that Colgate’s total electricity usage is substantially higher (~27,000
kWh/year) than St. Olaf’s (~17,500 kWh/year), and St. Olaf’s is only able to sell a small
amount of electricity to the grid throughout the year. The federal tax incentive for wind
power only applies to projects that sell electricity to the grid, meaning that an avoided
cost project could not take advantage of this price support.
Situation 2 assumes that we would sell any power produced by a Colgate owned
turbine to nearby 46kV lines13. In this example, it was necessary to estimate the price per
kWh that we would be paid by a power company. To estimate this value, we created a
12
Email conversation with Dan Partigianoni, Associate Controller Colgate University, via professor Robert
Turner, 4/17/2008
13
This may not be an accurate assumption. In a conversation with a local farm owner who leases land for a
wind turbine, we found out that a number of turbines near his house never rotate because no buyer exists
for the power. This issue was not explicitly part of our analysis and would need further investigation in the
future.
sell/buy ratio based on the numbers available from St. Olaf and Carleton. St. Olaf sells
electricity for $.033 /kWh, and purchases for $.056, yielding a ratio of 0.589. Carleton
sells electricity for $.033 /kWh, and purchases for $.076, yielding a ratio of 0.434. By
averaging these values we arrived at a general ratio of 0.511, meaning the estimated sell
price of electricity is approximately ½ of the price you buy it for. Thus, in order to
estimate a sell price, you multiply 0.511 by the price you pay for electricity in $/kWh (i.e.
if you pay 12 cents per kWh for electricity the sell price would be: $0.12*0.511 =
$0.061). In addition to this price, Situation 2 (also known as “direct-to-grid sale”)
benefits from a $.015 federal tax incentive which extends for the first 10 years of
operation14.
The calculation of benefits begins in our excel file entitled “Wind Turbine
Payback” with a user input in cell A3 (of the sheet labeled Inputs), labeled Electricity sell
price. In an avoided cost situation, this value will be equal to the price currently paid for
electricity. As mentioned above, the federal tax incentive only applies to sales of
electricity to the grid, not to private use; therefore users should leave the Federal Tax
Incentive (B3) cell blank. If the sell price of electricity is unknown, the buy price of
electricity can be multiplied by 0.511 to give a rough estimate of the likely sell price.
Projected wind turbine output in kWh/yr reflects how much electricity a project can
expect to produce. This amount should be input into cell C3.15 Different discount rates
can be input into cell D3 to reflect expectations about the future.
The worksheet entitled “Costs + Benefits Input Price” is where the calculations of
benefits occur. In cells B3 and B4, the expected yearly benefits of the project are
calculated from user inputs. For an external sale situation, the value of cell B3 includes
the 1.5 cent federal tax incentive (FTI) which is available for the first 10 years. Cell B4
reflects the yearly benefits without the FTI. The estimated yearly benefits were
calculated by:
With Federal Tax Incentive
(Electricity sell price + FTI) * (Projected Wind Turbine Output) = Yearly Benefits (With FTI)
Without FTI
(Electricity sell price) * (Projected Wind Turbine Output) = Yearly Benefits (Without FTI)
In Column E, the yearly benefits are subjected to the net present value equation
based on the user defined discount rate, with the first 10 years using the “with FTI” value
and the last 15 using the “without FTI value.” In year 10, when the benefits change from
“with FTI” to “without FTI” the value of the new yearly benefits has already been
discounted for 10 years. In Column F we sum the NPV yearly benefits to create a curve
reflecting total earnings over the lifespan of the project. This column is the one graphed
against costs to produce the payoff period.
14
This Federal Tax Incentive was found on the DSIRE webpage:
http://www.dsireusa.org/library/includes/incentive2.cfm?Incentive_Code=US33F&State=Federal&currentp
ageid=1
15
We assume that the sell price of electricity will remain constant throughout the 25 year lifespan of the
turbine. This is likely inaccurate, but we were unable to obtain estimates of future electricity prices
In the excel file entitled “Wind Turbine Payback”, the worksheet entitled “Costs +
Benefits Input Price + $.01” and “Costs + Benefits Input Price - $.01,” $.01 is either
added or subtracted to the user defined electricity sell price to illustrate the change in
payoff period affected by different electricity prices.
In the Workbook entitled, “Wind Turbine Payback with Carbon Abatement,” we
included a valuation of carbon emission abatement due to wind energy production. Our
model remains the same, with the net present value of abated carbon included in the
graph of payoff period. We calculated the value of carbon credits ($12 per ton CO216)
for three different electrical production mixes: In column F, 100% coal fired energy, in
column G, a representative mix for the town of Hamilton (approximately 86%
Hydroelectric power and 14% Coal, Nuclear and Natural Gas), and in column H, a
representative mix for the state of New York. Once initial values were calculated, they
were net present valued over a 25 year lifespan and placed in the previously mentioned
columns. The avoided cost stream was added to the total benefits curve, and altered the
payoff period of the project.
Non-Monetary Benefits
Not all benefits of having a wind turbine for Colgate and the surrounding
community will be shown directly in terms of financial benefits. Furthermore, because
they are not financial does not mean that they are not important. In our model we do not
try to estimate actual monetary values for each of these non-financial benefits, but we are
able to ask the user of the excel sheets how much they are willing to value all of these
non-monetary benefits for in total. This option is allowed in our excel file entitled “Wind
Turbine Payback with Carbon Abatement and Non Monetary Benefits”. In column E of
the Inputs sheet in that excel file, the user is asked to estimate the value of the nonmonetary benefits in dollars/year.
Some of these non-monetary benefits were thought of as purely theoretical
possibilities, while others are benefits that have been seen by other schools that have
done an industrial sized wind turbine project such as Carleton College and St. Olaf
College. The first of these non-monetary benefits comes from St. Olaf College. They
have groups visiting their wind turbine up to twice a week. Also, they had thousands of
individuals watch as the turbine was being erected17. These are benefits for many
reasons. First, it increases the “town-gown” relations. With youth groups, elementary
school, middle school and High School groups visiting their turbine, they get a chance to
prove to the surrounding area that they have an important role to play in the community
by educating the youth. Second, this increases the awareness of renewable energy
sources. This is important because humanity is at a very important time in its
development as we are facing the global environmental problem of climate change and
all of the political, social and economic issues that are involved with it. Without going
into too much background on climate change, it is still important to educate our youth
and to show them that we do have some of the “fixes” for this problem and that we need
16
$12 represents the price of a carbon credit offsetting 1Ton of CO2. The environmental cost of 1 ton of
carbon dioxide emission is valued at approximately $27, which could be easily substituted and would shift
the benefits curve more substantially.
17
Personal conversation with Pete Sandberg, 3/25/2008
to start implementing them immediately. Therefore, using wind turbines as an
educational tool provides non-economic benefits for both St. Olaf’s and for the
community at large. While there are already numerous wind turbines in the Hamilton
area, they are mostly run by large companies such as Airtricity and Vestas that are not as
willing or capable to take the time to educate local people on the importance of wind
technology. Colgate could fill this role very easily.
Another non-monetary benefit is that admission’s gets a phenomenal reaction to
the wind turbines at other schools. Pete Sandberg from St. Olaf College mentioned they
had students from California visiting just because they found out that there was a wind
turbine on campus18. If a school has more individuals applying then they have a larger
pool to choose from. This means that they might be able to find people who will fit with
the school better. Therefore, the school may gain a non-economic benefit by being able
to choose a better student population for their admission goals.
Another non-monetary benefit that was mentioned, specifically for Colgate
University, by Dean Roelofs is the possibility of research projects for students19. Wind
turbines can be studied by many different disciplines. Some examples include physics
which could research the functioning of the turbine, economics which could research the
financial benefits we are gaining from having the turbine and biology which could look at
the turbine’s effect on local animal populations. These are just basic ideas for what could
be researched, but Dean Roelofs was excited about the possible project opportunities that
a turbine could create. Furthermore, seeing that the “green jobs” sector seems to be part
of the wave-of-the future, having performed research on a turbine might help students
with future employment opportunities. This will then help Colgate’s statistics in terms of
graduating seniors with jobs and Colgate’s reputation with companies hiring in the green
jobs service sector.
The last non-monetary benefit that we encountered was the possibility of
increased alumni donations for the erection of a wind turbine. Global climate change is a
hot topic in the media and in academics presently, so we figured that some alumni would
enjoy the opportunity to give in the name of this looming environmental challenge.
However, when contacting the office of advancement I was told that they were not sure
that alumni would increase their donations for a project such as this20. Even with this
opinion from Sarah Gonzalez, Associate Director of the Annual Fund, we felt it was
necessary to mention this non-monetary benefit possibility as there is no real way to
predict the alumni reaction. Furthermore, this benefit could be considered a monetary
benefit. However, with the uncertainty about whether or not this kind of giving would
occur and in what quantities, we decided to place it in the non-monetary benefits section
so that it would not be a major part of our analysis.
Colgate Case Study
In this section, we apply our educated estimates about Colgate to our most
comprehensive model, and analyze the payoff period for an avoided cost on-campus
generation project as well as an off-campus sale to grid project. We used the excel file
18
Personal conversation with Pete Sandberg, 3/25/2008
Personal conversation with Professor Robert Turner about a conversation with Dean Roelofs
20
Email conversation with Sarah Gonzalez, via Bea Crandall, 3/20/2008
19
entitled “Wind Turbine Payback with Carbon Abatement and Non Monetary Benefits.”
While the Cost side remains the same in all of our workbooks, the benefits side sums
NPV yearly benefits, NPV non-monetary benefits, and NPV Carbon Credits to give a
comprehensive payoff period.
Costs and Benefits for On-Campus Generation
On the cost side, we used a Vestas 82 Industrial 1.65 MW wind turbine to
estimate “wind turbine cost” (cell G3) Based on information we received from Carleton
College, the current price per kW capacity for this model is $2300. By assuming a 1650
kW machine we determined that the price would be $3,795,000 for the machine alone.
We used our previously mentioned estimate of yearly operations costs, from Pete
Sandberg, of $36,000 per year. Although we do not know the exact distance from a
likely wind turbine site to the school, we took an estimate from the Beattie reserve, which
is probably the nearest feasible wind resource to campus. It was approximately 2.5 miles,
which gave us 10 quarter mile segments. The sum of NPV costs over the 25 year period
was $4,577,751.10 for this estimation.
Costs:
Wind Turbine Cost
($)
$3,795,000.00
Yearly Operations Cost
($)
$36,000.00
# Quarter Miles Transmission
Lines
10
Our analysis of benefits begins with an avoided cost of 4.1 cents per kWh, which
is what we currently pay for electricity. Because we would be using all of the power
generated, we would not qualify for the federal tax incentive. Our estimate of projected
wind turbine output came from Mr. Sandberg at St. Olaf as well; according to his data at
what he calls a moderate wind source, the project produces 5.7 million kWh/yr. Our
discount rate was given to us by the Colgate Accounting Office, and our estimate of nonmonetary benefits was $160,000 per year, which we received from correspondence with
Lyle Roelofs21.
Benefits:
Electricity Sell Price ($/kWh)
0.041
Federal Tax Incentive ($/kWh)
0
Projected Wind Turbine Output
(kWh/yr)
5700000
Discount Rate
0.05
Estimate of Non-Monetary Benefits
($/yr)
$160,000.00
21
We received this estimate through Professor Turner and it was based on a steady state of one fewer full
financial aid package per year. This estimate does not account for the rising cost of tuition.
Our estimate of the benefits of carbon abatement used an assumption that we
would be avoiding use of Hamilton’s unique electric mix which is made up of 86%
hydroelectric and a 14% mix of Nuclear, Natural Gas and Coal. We believe this
assumption to be fair at this time because from our conversation with Sean Graham we
learned that the power purchase agreement with NY Power providing cheap, renewable
hydroelectric power has been extended to 2025. We were unable to find what percentage
of the 14% supplemental power came from coal, gas and nuclear, so we assumed an
equal split of the three. To calculate the carbon emissions released by coal capacity in
the Hamilton mix we used:
(projected wind turbine output) * (one third of the 14%) * [coal conversion factor22: (kg
carbon/ kWh)]
We then repeated for nuclear and natural gas and summed them to give us the
total co2 emissions from the Hamilton mix.
[Σ Co2 emitted by Nuclear, Natural Gas, and Coal in Hamilton mix] * (.001102 kg / 1
ton) * $12 per ton carbon emissions. We then took the net present value of that stream of
benefits, and added it to the NPV yearly benefits. In Hamilton’s case, this amounted to a
value in period 0 of $1,882.44. Obviously this shifted the curve very little, and may have
only changed the payoff period by a month.
Non-monetary benefits made up a huge price support for the benefit side of the
equation and the estimated payback period is shown below to be approximately 16 years.
Shown below in Figure 1.
22
Published by Guy Dauncey at www.earthfuture.com
On Campus Wind Turbine Costs with Hamilton Electricity Mix Abatement and $160,000 Non-Monetary
Benefits
$7,000,000.00
$6,000,000.00
$5,000,000.00
$4,000,000.00
$
Benefits
Costs
$3,000,000.00
$2,000,000.00
$1,000,000.00
$0.00
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Years
Figure 1: On Campus Wind Turbine Costs with Hamilton Electricity Mix Abatement and
$160,000 Non-Monetary Benefits
Without estimates for non-monetary benefits, the benefit curve falls more than 1 million
dollars short of repaying the investment costs after 25 years (as shown below in Figure
2). It is clear that without substantial willingness to pay for non-monetary benefits, an
on-site turbine would be a losing investment. If, however, the list of non-monetary
benefits above is worth more than approximately $70,000 per year to the administration,
the turbine would pay itself off by the end of the 25 year period.
On Campus Wind Turbine Costs with Hamilton Electricity Mix Abatement
$5,000,000.00
$4,500,000.00
$4,000,000.00
$3,500,000.00
$
$3,000,000.00
Benefits
Costs
$2,500,000.00
$2,000,000.00
$1,500,000.00
$1,000,000.00
$500,000.00
$0.00
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Years
Figure 2: On Campus Wind Turbine Costs with Hamilton Electricity Mix Abatement
Costs and Benefits for Off – Campus sale
Costs were calculated in the same way as for an On-Campus turbine, under the
assumption that costs of transmission lines would likely be similar, and that the turbine
would be built on Colgate owned land.
Benefits for Off-Campus sale begin with a sell price of $.061, which was
calculated from an estimate by Sean Graham that the 46kV lines sell power for about 12
cents/kWh. The federal tax incentive available now is 1.5 cents/kWh. Turbine output,
discount rate, and estimate of non-monetary benefits remain the same.
Benefits:
Electricity Sell Price ($/kWh)
0.061
Federal Tax Incentive ($/kWh)
0.015
Projected Wind Turbine Output
(kWh/yr)
5700000
Discount Rate
0.05
Estimate of Non-Monetary Benefits
($/yr)
$160,000.00
Carbon abatement calculations were slightly different for an off-campus situation,
because we expected that carbon producing electricity generation would be curtailed
according to the mix of power in all of New York State. We also calculated the benefits
of carbon abatement for 100% coal abatement to reflect an assumption that the dirtiest
plants (coal) are usually the oldest, and are likely less efficient and most likely to be shut
down when new capacity enters the market. In calculating the carbon abatement for both
of these scenarios, we used the same equation as is listed above, but changed the
percentages to represent each different situation.23 The value of abatement from the NYS
mix was relatively small at $7977.12 at time zero. The value of abatement from Coal
was fairly substantial at $22,619 in year 0, however, and shifted the payback period of
our Colgate project back by approximately nine months.
With the listed values and carbon abatement from coal, the payoff period of a
Colgate owned wind turbine was slightly less than 7 ½ years (Figure 4 below). For NYS
power mix abatement the payoff period was approximately 8 years (Figure 5 below).
23
The New York State power mix was found through the NYSERDA website. It should be noted that 4%
of electricity in NYS is produced by oil, and because we didn’t have a conversion factor for oil, we counted
it as our next best estimate: natural gas capacity.
Off-Campus Colgate Wind Turbine Costs and Benefits with Coal Abatement and $160,000 Non-Monetary Benefits
$9,000,000.00
$8,000,000.00
$7,000,000.00
$6,000,000.00
$5,000,000.00
$
Benefits
Costs
$4,000,000.00
$3,000,000.00
$2,000,000.00
$1,000,000.00
$0.00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Years
Figure 4: Off-Campus Colgate Wind Turbine Costs and Benefits with Coal Abatement
and $160,000 Non-Monetary Benefits
Off-Campus Colgate Wind Turbine Costs and Benefits with NYS Mix Abatement and $160,000 Non-Monetary
Benefits
$9,000,000.00
$8,000,000.00
$7,000,000.00
$6,000,000.00
$5,000,000.00
$
Benefits
Costs
$4,000,000.00
$3,000,000.00
$2,000,000.00
$1,000,000.00
$0.00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Years
Figure 5: Off-Campus Colgate Wind Turbine Costs and Benefits with NYS Mix
Abatement and $160,000 Non-Monetary Benefits
Non-monetary benefits remain a strong price support, and without willingness to
pay for non-monetary benefits, the payoff period becomes 13 years (Figure 6 below).
Off-Campus Colgate Wind Turbine Costs and Benefits with Coal Abatement and No Non-Monetary Benefits
$7,000,000.00
$6,000,000.00
$5,000,000.00
$4,000,000.00
$
Benefits
Costs
$3,000,000.00
$2,000,000.00
$1,000,000.00
$0.00
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Years
Figure 6: Off-Campus Colgate Wind Turbine Costs and Benefits with NYS Mix
Abatement
Based on our estimated numbers, an off-campus wind turbine would be profitable
under any of the stresses we subjected it to. This is mainly due to the higher price that we
expect to earn on electricity sold through the 46 kV lines, as well as the price support the
federal tax incentive offers. Carbon abatement has little effect on the overall benefits
curve, and the project remains profitable even without any willingness to pay for nonmonetary benefits.
Appendix:
The Physics group estimated that a 1.65 mW turbine could produce 7.68 mWh of
electricity. We have shown how this would affect our payback period results below:
On-Campus Results:
Costs:
Wind Turbine Cost
($)
$3,795,000.00
Yearly Operations Cost
($)
$36,000.00
# Quarter Miles Transmission
Lines
10
Benefits:
Electricity Sell Price ($/kWh)
0.041
Federal Tax Incentive ($/kWh)
0
Projected Wind Turbine Output
(kWh/yr)
7680000
Discount Rate
0.05
Estimate of Non-Monetary Benefits
($/yr)
$160,000.00
User Input Wind Turbine Costs and Benefits with Coal Abatement
$8,000,000.00
$7,000,000.00
$6,000,000.00
$
$5,000,000.00
Benefits
Costs
$4,000,000.00
$3,000,000.00
$2,000,000.00
$1,000,000.00
$0.00
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Years
User Input Wind Turbine Costs and Benefits with Hamilton Mix Abatement
$8,000,000.00
$7,000,000.00
$6,000,000.00
$
$5,000,000.00
Benefits
Costs
$4,000,000.00
$3,000,000.00
$2,000,000.00
$1,000,000.00
$0.00
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Years
User Input Wind Turbine Costs and Benefits with NYS Mix Abatement
$8,000,000.00
$7,000,000.00
$6,000,000.00
$
$5,000,000.00
Benefits
Costs
$4,000,000.00
$3,000,000.00
$2,000,000.00
$1,000,000.00
$0.00
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Years
Off-Campus Results:
Costs:
Wind Turbine Cost
($)
$3,795,000.00
Yearly Operations Cost
($)
$36,000.00
# Quarter Miles Transmission
Lines
10
Benefits:
Electricity Sell Price ($/kWh)
0.061
Federal Tax Incentive ($/kWh)
0.015
Projected Wind Turbine Output
(kWh/yr)
7680000
Discount Rate
0.05
Estimate of Non-Monetary Benefits
($/yr)
$160,000.00
User Input Wind Turbine Costs and Benefits with Coal Abatement
$12,000,000.00
$10,000,000.00
$
$8,000,000.00
Benefits
Costs
$6,000,000.00
$4,000,000.00
$2,000,000.00
$0.00
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Years
User Input Wind Turbine Costs and Benefits with Hamilton Mix Abatement
$12,000,000.00
$10,000,000.00
$
$8,000,000.00
Benefits
Costs
$6,000,000.00
$4,000,000.00
$2,000,000.00
$0.00
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Years
User Input Wind Turbine Costs and Benefits with NYS Mix Abatement
$12,000,000.00
$10,000,000.00
$
$8,000,000.00
Benefits
Costs
$6,000,000.00
$4,000,000.00
$2,000,000.00
$0.00
1
2
3
4
5
6
7
8
9
10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
Years
List of Contacts:
Pete Sandberg LEED AP
Assistant Vice President for Facilities
St. Olaf College
507 786-3611
507 786-3986 FAX
Email: sandberg@stolaf.edu
Robert Lamppa P.E., LEED AP
Director of Energy Management
Carleton College
One North College Street
Northfield, MN 55057
(507) 222-7893
rlamppa@carleton.edu
Sarah Gonzalez ‘03
Associate Director of the Annual Fund
13 Oak Drive
Hamilton, NY 13346
315-228-6928
Email: sgonzalez@mail.colgate.edu
Bobbi Stedman
Vice President
People & Culture
Vestas-American Wind Technology, Inc.
T: 503-327-2332
M: 971-678-2184
boste@vestas.com
-She forwarded me to Shaun Melander, but we never heard back
Sean Graham
Hamilton M.U.C.
315-824-1111