Wind Electric Power Systems for Rural Alaska
Initial Screening Analysis
Prepared by
Steve Colt
Institute of Social and Economic Research
University of Alaska Anchorage afsgc@uaa.alaska.edu
6 November 2000
The economic benefits of wind power depend most strongly on the wind resource. While the current installation in Kotzebue (average wind speed = 6.0 meters/sec) is unlikely to deliver significant net benefits over diesel, a similar installation in a place like Nome (average estimated wind speed = 6.5-6.8 m/s) could provide significant net benefits. This analysis is summarized in
Table 1.
A similar present value analysis for a small community such as the “model village” used in the screening study (section 2.3) shows that the combination of diesel fuel costing $1.50 per gallon and a wind speed of 7 m/s would yield significant net benefits. This analysis is summarized in
Table 2.
To achieve the target of reducing the cost of delivered energy by $.01/kWh, the present value of net benefits must equate to about $.20 per annual kWh delivered. This target is met when average wind speeds approach 7 m/s and the cost of diesel fuel is about $1.50 per gallon. There are several villages in coastal Alaska where these conditions appear to be met. Therefore, I recommend that wind power generation be retained for further analysis.
The Kotzebue experience provides the best set of actual data currently available. Table 1
summarizes the key assumptions and results for the 7 turbine installation that comprises phases 2 and 3 of the Kotzebue wind farm. I use phases 2 and 3 only because phase 1 had signifcant technology learning curve costs that are probably not representative of actual costs going forward for the AOC turbines. In the table, the column labeled “kotz23gec” summarizes the assumptions used by Global Energy Concepts in their most recent analysis (2000). The column labeled “kotz23coltc” reflects adjusted assumptions that I believe are more realistic. The major adjustments that I have made to the GEC assumptions are:
1.
Increase the real discount rate to 3.0%. GEC uses a nominal 5% discount rate in combination with a 3% fuel price escalation rate.

2.
Decrease the avoided diesel O&M to zero. Diesel variable O&M depends principally on hours of operation, not on kWh produced. There does not appear to be strong evidence that the Kotzebue installation has reduced the hours of operation for specific diesel units.
3.
Decrease the wind system annual O&M to account for the use of some in-house labor.
4.
Eliminate consideration of the federal Renewable Energy Production Incentive (REPI) payments.
With these adjustments, the Kotzebue phase 2/3 wind farm has negative net benefits of about minus $211,000.
The City of Nome is representative of a similar community but with higher average wind speed, slightly less than 7 meters/second compared to Kotzebue’s 6.0 m/s. If a wind speed of 7 m/s is substituted into the mix of assumptions, the results improve significantly. This change is
demonstrated in the column labeled “kotz7ms” in Table 1. The net benefits in this case are close
to the target of reducing the cost of energy by $.01/kWh. (Because I use a strict present value analysis, I do not calculate “levelized” cost of energy. However, the present value of a $.01/kWh reduction maintained for 30 years is about $.20 per annual kWh. I use this as the target value for the present value of net benefits. In the column “kotz7ms” the present value of benefits is $.17 per annual kWh produced by wind turbines. This is reasonably close to the target value.)
Table 1
Kotzebue Wind Farm Economic Analysis
Assumptions real discount rate initial fuel price real fuel escalation rate initial diesel efficiency kWh/gal diesel efficiency increase rate diesel variable O&M per kWh
Wind capital construction wind energy production wind O&M per yr wind REPI credit (10 yrs)
Wind overhaul yr 15 avoidable cost of fuel storage
($ per gallon capacity)
Results
PV Wind Cost
PV Benefits (avoided diesel cost)
PV Net Benefits
$/gal per yr kWh/gal per yr
$/kWh
$ kWh/yr
$/yr
$/kWh
$
$/gal units kotz23gec kotz23coltc kotz7ms
2.0%
0.94
0.0%
14.90
0.0%
0.0090
1,020,000
831,133
14,600
0.017
35,000
-
3.0%
0.94
0.0%
14.90
0.0%
0.0000
1,020,000
831,133
10,000
-
35,000
-
3.0%
0.94
0.0%
14.90
0.0%
0.0000
1,020,000
1,161,080
10,000
-
35,000
-
1,372,994
1,468,781
95,787
1,238,470
1,027,728
(210,742)
1,238,470
1,435,719
197,250
Significance of Net Benefits
PV net benefits per wind-generated annual kWh 0.12
(0.25)
(a PV savings of $ .20 per annual kWh equates to a savings of $.01/kWh)
0.17
source: Global Energy Concepts 2000 and author calculations

Other communities could be smaller, have higher diesel prices, higher wind installation costs, and perhaps higher wind speeds. Some places may have significant avoidable fuel storage costs, perhaps $8.00 per gallon of capacity.
To explore these possibilities I considered the model village used in the screening analysis. This village uses 60,000 gallons of fuel per year at prices ranging from $1.00 to $1.50 per gallon. I consider the installation of 1 AOC turbine identical to those installed in Kotzebue, with an average wind speed of 7 m/s. In column “modela” the installation breaks even at a fuel price of
$1.00/gal. With a fuel price of $1.50/gal, as shown in the column “modelb”, the wind installation provides significant net benefits. These benefits far exceed the target of reducing the cost of energy provided by more than $.01/kWh.
Table 2
Hypothetical Small Village Analysis
(avg wind speed = 7 meters/sec) units modela
Assumptions real discount rate initial fuel price real fuel escalation rate initial diesel efficiency kWh/gal diesel efficiency increase rate diesel variable O&M per kWh
Wind capital construction wind energy production wind O&M per yr wind REPI credit (10 yrs)
Wind overhaul yr 15 avoidable cost of fuel storage
($ per gallon capacity)
Results
PV Wind Cost
PV Benefits (avoided diesel cost)
PV Net Benefits
$/gal per yr kWh/gal per yr
$/kWh
$ kWh/yr
$/yr
$/kWh
$
$/gal
0.0000
150,000
150,620
3.0%
1.00
0.0%
14.00
0.0%
3,000
-
5,000
-
212,011
210,873
(1,138) modelb
3.0%
1.50
0.0%
14.00
0.0%
0.0000
150,000
150,620
3,000
-
5,000
-
212,011
316,309
104,298
PV savings per annual wind kWh -0.01
0.69
note -- a PV savings of $.20 equates to reducing the cost per kWh by $.01/kWh