Re: Rule of thumb for calculating costs of borrowing for infrastructure projects - assume 10% of capex is annual repayments?

[dave andrews]

Denis,

 

I think you may be being slightly mischievous!

I was not attempting to work out the cost of electricity from a wind turbine.

 

This is clearly a difficult, lengthy and technical task meeding objectiviey and rigour and not one I was attempting in my one liner to Chris.

 

You can see some proper scientific analysis here (ok its a bit out of date lets see some of your later analysis if you have any):

 

http://data.ukedc.rl.ac.uk/browse/edc/Electricity/ProductionCostEstimates/Heptonstall2007_WorkingPaper.pdf

 

16 pages with over 20 references.

 

And here: which is a wikipedia page - including the list of cost factors to be considered which I hope you will approve of as they are in line with yours.

 

http://en.wikipedia.org/wiki/Cost_of_electricity_by_source

 

 

The  1 liner reply to Chris was to show that it is quite meaningless to cherry pick "eye watering "capital osts and not to put them into some sort of perspective. What counts is the overall levelised cost of power including all element as you quite rightly list.

 

I simply used a standard rule of thumb for the Capex to guide him in the right direction.  Its not my job to teach Chris how to do economic analysis.

 

Anyway thanks for your detailed and thoughtful reply.

 

Maybe you will be able to look at this draft article which discusses at length similar issues.

 

With kind regards

 

Dave

 

On 13 January 2012 19:34, DENIS STEPHENS <denis.s...@btinternet.com> wrote:

David

 

If I remember right this topic came about because I queried your comparison of the cost of wind power with that of power generated by a gas turbine. You simply took  10% of the capital cost of the wind turbine and divided it by the number of hours you assumed it would be running  per year and said wind cost are comparable to that of a gas turbine.   The gas turbine costs that you quoted took into account all the operators costs such as fuel, overheads, maintenance, number of hours of electricity exported, profit, taxes etc.etc..  The comparison was not an the same basis.

 

As you say equal 10% annual payments of the capital sum with an annual interest rate of 9% would need to be paid for a minimum of 25 years.  My calculator says 27 years.  If the interest rate was to be increased to 10% the number of years over which the repayments would be made would rise to 75.

 

But the cost of wind generated electricity from a wind turbine is not as simple as this.  

 

What is a reasonable payback period?.   For a wind turbine 25 years seems to be a bit high.  Perhaps 15 might be more appropriate in which case the annual repayment would be 12.4% of the capital sum.  

 

To work out the cost per MWh of output you then need to decided how many hours of output that you are going to get.   If your project is onshore will the capacity factor be 35% or 20% or some other figure.    If you look at the statistics for the last 5 years you will see that the capacity factor of all the measured installed wind fleet has varied from a peak of 29.4% to a low of 21.%.  The average  being 26.36%.

 

With a 10% annual repayment and an installed capital cost of say £1,300,000 per MW this would result in an average selling price for each MWh sold of  £56.3.     That is not dissimilar to the selling price of electricity generated from a gas turbine which includes the capital costs, the fuel and all otheroverheads, profit etc..

 

A 12.4 % annual repayment would result in a average charge of £69.8 per MWh sold.  

 

But what is the risk that the average annual capacity factor over the whole of the repayment years will be 26.36%?    It could be that the average is less.  On the other hand it could be more.  So how do you decide what to charge for your MW's to ensure you have sufficient income to make the annual capital payments.  I suspect that a prudent business might include a risk factor to ensure that sufficient income is secured so that the annual payments can be made. 

 

In addition to the capital repayments the wind turbine company has other costs that need to be recovered such as annual maintenance, operating staff, salaries and salary costs, office overheads, payments to land owners, rates, corporation tax and other taxes, dividends to shareholders etc.etc.   These costs can be quite substantial.   

 

All the above are the reason that the RO is needed and the selling price of electricity generated from onshore wind turbines per MWh is almost double that of electricity generated from gas turbines.

 

I suggest that your rule of thumb estimates would be more accurate if you were to assume 20% annual payments of the capital sum for wind power at a capacity factor of 0.3 and 30% annual repayments for gas turbine power at a capacity factor of 0.65.

 

 Regards

 

Denis Stephens

 

From: dave andrews <tynin...@gmail.com>
To: Claverton AB MAIN GROUP <energy-disc...@googlegroups.com>; denis stephens <denis.s...@btinternet.com>
Sent: Thursday, 12 January 2012, 10:32
Subject: Rule of thumb for calculating costs of borrowing for infrastructure projects - assume 10% of capex is annual repayments?

Dear Denis,

 

I think you queried my rule of thumb for estimating the cost of power form wind turbines?  I was always told, when working for a consultant, that a useful rule of thumb was basically to take 10% of the capex per annum as the money handed to the bank in equal amounts over the life of a typical public sector project. Divide that by the annual kWh output, and you have the capital cost per kWh generated. Then just add in a bit for maintenance.

 

With help from my ex McKinsey consultant Joris, I have just checked this by using the PMT function in Excel and it turns out that for £1000 invested, then with interest at 9% and 25 repayments you would be paying back £100 pa to be home free at the end, which is what my rule of thumb gives.  9% should be enough for private investments I would have thought.

 

 

Any comments?

 

Kind regards

--

Dave Andrews

K.E.N.T.
+ 44 (0)  755 265 9166

+ 31 (0)  631 926 885
+ 44 (0) 1225 837978

 

 

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[David Milborrow]

Denis, Dave,

 

I attach my recent attempt at working out comparative gencosts.

 

I have used DECC discount rates!

 

Best regards

 

David

 

David Milborrow

[Herbert Eppel]

Talking about frequency control, Andres Agudo from Gamesa talked about control issues in some detail at the recent IET Offshore Wind Technology 2011 Conference.

You can view his presentation via this link:
<http://tv.theiet.org/technology/power/12482.cfm>

Herbert Eppel
www.HETranslation.co.uk




On 16.01.2012 16:28 UK Time, star...@yahoo.com wrote:

Dear Dave and Dennis

 

What seems to be left out of all the comparisons is that the price of gas is likely to go up. These priice rises are made up of an absolute price rise resulting from the "market" continually expanding and  demanding more than the supply can deliver. Hence  the cost in dollars per GJ goes upwards, sometimes in abrupt steps.The second reason is the decline in value of secondary currencies like the pound and the euro versus the dollar. This has given a price rise, for the pound, of about 30%, over the last four years . Here ir should be noted that countries with a bad balance of payments are especially hit, since increased fuel imports worsen the balance of payments

 

Dave Andrews made a very interesting point the other day about Irish wind farms now being run at an average of 90% of whatever power they can generate at any particular time. This enables wind farms to help with freqiency control. If this is so the average output would come down from 26% to about 24%.

 

I would guess that operating at variable frequency might result in some additional maintenance costs. If the chnges in power were made by changing blade pitch, the pitch change mechanism would be subject to more wear. If it was done electrcally through varying the load on rotor, unless this was carefully done  the gearbox would be subjected to sudden inertial type load changes.......and gear boxes seem to be a weak feature of present designs.

 

At the present time the UK has about 6GW of wind and it is probably saving fuel imports equal to several coal or CCGT plants. At the present time, when back up is needed, this can be provided in the normal way, altough EON seems to be playing it stupidly in running CCGTs as simple cycle machines.

 

Fred.

 

 

 

 

 

  

 

From: dave andrews <tynin...@gmail.com>
To: energy-disc...@googlegroups.com; Claverton Supergrid group <grid-supergrid-in...@googlegroups.com>; Claverton Wind energy group <wind-energ...@googlegroups.com>
Sent: Monday, 16 January 2012, 15:32