Energies 2010, 3, 943-959; doi:10.3390/en3050943 energies ISSN 1996-1073 www.mdpi.com/journal/energies Article A Net-Present Value Analysis for a Wind Turbine Purchase at a Small US College Nicholas H. Johnson 1,* and Barry D. Solomon 2 1 Principia College, Elsah, IL 62028, USA 2 Department of Social Sciences, Michigan Technological University, Houghton, MI 49931, USA; E-Mail: [email protected] * Author to whom correspondence should be addressed; E-Mail: [email protected]; Tel.: +1-618-374-5078. Received: 29 March 2010 / Accepted: 20 April 2010 / Published: 6 May 2010 Abstract: Wind power is becoming an increasingly attractive method of electric power generation due to concerns with global climate change, increasing uncertainty of future oil supplies, and energy security. While most large-scale wind turbines are part of wind farms, which help states meet state renewable energy standards, several colleges and universities in the United States have purchased wind turbines for financial and educational purposes. This paper gives details of a cost-benefit analysis completed for a small liberal arts college in Illinois, Principia College, which is considering buying a single large-scale turbine. The process set forth here can easily be adapted to any college, university, or school. It is found that the project has a positive net present value for both a 20-year scenario and a 30-year scenario. Assuming the project did not receive any grants, Principia College would need to have an annual real return rate of about 6% on its initial investment to gain the same economic benefits. Keywords: cost-benefit analysis; education; net-present value; renewable energy; wind power 1. Introduction Principia College, a small liberal arts college located in Elsah, Illinois, is considering installing a Vestas V82 (1.65 MW) or another turbine of similar size. This paper calculates the costs and benefits of the proposed turbine and determines the discounted net present value (NPV). To calculate the costs and benefits a nine-step cost-benefit analysis (CBA) process is used. OPEN ACCESSEnergies 2010, 3 944The amount of wind energy that a wind turbine would generate is calculated using measured onsite wind velocity in conjunction with power curves provided by turbine manufacturers. Sensitivity analyses are run to examine how robust the results are. Specifically, the discount rate, the initial costs, the value of renewable energy credits (RECs), and the quantity and value of electricity generated are tested to determine their impact on the project’s NPV. Finally, the results are compared with a business as usual (BAU) scenario. The results presented do not consider social, environmental, and educational costs and benefits. While these topics are important, they are externalities (i.e., they are not included in the market price of electricity). More information about these costs and benefits can be obtained from the authors. 2. Wind Power and Energy Policy 2.1. Growth and Costs Wind power is currently the most commercially viable renewable energy source in the United States (with the exception of traditional hydroelectric power, which has largely stagnated due to market saturation, i.e., a lack of available additional sites). In the US, the annual growth rate of wind power has been about 25% per year over the past ten years, and as of January 2010, capacity from commercial turbines was 35,062 MW [1]. In 2008 wind power accounted for more than 40% of total new capacity in the US, up about five percent from 2007. Between 2008 and 2009 wind power capacity increased 39 percent. [2,3]. Worldwide wind power capacity is now 157,000 MW [3]. The recent penetration of wind power in Europe has been directly linked to a decrease in capital costs, and the US has seen similar results [4,5]. The main costs of wind energy include wind development costs, transmission grid growth and reinforcement, cycling costs of conventional power generation (i.e., the need to turn conventional power plants off and on as demand changes), and additional reserve costs (i.e., the need to ensure enough power generation capacity during times of low wind speed). The major benefits include increased capacity (i.e., new capacity added to the grid), reduced emissions (of both greenhouse gasses and conventional air pollution), and fuel savings [6]. Further importance of wind power stems from it being a partial solution to the problem of energy security. 2.2. Wind Power at US Colleges and Universities Eleven US universities have an installed wind power capacity of more than 100 kW, and five of these have installed capacities of greater than 1 MW. Carleton College, St. Olaf College, University of Minnesota-Morris, and Iowa Lakes Community College have all installed 1.65 MW turbines manufactured by Vestas or its predecessor NEG Micon [7]. Whitman College has nearly 38 MW installed on its property in Washington State, comprised of 65,660 kW Vestas turbines. The turbines are owned by Florida Power and Light Company, which leases the land from Whitman for an estimated $100,000 per year, as part of a 175 MW project [8]. Both the University of Oklahoma and the University System of Maryland are planning projects of over 100 MW [7]. While no universities in Illinois have installed wind turbines, Bureau Valley High School, located in Manlius, IL, installed a 660 kW Vestas turbine in late 2004. About half of the $1 million project wasEnergies 2010, 3 945funded by the Illinois Clean Energy Community Foundation, and the remainder was funded through tax-free bonds. The turbine is used primarily to offset a portion of the school’s electricity generation requirements. Additional power generation is sold to the local utility at the avoided cost rate, about $0.03/kWh [9]. The project was initially conceived and promoted by a local hog farmer, and is expected to save the school approximately $100,000 per year for 20 years. About 30 colleges now offer majors or programs that focus on wind power technical training for maintenance as well as wind power development [10]. For instance, Iowa Lakes Community College has developed a program in Wind Energy and Turbine Technology as part of an Associate degree in Applied Science, which grew from 15 students in 2004 to over 100 students last year [11]. 2.3. Renewable Energy Fees at Colleges and Universities More than two dozen college campuses in the US have mandatory renewable