Tuesday, 23 March 2010

Windmill math

Let's see ... I have 15 minutes to kill before I go to work ... What should I do? Relax with a coffee? Read the paper? Masturbate? Oh what the heck, let's do some math!

I see that Manitoba Hydro has finally signed on to a deal to build another wind farm. Is it a good deal? Hard to say because the details were not released. What we know is that Hydro is giving Pattern Energy a 20 year loan for $260m, and that Bob Brennan says that "Hydro stands to make a small profit" on the loan.

Small profit, eh? Ok. Let's suppose then that Hydro is lending them the money at a sweatheart deal of 5% interest -- slightly more than the rate they're paying on a Series 10: 5-Year Fixed Rate Manitoba Hydro bond. $260m amortized over 20 years would require Pattern to make payments back to hydro of about $20.9m each year.
Now: this wind farm is rated at 138 megawatts, but the capacity factor of a wind farm is between 20-40% (source) so we can count on this thing generating about 30% of 138 mW or 41.4 mW. At that rate, in order to cover the cost of the loan, they would have to be able to sell the electricity back to Hydro at at least $0.058 per kW.h. But .. they also have to cover their own $95m investment. If they were to finance that in a similar way, then the break-even price jumps to $0.079 per kW.h. More likely Hydro's buying the power at something like $0.10-0.12 per kW.h because their financing costs are probably higher and they need a profit margin.

I pay $0.0625 per kW.h on my hydro bill each month.

Ahhhhhhh that was fun. Anyhow, just back of the envelope calcs ... there are lots of variables.


how the name "Pattern Energy" came about.
Pattern press release.


unclebob said...

The reason your math does not compute is because you use normal math. Manitoba Hydro math on the other hand makes a provision for inflation ... say 5% a year so that by the end of the deal we are all awash in cash.

By the way, this is also the same math that is used to project new dams and hydro lines. It is kind of amusing at low levels but when it gets to serious coin and inflation becomes deflation or exchange rates shift or weather gets dry, the incidents of jumping out of windows at the new hydro building will go up.

And if those incidents don't go up voluntarily I believe there will be enough bitter ratepayers around that would be prepared to assist with a little push.

cherenkov said...

The thing about being a lender and a customer is that the higher the rate they charge to Pattern, the higher the price they need to buy back the electricity at. If they're charging 10% interest (understandable if they're so concerned about Pattern going tits up) then all of a sudden the break-even price for Pattern is $0.11 / kW.h -- far more than we're paying for our power.

Yes ... interesting math for sure. Maybe someone with some good calculus skills can plug this all into an equation and come up with an optimal interest rate / buy-back price that screws tax payers the least? Oh well .. maybe we will sell the power to the US for a similar price. Good to see some more turbines going up. We had too many bats anyhow.

Anonymous said...

Speaking of bird killing factories:


It gets interesting at 1:57

cherenkov said...

Dang... I knew it was going to happen but I didn't want to see it! Thx for the link.

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