Wind power's generation cost is from data plant installed during the year and listed in Windpower Monthly's 2005 database of wind turbine prices and installed costs of completed wind stations. The database contains information from wind projects in 16 countries around the world. Installed cost includes the price of the wind turbines, foundations, access roads and grid connection. Not all sources make it clear what is included. Some of the prices include the cost of the first few years of a maintenance contract. But across the data base, the inclusion of maintenance costs for some projects is balanced by others which may not include the cost of grid connection.
The range of wind power generation costs are derived from installed costs using procedures that are reasonably standardised across whole of the power industry. The financial parameters are independent of any particular support mechanism operating in any country. The generation cost of wind power is separate from any price paid for it.
The weighted average cost of capital (WACC) used is 6% "real," meaning it is net of inflation. WACC is alternatively termed the "project interest rate" or "test discount rate," but in both cases includes the interest rate on the project loan (the debt) and the rate of return that providers of equity expect to see on their investment. The capital recovery period used is 15 years.
Application of the various financing parameters to installed cost enables an "annual charge rate" to be calculated, from which an annual cost for capital repayments plus interest is determined. Other annual costs, such as operation and maintenance costs, possibly local taxes and rents are added. When the sum total is divided by the annual energy generated -- which is dependent on wind speed -- a generation cost results.
The parameters used ensure that the calculation of generation costs for wind power are consistent with procedures used by the International Energy Agency and by authorities in the United States, Denmark, Germany and elsewhere. In the UK, higher test discount rates -- 8% and above -- are more usual, which push up generation costs. On the other hand, some 20 and 22 year contracts have been reported in North America during the year, which would deliver lower generating costs. Again, across the data base the differences are balanced out.