Hong Life CalculatorsUnderstanding the wind turbine profit calculator — concept and principle
This calculator estimates the economics of a wind turbine: yearly energy and revenue, net cash after operation and maintenance, simple payback, undiscounted profit over the project life, net present value and the levelized cost of energy (LCOE). Landowners, community energy groups and students use it for a first feasibility check before commissioning a proper study.
How it is calculated
- Annual energy (kWh) = rated power (kW) × 8,760 hours × capacity factor
- Revenue = energy × price per kWh; net cash = revenue − O&M per year
- Simple payback = installed cost ÷ net cash
- Capital recovery factor CRF = i(1 + i)^n ÷ ((1 + i)^n − 1), for discount rate i and life n years
- NPV = net cash ÷ CRF − installed cost
- LCOE = (installed cost × CRF + O&M) ÷ annual energy
The principle
A turbine rarely runs at rated power. The capacity factor, average output divided by rated power, captures calm spells, stops and losses in one number, so it is the most important input and should come from a site wind assessment. The capital recovery factor turns the up-front cost into an equal yearly payment over the project life at the discount rate. That is the basis of the simple LCOE method documented by the US national renewable energy laboratory: if LCOE is below the price you receive, the project earns more than its cost of capital.
Worked example
Defaults: 1,500 kW; capacity factor 35%; price 0.08 per kWh; installed cost 2,400,000; O&M 60,000 a year; 25 years; discount rate 6%.
- Energy = 1,500 × 8,760 × 0.35 = 4,599,000 kWh.
- Revenue = $367,920; net cash = $307,920.
- Simple payback = 2,400,000 ÷ 307,920 = 7.8 years.
- Undiscounted profit = 307,920 × 25 − 2,400,000 = $5,298,000.
- CRF = 0.07823; NPV = 307,920 ÷ 0.07823 − 2,400,000 = $1,536,251.
- LCOE = (2,400,000 × 0.07823 + 60,000) ÷ 4,599,000 = 0.0539; margin = 0.0261 per kWh.
| Rated power of the turbine (kW) | Simple payback (years) |
|---|---|
| 375 | 75 |
| 750 | 19.4 |
| 1,125 | 11.1 |
| 1,500 | 7.8 |
| 1,875 | 6 |
| 2,250 | 4.9 |
| 3,000 | 3.6 |
How to read the result
A positive NPV means the project adds value under these assumptions; the margin per kWh is the cushion against lower prices or weaker wind. Test a lower capacity factor: a few points less can remove much of the profit.
Common mistakes
- Using a generic capacity factor instead of site data.
- Forgetting grid connection, planning and decommissioning costs.
- Ignoring output degradation and rising O&M as the turbine ages.
- Assuming a fixed electricity price for 25 years.
Frequently asked questions
What is a capacity factor?
Average output over a year divided by the output at rated power all year; it reflects wind conditions and downtime.
What does LCOE mean?
The levelized cost of energy: the constant price per kWh that would just cover all costs over the project life at the discount rate.
Why is NPV smaller than undiscounted profit?
Future cash is worth less today; discounting at 6% reduces the value of later years.
Sources: National Renewable Energy Laboratory (now National Laboratory of the Rockies), U.S. Department of Energy, "Simple Levelized Cost of Energy (LCOE) Calculator Documentation"