Sensitivity and Uncertainty Analysis of Economic Feasibility of Establishing Wind Power Plant in Kerman, Iran

Abstract

Wind energy is considered as a precious replacement for fossil fuels in electricity generation. In this regard, many governments (e.g. Iran) tend to support development of this type of renewable energy source. However, fluctuations in Iran's economic conditions and uncertainty in available wind power increase the risk of investment. In this investigation a methodology is used to address the uncertainty in wind conditions using probability of occurrence of minimum wind speed. In addition, a feasibility study is considered for economic assessment of establishing a wind turbine power plant in Kerman province, Iran. A sensitivity analysis is developed to analyze the effect of changes in inflation and currency rates on the project economic viability. Results show that the proposed site enjoys excellent wind power potential with respect to wind power density of 971.4 W/m2 at 100 meters height. Economic analysis indicates that the project is viable when its budget is supplied through governmental resources (providing US dollar at governmental rate). However, sensitivity analysis reveals that the project is no longer viable when its budget is supplied through foreign exchange market (providing US dollar at market currency rate). Therefore, this paper suggests that if government tends to support development of wind energy in Iran, it is necessary to either provide the project budget by governmental resources (4200 T/$) or buy electricity higher than 1391.6 T/kWh (845.6 T/kWh more than current feed-in-tariff). Furthermore, nonlinear relationship between net present value (NPV) and inflation shows that reduction in inflation can significantly improve the investment payoff.