A wind power turbine produces a maximum electrical output of 500 kilowatts. The turbine has a 15-year lifetime and the discount rate is 10%. The wind turbine costs $1 million for equipment prior to installation. Operation and maintenance costs are $50,000 per year. The capacity factor depends on where the turbine is installed. The power producer is considering two possible sites. A nearby site has a capacity factor of 30%, and construction and installation would add $100,000 to the cost. A more distant site with a more favorable wind resource has a capacity factor of 38%, but construction costs are $250,000. Which site is better, if the goal is produce the cheapest electricity?
A more expensive turbine would last for 20 years instead of 15 years and would give a capacity factors of 33% and 41% instead of 30% and 38%. The better turbine costs $1.5 million. Is it worth buying the more costly turbine?