Small Wind on the Farm: A Capital Budgeting Case Study - Finance Assignment Help

Assignment Task

Abstract
Purpose – As the interest in renewable energy increases and the number of federal and state incentives to support renewable energy has also grown in recent years, it seems worthwhile to explore the economics of using small wind energy systems to offset electricity costs on farms.

The purpose of this paper is to explore the economics of small wind turbine installations on a dairy in Michigan through case study analysis.
 

Design/methodology/approach – An Excel-based capital budgeting model is developed that contains two sub-modules: one that estimates the value of the wind energy based on the measured wind resource, and an investment module that includes factors such as investment cost, financing parameters, sales of electricity; grants and tax credits and tax information. Cases using 20 and 50kW turbine systems are analyzed.
 

Findings – The results of the case studies show that in a favorable wind resource, the federal tax and United States Department of Agriculture incentives as well as state policies such as net metering can make wind turbines a good investment with an internal rate of return of 12.5 percent in this example. However, if the wind resource is not sufficient, even favorable renewable energy policies will not offset the lost value of the power generation, and thus a wind turbine will be a poor investment decision. Farm
businesses should carefully consider all factors before investing in a wind turbine.

Originality/value – This paper is the first in recent years to combine capital budgeting analysis, wind resource data and the implications of federal and state policies to determine if small wind turbines are a sound investment decision for farm businesses. Keywords Wind power, United States of America, Renewable energy, Farms
Paper type Case study
Wind energy is a rapidly increasing source of renewable energy across the USA. The most visible trend is in utility-scale installations, which have grown by an average of
39 percent annually over the past five years (American Wind Energy Association (AWEA)). Most of these developments are owned by outside investors, giving landowners little participation in the decision-making process, aside from signing a contract to allow the wind turbines on their land. For the most part, these multi-million dollar projects are beyond the scope of farm business owners.

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