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Mini-Wind Turbines: Case Study on Payback, Breakeven, & Pricing


I recently ran across an article in about a new wind turbine concept. A company based in Monrovia, California, called AeroVironment has created “turbines on a parapet.” These 400-watt turbines are made to be placed in a row, attached to the parapet of a building. The AVX400 turbine, which will be commercially released in the Fall 2006, can come with a canopy—designed to protect birds. To give you an idea of the actual size, the rotors for these fans are 4 feet in diameter and install side-by-side on 6 foot centers.

Payback and Breakeven Calculations:
The cost, $5-$7 per watt of installed capacity, includes the turbine and all the electrical equipment. There is a mini-sized, 6-kilowatt system with 15 turbines that AeroVironment sells for $34,500. It is estimated that with okay wind conditions, this system generates the equivalent of $1,000 worth of retail priced electricity per year. You do the math, and if you assume that there are no tax benefits or abnormally high electricity prices, it will take 34.5 years to breakeven on this investment.  That's kind of high. 

Even still, I understand that there may be other motivating concerns for making the purchase, such as the ability to mitigate blackouts or advertise your green colors to your eco-concerned customers. However, one must consider the opportunity cost of the investment. If I were considering the project, I would not invest in this type of technology unless there was a payback period of something like ten years. The reason I choose ten years is because the technology in this field will continue to rapidly evolve and develop. As that happens, prices will drop, and your money will be wrapped up in gold-plated turbines on the roof. So while it's important to pay the price for innovation, it's also good to be smart about paying that price.

Product Pricing:
Aero_avx400_solitary As I recall from courses on product pricing, the total cost of a product is a function of variable and total costs. On top of that price, there can be a premium charged to make a profit. So when companies, like AeroVironment who have tons of money wrapped up in research and development, come upon a potentially viable product, how do they decide to price it? It seems that they price the product to get all the research and development costs back. They want to cover the red and get into the black as soon as possible, so the tendency is to price high and gradually lower the price after the early adopters have all shot their wads.

If I were the costing manager, I’d think about the absolute minimum … the variable cost of creating the marginal wind turbine. If you produce one more fan, what are the costs associated with making that one fan only (i.e., metal, plastic, part orders, and labor). Then I would add 10% to cover fixed costs and 10% to go to profits. At that point, if the product is still too expensive to penetrate the market, then there’s a business plan problem.

The reason I advocate such a slim margin of profit is because this technology needs to be widely adopted. I’d push the sales department for the tipping point, where the market goes nuts over adopting the wind turbine parapet and where the company’s bottom line turns from red, to black, to green.

In conclusion, I’m confident that this turbine has the ability to disrupt the status quo of current technologies. Regardless, $34,500 might be a little too much ...

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When AeroVironment decided to develop their turbines, they made that choice based on the fact that for some application, they would be able to sell their product for the $5-$7 to specialist applications such as off grid and high wind areas. After they have sold to those buyers, they will have to drop their prices to reach a larger market.

If they had initially assumed that they would price the product as you suggest, they probably would have never developed it in the first place.

A world in which all items are priced only for volume production would have very little innovation, since no products would be developed unless there was an absolute assurance that they could be sold in great volumes. Think about the pre-glasnost Soviet economy.

Developing clean, renewable technology is something worth paying extra for. The wonderful thing is that, as the true costs of fossil fuels are recognized, and the technologies develop further, we will eventually find ourselves with the technology we want at the price we want.

Tom thanks for dropping by and leaving your comments. You have some excellent points.

On pricing, you mentioned that innovators deserve to be paid, and I completely agree--it's the capitalist's way. As opposed to volume producing, I was thinking about pricing to get purchasers in between say, Walmart and Whole Foods. Price the product to get less demand than a Walmart, but more demand than a niche product.

You're definitely right, however, and I'm curious to see how the product will do.

I hope it does well. It's currently very hard to install turbines in populated areas, because most have height restrictions which make towers difficult to zone. This seems like an ingenious solution to that problem.

I look forward to the day that these turbines are selling at Whole Foods prices (as opposed to the current Saks 5th), but eventually we will have turbines selling at WalMart prices. That's the holy grail: when Bubba drives his plug-in hybrid biodiesel pickup to Walmart to pick up another turbine for his trailer so he can charge the pickup while the (SEER 50) A/C is at running full blast.

Mini-wind turbines have become much more eficient over recent years and recently ive had the pleasure of using a new blade design that uses the horizontal-axis design and its extremely quiet.

Your comments are baised and out of place.

Take a look at Cleanfield Energy with the V3.5.

They just announced a order for 3,000 unit order.

That's why these wind turbine companies will ultimately fail. They don't even know how to introduce sustainable energy and are costing it too high. The result being that most people won't buy into it until fossil fuel depletion is at such an advanced rate that it will be impossible for enough turbines to be made fast enough. If companies operated beyond 5 year plans and ROI and making rich investors even richer, they could actually achieve social responsibility and serve the civilization that makes their thievery possible. Put the researchers and scientists in charge and send the MBAs back to university to get an education.

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thanks in advance..

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