An Economic and Stakeholder Analysis for the Design of IPP Contracts for Wind Farms

Abstract

In this paper we introduce a method for quantifying the benefits and costs of implementing a grid-connected onshore wind project that is owned and operated by an independent power producer (IPP). The outcomes and risks are assessed from the perspective of all stakeholders. The proposed policy analysis tool is applied to the appraisal of a wind farm in Santiago Island, Cape Verde. The policy analysis is conducted from the perspectives of the electric utility, the country’s economy, the government and the private sector investor. The key question is whether the design of the power purchase agreement (PPA) will yield a high enough rate of return to the project to be bankable, while at the same time yielding a positive net financial and economic present value to the electric utility and the country respectively. The PPA results in a negative outcome for the economy of Cape Verde in almost all circumstances. In contrast the owners of the IPP are guaranteed a very substantial return for their modest investment under all circumstances.