I recently ran across an article in BuildingGreen.com 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.
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 …