Updated: October 11, 2023
By Drew Schiavone
Wind turbine in overcast sky

Wind turbines use wind to make electricity. Wind turns the propeller-like blades of a turbine around a rotor, which spins a generator, which creates electricity. The terms "wind energy" and "wind power" both describe the process by which the wind is used to generate mechanical power or electricity. This mechanical power can be used for specific tasks (such as grinding grain or pumping water) or a generator can convert this mechanical power into electricity. Wind, itself, is a form of solar energy caused by a combination of three concurrent events: 1) the sun unevenly heating the atmosphere; 2) irregularities of the earth's surface; and 3) the rotation of the earth. Wind flow patterns and speeds vary greatly across the United States and are modified by bodies of water, vegetation, and differences in terrain.


Understanding Wind Power

How does Maryland use wind power?

Wind energy provided slightly more than one-tenth of Maryland's renewable electricity generation in 2021. The state's best onshore wind resources are in its western mountains and along its southern Chesapeake Bay and Atlantic Ocean shorelines. The state's only operating utility-scale wind farms are along Maryland's western Appalachian Mountain crests, where 190 megawatts of generating capacity is installed. Maryland's greatest wind energy potential is offshore. Two major wind projects are in development off Maryland's Atlantic coastline. The Marwin wind project, located about 17 miles offshore in federal waters, will consist of 22 turbines that are each taller than the Washington Monument and collectively can generate up to 270 megawatts of electricity. That project is scheduled to come online in 2024. The Skipjack wind project, expected to come online in 2026, will be built in two areas about 19 miles offshore from the Maryland-Delaware state line and have a combined generating capacity of nearly 1,000 megawatts. All of Skipjack's generated electricity will be sent to Maryland. Maryland updated its renewable portfolio standard (RPS) in May 2019, when the Maryland legislature required that 50% of the state's electricity retail sales come from renewable sources by 2030. The updated RPS requires that the state's offshore wind generating capacity reach 400 megawatts in 2026 and increase to at least 1,200 megawatts in 2030. 

Maryland Wind Resource Map

What are wind turbines?

Wind turbines can be built on land or offshore in large bodies of water like oceans and lakes. Modern wind turbines can be categorized by where they are installed and how they are connected to the grid. Land-based wind turbines range in size from 100 kilowatts to as large as several megawatts. Larger wind turbines are more cost effective and are grouped together into wind plants, which provide bulk power to the electrical grid. Offshore wind turbines tend to be massive and do not have the same transportation challenges of land-based wind installations, as the large components can be transported on ships instead of on roads. These turbines are able to capture powerful ocean winds and generate vast amounts of energy. When wind turbines of any size are installed on the "customer" side of the electric meter, or are installed at or near the place where the energy they produce will be used, they're called "distributed wind. Many turbines used in distributed applications are small wind turbines. Single small wind turbines—below 100 kilowatts—are typically used for residential, agricultural, and small commercial and industrial applications. Small turbines can be used in hybrid energy systems with other distributed energy resources, such as microgrids powered by diesel generators, batteries, and photovoltaics. These systems are called hybrid wind systems and are typically used in remote, off-grid locations( where a connection to the utility grid is not available) and are becoming more common in grid-connected applications for resiliency.

There is no common definition of “small” wind. Grid-connected home systems are typically three to 10 kilowatts. “Small” is usually defined by the electric utility. Most utilities limit the size of wind turbine that they will allow to “net meter.” In Maryland, most utilities define small wind as less than 50 kilowatts rated power. Check with your electric utility to find out how “small wind” is defined in your area.

How to wind turbines work?

Diagram of Wind Turbine
Wind turbine components, including rotor blade, generator, control system, and tower.

A wind turbine turns wind energy into electricity using the aerodynamic force from the rotor blades. When wind flows across the blade, the air pressure on one side of the blade decreases. The difference in air pressure across the two sides of the blade creates both lift and drag. The force of the lift is stronger than the drag and this causes the rotor to spin. The rotor connects to the generator, either directly (if it’s a direct drive turbine) or through a shaft and a series of gears (a gearbox) that speed up the rotation and allow for a physically smaller generator. This translation of aerodynamic force to rotation of a generator creates electricity. There are four main parts of a small wind system, including the 1) rotor, 2) generator, 3) tower, and 4) control system.


Upwind wind turbines with active and passive yaw and downwind turbine
a) upwind wind turbine equipped with an active yaw system; b) upwind wind turbine equipped with a passive yaw system; and c) downwind wind turbine equipped with a passive yaw system. Licensed under CC BY-SA 3.0 via Wikipedia (https://en.wikipedia.org/wiki/File:Wind.

The rotor includes the blades and the hub of a conventional horizontal-axis small wind system. The blades are designed to capture the energy in the wind and turn it into rotational torque. Rotational torque is the force that rotates the central shaft. The rotor hub connects to a central shaft, which drives a generator. Turbine blades can be made of many different materials. Most blades are made of composites (fiberglass is common), because they are strong, lightweight, and cost less than other materials. You may find other blade types, although they are not common. Wooden blades can be strong, lightweight, and relatively cheap to produce. However, wooden blades are easier to nick and scratch, and need regular maintenance. Wooden blades can be difficult to balance since no two pieces of wood are identical. They can also absorb water, which can cause warping and balance problems. Severe vibration and wear on the turbine can occur when a rotor is out-of-balance. Aluminum blades are light-weight and less costly to manufacture, but are susceptible to damage. Steel blades are strong, but can be expensive, heavy and can rust. Aluminum and steel blades are no longer used for commercial turbines, but older turbines in the rural west were made of these materials. Be aware of the material characteristics of the blades before you buy a turbine so that you are able to plan for maintenance expenses.

Blades are airfoil shape, like airplane wings. Airfoils are shapes which cause a force of “lift” when air flows around them just because of their shape. Lift is caused by air flowing around the airfoil shape. “Drag" is caused by air pushing against the blade. In “lift” machines, the blade is shaped to maximize the force of lift. The amount of lift depends on the angle at which the blade hits the wind. By angling the blade, the lift force can be raised and lowered and the turbine speed can be regulated. All commercially successful wind turbines are “lift” machines. Some turbines (including the historic ‘windmills’ common on farms and ranches decades ago) are “drag” machines. These turbines rely on drag forces to create rotary motion. Drag machine blades may be cupped or use a flap plate which use the wind’s energy to push the blade, rather than lift the blade.

Turbines may be either “upwind” or “downwind” machines. Upwind machines use a tail fin or vane to place the blades into the wind upwind of the tower, whereas in a downwind turbine, the blades are downwind of the tower. Each type has certain advantages and disadvantages. Blades are designed to twist and taper along the length of the blade. These design characteristics are needed to keep stresses uniform along the length of the blade: as the rotor turns, the tip moves at a faster speed than the root of the blade and requires a shallower angle and smaller blade cross-section to produce the desired lifting force. Some wind turbine’s blades “pitch”, so the blade changes angle as the wind speed increases. “Pitching” is standard on large, utility-scale wind turbines, but is less common for small wind turbines.


Most small wind turbines are permanent magnet, direct-drive systems. There are also a number of induction generator designs that are used with small wind turbines. The rotor connects directly to the central shaft of a generator. Permanent magnet generators make electrical power using copper wire coils and magnets. As the blades spin the rotor hub and shaft, the rotation drives the generator by turning the copper coils on an axis between two magnets creating electrical current. The power created is variable frequency alternating current (AC) power, which cannot be used without power conditioning. A power converter changes the variable frequency AC power into a direct current (DC) power. DC power can be used in some electrical appliances, or can be stored in batteries. To use the power in a home, the power has to be changed into 60 hertz AC power. This is done using an inverter. Some turbines contain the power conditioning systems within the nacelle (which is the housing for the system components that is mounted on top of the tower), however most use external power conditioning systems located away from the turbine unit.


Guyed Tilt-up Monopole Tower Wind Turbine
Guyed tilt-up monopole tower. Photo by Mark Harris, NREL 16742 (http://images.nrel.gov/viewphoto.php?imageId=6326130)

There are three basic types of towers: guyed towers, monopole, or latticed towers. Guyed towers are the least expensive. Guy wires do increase the footprint, or surface space occupied, of the turbine. The radius of a guyed system will be one-half to three-quarters the height of the tower. Most guyed towers are not designed to be taken down regularly, so turbine maintenance must be performed by climbing the tower. The guy wires also require maintenance, Livestock may rub on the guy wires which may be problematic. Tiltup guyed towers are designed so that they can be laid down to perform maintenance, or if severe storms are expected. Tilt-up guyed towers are usually more expensive than conventional guyed towers. Latticed towers are permanent, free-standing and can be climbed to perform maintenance. Monopole towers are available in permanent free-standing or tilt-up designs. The towers are of a more robust design so they do not require guy wires, and there is an increased cost associated with this design. Additionally the tower foundation design is a critical part of the system and adds some expense.

Towers are necessary because wind speed is greater as the height above ground increases and turbulent airflows are reduced - both are key factors in wind power production. A taller tower will enable the wind turbine to produce more electricity, but taller towers are also more expensive. Tower selection is limited by market availability and further limited depending on the turbine selected. In general taller towers produce more electricity which may improve the economics of the project. Tower height is dependent on the location and economics of the investment. Most towers range from 45 to 120 feet. Before purchasing a roof-mount system, consider if the turbine can be placed high enough above the roof to avoid turbulent air flows and to take advantage of wind shear. Wind shear is the increase in wind speed that occurs as the height above ground increases. Also consider if the roof strong enough for both the load (weight) and torque of the wind turbine. Remember that the wind turbine will be under significant pressure as the wind speed increases. Next, consider if the the turbine will cause unwanted noise for occupants of the structure. Finally, consider what possible problems could be caused by noise and vibration on the structure. Rooftops induce considerable turbulence at the turbine. The turbine cannot generate lift in turbulence. In addition, turbulence will increase the maintenance on the system and shorten its life expectancy. In general, rooftop installations have not performed well and are not recommended.

Control System

To account for changing wind directions, turbines must be able to “yaw” – that is, turn to face the wind. Most small wind turbine systems use a passive yaw control system, unlike the larger commercial-scale units that rely on active yaw control systems that utilize an electric motor to change the direction of the turbine. Passive control systems are designed to cause the rotor to slow down when the wind speed exceeds a certain level. Small wind turbines protect themselves from damage caused by severe wind in one of three ways: stalling, turning out of the wind, or using tip brakes. The most common method is turning out of the wind or “furling”. Furling can be done using the turbine’s yaw mechanism (turning to the side) or an angle governor, which will tilt the turbine up and away from the wind. Other systems reduce the lift generated by the blades pitching (changing the blade angle) or using turbine blades that bend back or fold. Other blades sweep back in a coning shape against the nacelle to reduce the amount of blade in the strong wind. Stalling systems (typically found on induction systems) or tip brakes can be used, but it is more common to find passive control systems to reduce the amount of blade surface area exposed to the wind resource. Turbines should have a brake system, so the turbine can be shut down in a severe wind or when doing maintenance. Two brakes (also called redundant braking) are recommended for safety purposes. 

Types of Turbines

There are two primary types of turbine – Horizontal Axis Wind Turbines (HAWT) and Vertical Axis Wind Turbines (VAWT). HAWTs are what many people picture when thinking of wind turbines. In HAWTs, the nacelle sits on top of the tower parallel to the ground. They are the most common type of turbine and most are upwind, lift machines. HAWTs are usually two- or three-blade designs. Most commonly, they have three blades and operate "upwind," with the turbine pivoting at the top of the tower so the blades face into the wind. Over years of testing, the three blade designs have had the highest power output. There are some two-blade designs on the market today, but these machines often experience “yaw chatter”, or vibration caused when yawing. New spring plates are being tested to address this issue. Blade designs vary by manufacturer, ranging from curved blades and blades with weighted tips to blades with unique cuts and designs. There are usually three designs of VAWT machines: Darrieus, Savonius, and Giromill. These turbines are omnidirectional, meaning they don’t need to be adjusted to point into the wind to operate.They are mounted with the turbine components perpendicular to the ground. The components sit at ground level, making some maintenance tasks easier. Many use lighter weight towers. However, VAWTs have struggled to gain commercial acceptance due to various design, performance, and reliability issues. VAWT rotors are often near the ground where there is lower wind speed and a more turbulent wind resource. VAWT units tend to have poor self-starting abilities, and in some models the entire rotor must be removed to replace parts. There has not been a commercially successful VAWT in the United States. 


Implementing Wind Power

Is wind power right for me?

Consider the following questions to explore the use of a small wind turbine for your home or farm. 

  1. Are you willing to learn about small wind turbines?
    Great strides are being made, but small wind is still a buyer-beware market. Be prepared to educate yourself about wind systems or hire a qualified installer/consultant to guide you through the buying and installation process.

  2. Have you considered your energy consumption and price of electricity?
    Energy conservation and efficiency is the best place to start! Being aware of your current electricity usage and cost is valuable for effective decision-making. Renewable energy systems are more cost effective in markets where electricity prices are high and in situations where conservation and efficiency measures have been implemented.

  3. Do you have a good wind resource?
    Many factors determine the quality of a wind resource, and wind speed is a key consideration. In general, wind speeds that average below six to seven miles per hour are unable to produce significant amounts of electricity generation. Consider a small wind system if the average wind speed at your site is over 10-12 miles per hour.

  4. Are you comfortable with some level of uncertainty in power production?
    Wind speed will fluctuate. System size, type and the site characteristics will cause differences in energy output. Many people do not mind the variability, but if you want consistent generation, a wind system may not be right for you.

  5. Are you willing to invest in a tall tower?
    Wind speed increases with height above the ground. A tall tower will enable your wind turbine to produce more electricity. Towers can cost more than the turbine– and the taller the tower the greater the cost. Appropriate tower height will vary by location, cost, and the turbine selected. Tower heights typically range from 45 to 120 feet. There are a few locations where tower
    heights of 30 feet may be viable but they are the exception, rather than the rule.

  6. Can you finance a small wind system?
    A system that would offset most of an average grid-connected home’s electricity use (10,000 kWh/year) will cost roughly $50,000 before incentives.* Some homeowners opt to reduce the total investment in the wind system by only off-setting a portion of their total energy use. This reduces the system cost, but does extend the payback period for the turbine. Some installers or manufacturers offer financing. Incentives may offset 45 percent or more of your total system cost. Many incentives are tax credits or reimbursements received after installation, thus initially you may have to finance the full cost of the system. *Please note that off-grid wind systems are typically smaller and therefore less expensive than grid-connected systems. However, other system components such as batteries will add to the overall cost of an off-grid project.

  7. Do you have enough available space?
    You should have at least one acre of available land around the site where you would like to place your turbine. Zoning or ordinances may require one-half acre to over five acres of available space based on the size of wind system.

  8. Does your area allow wind turbines?
    Some areas do not allow wind turbines or have special permitting for small wind turbines. Restrictions may limit the height of structures. Other zoning restrictions may address noise, tower placement, and tower type. Check with your electrical utility to see if wind generators are allowed and what utility company rules you must follow if you intend to remain connected
    to your electrical utility.

  9. Are you willing to maintain a system?
    Small wind turbines require at least annual maintenance. Maintenance requirements are different for each system. However, you will need to climb the tower, use a bucket truck, or take the system down (if you have a tilt-up tower) every year to inspect and repair components of the turbine. Do not consider wind if you are not willing to maintain your system or hire someone to perform maintenance work on a regular basis.

  10. Have you considered living with wind?
    Visit an installed wind turbine so that you can listen to the noise and witness the visual impact that a turbine and tower may have on your property. You may also want to talk to your neighbors to discuss any concerns or objections they may have to your proposed system.

What are the pros and cons?


Liability insurance will most likely be required by your utility for grid-connected systems. The amount of coverage required will vary. If your turbine is financed or if your home is off-grid, liability coverage may be required by your lender. Coverage will likely be required for both damage to property from the turbine and for personal injury. A property damage example: a blade comes off the rotor hub and damages a neighbor’s roof. Personal injury coverage relates both to people being hurt on the generator itself, as well as possible injuries to linemen working on utility lines during an outage. Industry proponents point out that there are few examples of people being hurt or liability claims related to small wind systems. Coverage is usually required for small wind owners, nevertheless. You should budget the insurance cost for the life of the system. Insurance for the turbine itself is another expense that should be included in your budget for the life of the system. This insurance will help to cover replacement costs in an unexpected event. In small wind, unexpected events are typically extreme winds, lightening strikes, or wild land fires. The coverage usually also addresses issues of theft, vandalism, fire caused by the system (faulty wiring, etc.), flooding, and other “acts of God.” The easiest and least expensive means of insuring the turbine is often as a part of your home owners insurance. The turbine would be an appurtenant structure if it is on the same property as your home. This is the same type of coverage used for a shop, disconnected garage, or barn. Coverage costs can be inexpensive. You will need to discuss costs of coverage (as well as types of coverage if the turbine is not on the same property as your home) with your insurance agent.


A properly sited wind turbine will generally be the tallest structure on your property. Lightning strikes do occur on small wind systems. However, lightning protection is standard equipment for small wind turbines. Many electrical system components have protections built into them at the manufacturing facility. In addition, grounding is included in a proper installation. Guy wires should have ground rods or a concrete anchor at each point where the cable is in contact with the soil. Towers should have ground rods connect to each tower leg. Grid-connected systems have additional protections in place from the utility-side of the inverter. These protections include a ground, lightning, and voltage surge arrestors. None of the protections will prevent lightning strikes, but they will help to ensure your safety and provide protection to the system in general. This will also help to demonstrate to the insurance company and manufacturer that you have taken prudent steps to protect your system.

Icing and Ice Shedding

There are two main ways ice can impact your small wind system. The first is by icing system components. This can occur when weather conditions are right for ice to form, but there is no wind blowing to keep the turbine in motion. The turbine may freeze, but the icing does not typically cause damage. You can thaw the turbine, but usually system owners wait for the ice to melt. When the system is iced, you will experience loss of energy production. The second issue is ice shedding. When ice builds on rotor blades, it will slow the aerodynamic function of the blade. In large, utility-scale equipment, the blades can have enough momentum to “throw” the ice off the blade. Small wind systems turn more slowly when iced, and usually the ice will be found at the base of the tower where it has fallen from the blades. While it is not common for ice throwing to occur with small wind turbines, some zoning ordinances do prohibit ice being thrown over property lines or onto public right-of-ways. You may wish to discuss icing and ice shedding with your manufacturer or installer to learn more about your turbine’s performance in ice situations.


Birds and Bats

As mentioned in the Siting and Permitting Fact Sheets, there are no comprehensive studies on avian impact with small wind systems. Use common sense and do not site a wind turbine in or close to a sensitive area.

Flicker and Noise

Shadow flicker is caused when the intermittent shadow of the rotating blades pass over an object, such as a house. Shadow flicker is becoming a topic of concern in utility-scale wind, but is not often discussed in small wind. In some areas, siting restrictions are present in local ordinances that help to ensure your turbine will not cast a flicker-causing shadow on neighboring properties. You may want to consider the possibility of shadow flicker on your own home and site the turbine accordingly. An additional consideration is that unusual noise might indicate a problem with your turbine. Issues with bushings, yaw, or unbalanced blades will change the sound your turbine creates. Sensitivity to changes in the sound may help you to catch maintenance issues before they become more significant.

Wind Easement

In some situations, small wind turbine owners seek to protect the wind resource on their property by insuring undisturbed flow of wind across neighboring properties. A wind energy easement is allowed under Montana law for this purpose. Considerations in developing an easement with your neighbors for your small wind turbine include:

  • The  agreement must be in writing, recorded and filed according to requirements for other easements on real property. Check with your County Clerk and Recorder’s office for those requirements.
  • The agreement must include:
    • A legal description of the property benefited and burdened by the easement
    • Dimensions of horizontal space across and vertical space above the burdened property that must remain unobstructed
    • Types of restrictions – vegetation, structures, wind turbines or other objects that would impair the wind resource
    • Terms or conditions for changing the easement.

Your neighbors are not obligated to enter into an easement agreement with you and may expect compensation from you for the burden you are placing on their property. Legal counsel is encouraged if you intend to pursue this type of agreement.

Property Tax Implications

Your property taxes may be impacted by the installation of a small wind system. Tax codes do change and the actual impact to your property taxes will vary according to your situation. Contact the state Department of Revenue to understand your property tax implications. Be aware that there are many property tax exemptions in place for renewable energy systems at present, but some of those exemptions expire over a set number of years. Be sure to ask if any exemptions offered will expire during the life expectancy of your system.

What does wind power cost?

There are many incentives available to make installing a small wind system more affordable. However, there are still significant costs associated with small wind systems. Before purchasing a small wind system, it is recommended that you consider the following factors:

  • Objective for Purchasing a System — The “acceptable” return on investment in a small wind system will vary by consumer and is largely dependent on your objectives. If your objective is to build a demonstration project, the financial return may not be as important as it would be if your objective were to lower your utility bills.
  • Energy Efficiency — Start by increasing energy efficiency. Whether trying to reduce your carbon footprint or working to reduce your total energy bill, energy efficiency measures usually help you to reach your goals faster than installing a renewable energy system.
  • Total Cost — While many factors influence total cost, system costs range from $4,000 to $8,000 per kilowatt of installed capacity. The estimated cost for a 10-kilowatt system, which would offset most of the electrical consumption of the average home in Maryland, would be $40,000 to $80,000.
  • Access to Capital — Even though it may be possible to offset 30 to 75 percent (depending on the state) of the system cost with subsidies, consumers will need to either pay cash or finance the entire cost of the system because of the timing of these incentives. Consumers who do not have access to capital will find the purchase of a small wind system difficult. Be aware that many price quotes list the price of the system AFTER rebates. Many rebates will not be received until after the system is installed. Understand when each incentive will be available.
  • Terms of Available Incentives — Pay attention to the terms of incentives. Here are some examples:
    • Tax Rebate Incentives: Many incentives are tax credits. You should check with a competent tax advisor regarding the benefit of the tax credit in your particular situation. Check to see if you have sufficient tax liability to use the full value of the tax credit in the first year. Some credits may be carried forward into future years if you do not use the entire amount in year one. However, you will continue to make payments on the system while waiting for the tax incentive. Cash flow assumptions need to reflect the time lag.
    • Reimbursement Incentives: Some programs require you to submit receipts for payment. Reimbursement programs may be able to process your incentive payment quickly, but be aware of possible delays.
    • Manufacturer or Dealer Financing: Some installers will carry the financing for the amount of benefit a consumer is set to receive. For example, if a consumer appears to qualify for a 30 percent rebate, the installer may agree to carry that 30 percent until the rebate is received. Some installers will also offer financing if you appear to qualify for tax rebate incentives. Be sure to ask about these incentives and make sure you understand the terms that are being offered by the installer. Also, make sure you check with your tax accountant regarding your tax liability to ensure that you will receive the benefit and be able to make payments to the installer.
Common Means of Evaluating Wind Turbine Economics
First Cost

A first (or initial) cost analysis simply compares alternatives of the total upfront investment you will make in a system. A first cost estimate typically includes estimates of the tower, turbine, site work, wiring, and installation costs. A range of $4,000 to $8,000 per rated kilowatt (kW) is typical (for example, the cost of a five kW system would range between $20,000 and $40,000). Costs vary depending on type of equipment used. For example, shorter towers and guyed wire towers are often less expensive than taller, freestanding towers. Similar comparisons can be made for other components as well. The first cost method is a poor method of economic analysis because it only provides information on the total upfront cost and does not look at the longer-term implications of the investment, such as energy production and maintenance costs.

Simple Payback

An investment’s simple payback is calculated by dividing the total cost of the system by the annual net savings. In some cases, the total cost is the cost of the system after incentives (grants, tax credits, etc.). Net savings is the value of the energy generated less operation and maintenance (O&M) expenses. O&M costs are sometimes estimated in terms of cost per kilowatt-hour (kWh) of electricity production. Some estimates use $0.001 to $0.02 per kWh. Other methods estimate the cost of O&M based on the initial turbine cost, such as, one to three percent of the initial purchase cost (one percent of a $50,000 system would result in an annual O&M estimate of $500). O&M costs will vary on the type of equipment. As the number of “moving parts” increase, so should your estimates of O&M expense. For example, if the turbine includes a gearbox, estimates for O&M should be increased to account for wear and replacement of gearbox components. When calculating economic return, it is a more conservative approach to assume higher O&M costs.


  • Capital cost: $50,000
  • Value of Energy: 16,500 kWh (estimated electricity generation) x $0.09/kWh (cost of electricity) = $1,485
  • O&M: $50,000 (capital cost) x 1.5% = $750 (per year)
  • Payback: $50,000 ÷ ($1,485-$750) or $50,000 ÷ $735 = 68.02 years
  • With incentives to off-set 45 percent of capital cost = $27,500 ÷ $735 = 37.41 years

Simple payback is an easy calculation but does not always account for many important factors such as increases in energy prices or alternative uses for the project capital.

Cost of Energy (COE)

The cost of energy method combines the capital cost and the total expected O&M (for the life of the project) divided by the total lifetime energy production of the turbine.

Example (Using a 20-year lifespan):

  • Capital Cost: $50,000
  • O&M: $750(50,000 x 1.5%) x 20 years = $15,000
  • Lifetime Production: 16,500 kWh x 20 years = 330,000 kWh
  • COE: ($50,000 + $15,000) ÷ 330,000kWh = $0.197/kWh
  • If a 30-year lifetime is assumed, the COE drops to $0.146/kWh. If incentives offset 45 percent of the capital costs, then the COE over 20 years is $0.128 kWh.

COE is also considered a simple method in that it does not consider interest payments incurred from the purchase of the system, which increases the COE. This model also neglects increases in O&M expenses. It does not account for the time value of money; however, it is another means of quick evaluation to provide an indication of economic return.

Net Present Value (NPV) and Internal Rate of Return (IRR)

Most companies considering an investment in a project evaluate and compare the profitability of a project based on the net present value of the project or the project’s internal rate of return. Both of these methods estimate the cash flow generated by a project for each year the project is expected to last. This cash flow includes purchase prices, tax incentives, value of electricity, insurance costs, maintenance costs, and any other related income or expenses. For net present value calculations, the net cash flow for each period (including any salvage value of the equipment at the end of the project) is then discounted at a rate (often the expected inflation rate), back to the time of the system’s purchase and added together. If the value is positive, the project is often accepted. For internal rate of return calculations a discount rate is selected that makes the NPV calculation equal to zero. The higher the rate the better financial return of the proposed project. These methods provide a more accurate analysis of a project but both are only as accurate as the data used to generate them.

A net present value (NPV) analysis first estimates a project’s revenue and expenses for each year of the project. In the example below, the project costs $2,500 to purchase today. At the end of each of the next four years, the project will generate revenue of $1,200 and an expense of $200. The revenue and expenses are combined in each year to calculate the net annual cash flow. Each net annual cash flow is then discounted by using a discount rate and the number of years until each expected cash flow. The formula used to discount each net annual cash flow is:

Annual Net Cashflow ÷ Discounted Value

Here, the discounted value is:

Discounted Value = (1 + Discount Rate) ^ Number of Years

NPV is calculated by adding all of the discounted cash flows. A positive NPV indicates the lifetime cash flow of the project is expected to provide a return greater than the discount rate. A negative NPV would indicate the project is expected to provide a return less than the discount rate. It is not common to proceed with a project with a negative NPV.

Net Present Value Example (Discount Rate: 5%)
Net Annual
Cash Flow
Years to
Initial Costs $0 $2,500 -$2,500 0 -$2,500
Year 1 $1,200 $200 $1,000 1 $952
Year 2 $1,200 $200 $1,000 2 $907
Year 3 $1,200 $200 $1,000 3 $864
Year 4 $1,200 $200 $1,000 4 $823
Net Present Value         $223


Electronic Calculators or Manufacturer Provided Calculations

There are economic calculators available online. Many are downloadable spreadsheets. These tools are often far more robust than the simple models discussed above. They often include calculations of the net present value and rate of return for the project. Some account for the time value of money and can show the effect of tax incentives on the project. Many allow for O&M and per kWh electricity costs to rise at rates other than the expected general inflation rate. These tools are beneficial in that you are able to run a variety of scenarios to evaluate the proposed project under different assumptions. Manufacturers or dealers typically provide calculations on economic return as part of their project proposal package. These figures are intended to be tailored for your site and situation and may reflect specific details about your financing package or product that cannot be easily included in the generic calculations.

However, both the online calculators and manufacturer provided calculations are only as accurate as the assumptions being made in the calculations. Companies interested in selling you a product may select assumptions that shed the most favorable light on their product and not the assumptions that
most accurately reflect your situation. In order to determine if the economic return indicators provided are accurate for your situation, you need to check these assumptions. The following list of questions can aid you in this assessment:

  • Is the energy consumption calculation for your site consistent with the information you obtained from your utility company? When calculating the appropriate size of your turbine, you should collect at least one-year’s worth of energy statements to get an accurate estimate of your annual kWh usage.
  • What are the assumptions about your current cost of energy from the utility? You can obtain actual costs of energy for your site by contacting your utility company. In 2022, the average cost of electricity for residential customers in Maryland per kilowatt-hour was $0.1416.
  • What assumptions are being made about energy price increases? Without major policy changes such as the regulation of greenhouse gas emissions, the US Energy Information Administration is currently projecting energy prices to increase at approximately 2.5 percent per year over the 2010 to 2035 period.
  • What assumptions are being made about the turbine electrical generation? This question will require additional research on your part, and make certain that the energy output calculations are accurate. Many estimates and electronic calculators will assume maximum energy output from the turbine, which will overestimate the economic return calculation.
  • What turbine life expectancy is assumed? Many calculations will assume an operational life of 20 to 30 years. While there are small wind turbines on the market that have been in operation for this amount of time, there are also many new turbines and new companies that do not yet have a 20 to 30 year product history. You may wish to ask the manufacturer or dealer for further information on testing or actual field performance of their turbines to ascertain if the life expectancy is realistic for your project. Some parts (such as the tower) of the system may have value after the project is complete. You may want to consider the life expectancy of the components in addition to the system as a whole.
  • What assumptions are made with regard to O&M costs? Bear in mind that your O&M allocation should provide for replacement of parts over time. For example, if the inverter (which is typically assumed to have a life expectancy of 10 to 15 years and can cost between $1,000 and $3,000), the O&M allocation should be large enough to cover the cost of replacement. You may want to consider how the project analysis would change with a major component (such as an inverter) failure at some point during the project.
  • What assumptions are being made with regard to the cost of the system? Detailed costs on the following system components should be included in the estimate
    you receive from the manufacturer or dealer:
    • Wind turbine cost
    • Inverter
    • Controller
    • Batteries (only for off-grid applications)
    • Tower (prices will vary by the height and type of tower)
    • Tower erecting equipment
    • Foundation materials
    • Wiring and electrical supplies
    • Labor for foundation, tower erecting, electrical wiring, and turbine installation
    • Turbine and tower shipping
    • Siting and permitting
    • Sales or property taxes (if applicable)
    • Insurance costs
  • Does the economic calculation assume that any excess energy is being purchased and paid for by the utility (sometimes referred to as a buy-back rate)? In Maryland, net metered projects are compensated at the utilities avoided cost. These low rates generally do not make it economical to sell large amounts of excess energy to your electric utility.
  • What is being assumed about your purchase of the system? Does the model assume that you will pay cash or obtain a loan? If debt financing is assumed, what interest rate and loan period are used? You may wish to check with your bank regarding appropriate interest rates. What down payment and collateral are being assumed? There are some renewable energy loan programs with low interest rates that might be assumed. Be sure to check with the program manager regarding loan availability and interest rates before assuming that you will qualify for any nonconventional lending program.
  • What does the calculator assume about state and federal incentives? Not all programs will apply to your situation. Make certain that you verify which programs are being assumed in the calculator and review the program qualifications to ensure that you will qualify for the incentives before including them in your analysis.
  • Are the operations and maintenance costs assumed to increase at the same rate as inflation or at some other rate? Does the model provide this functionality, and if so, what rate is being used? Discount rates are often included in electronic or manufacturer provided calculations. The discount rate is included in time value of money or net present value calculations. A discount rate of three to four percent is typical.
  • Does the calculator make any assumptions about reducing demand charges? In general, small wind systems will have little effect on demand charges. A reasonable assumption is a monthly demand reduction equal to one-half of the capacity factor times the rated power of the turbine. In most residential applications, demand charge or service fee reductions should not be assumed.
  • What assumptions are being made with regard to the sale of Renewable Energy Credits (RECs)? In some cases, wind turbine owners are able to sell the “renewable” aspects of their electrical production to utilities, companies or individuals who want or need to ensure that a portion of their electric usage is produced from renewable sources. This is very common for large projects but is much less common for small projects.

Economic returns may only be one consideration in your evaluation of a small wind system. However, whether you consider the payback period or return on investment to be your main priority, or only a passing consideration, understanding the information that is being presented to you is important. Critical evaluation of the assumptions that have been included in any economic calculations provided to you can ensure that the installed system meets your expectations and accomplishes your fiscal objectives.

Next Steps

How can I get started with wind power?

Those interested in small wind turbine systems should take the following steps:

  1. Determine your electrical consumption
    • The first step in buying a small wind system is to determine your electrical usage. Contact your local utility and ask for a 12-month electrical usage history (in kilowatt-hours) for your home. Some utilities provide this history online or in your monthly statements. You will also need to find the cost per kilowatt hour. When you have your energy information for one year, fill out the table below to calculate the number of kilowatt hours used and the average cost per kilowatt-hour for the 12-month period. The local utility can provide estimates based on energy usage for similar homes in the area if you are planning new construction or an off-grid system.
      Electrical Consumption
      Month Energy Use
      Energy Bill
      Energy Cost
    • Make sure that energy efficiency measures have been taken before adding renewable energy systems. Evaluate your utility statement to understand how your wind system will change your bill. This list provides a few common mistakes. Not all charges can be off-set with a small wind system. Some utilities have a base-charge that is assessed to all customers. There may be system demand charges for high seasonal or monthly power usage. Demand charges may not be off-set with a small wind system. Ask your utility to explain which charges might be off-set before purchasing a small wind system. When calculating your average cost per kilowatt hour, you will need to pay attention to how much of the total cost is the actual cost of electricity (which you can off-set) and how much of the cost is base fees, demand charges, and other fees that cannot be off-set. If, for example, your total cost per kilowatt hour were $0.10, but 50 percent of that cost were comprised of fees that cannot be offset, you would only be offsetting costs of $0.05 per kilowatt-hour. The cost of electricity is a significant consideration in conducting economic analysis. Does your utility allow you to consolidate meters if you have more than one meter? Some utilities only allow one wind turbine per meter. Look for seasonal “swings” in usage. This is very important if your bill settlement or “true up” period is monthly. Talk to your utility about future electricity costs. Some utilities are very sensitive to price increases. Others have long term contracts and know their energy costs many years into the future. Cost of energy can be a significant factor when looking at the economic value of a small wind system.
  2. Assess your wind resource
    • The wind resource is one of the key factors in a successful small wind project. You will need to assess the wind resource at your site. This guide will help you to understand the effects of wind speed, wind shear, wind distribution, prevailing winds, turbulence, and elevation. You should take time to understand wind assessment and to gather some free information about your wind resource. This will help you to ask good questions when you are working with your installer. Your system installer should conduct a more in-depth analysis of the wind resource. Installers usually have more accurate data and assessment tools. You can also purchase better data. There are fee-for-service mapping tools available. Note: Before buying wind data, make sure you know what data source is being used
      by the company. Some companies use free data for their maps. You could get the same information on your own.
    • Wind Maps: You will need to find information on the wind speed at your site. The best way to get site-specific wind information is to install an anemometer and to collect data for at least one year. (The anemometer should be at the same hub-height as the planned wind turbine.) Installing a tower and anemometer can be expensive. Most homeowners cannot afford to collect anemometer data. For small turbines, the value of the data collected by an on-site anemometer is often not worth the cost. Therefore, free data is often used to estimate the wind speed. These estimates rarely reflect the actual wind resource of your site. Free wind mapping data are available from: Department of Energy: Wind Powering America State Wind Maps (www.eere.energy.gov/windandhydro/windpoweringamerica/wind_maps.asp), Renewable Energy Atlas of the West (www.energyatlas.org/), and National Renewable Energy Lab – In My Back Yard (www.nrel.gov/eis/imby/about.html). Wind maps are often created using a mix of publicly available data and wind
      modeling. It can be hard for a user to know the sources and quality of the data used to develop the wind map. These sources provide an indication of the wind speed, but understand that they are likely to have high degree of variability.
    • Local data may be publicly available. These sources may provide an indication of the local wind speed. The data may not be accurate for your purpose. The data might be collected from anemometers on rooftops of rural airports, in sheltered areas or near trees that influence the wind. Agronomic weather stations collect data at five to six feet above the ground–well below a typical wind generator hub height. Some anemometers are located in turbulent wind areas. These anemometers might be just fine for their purpose, but were probably not installed at the right hub-height or in the perfect area to collect wind information for your project. If you are using local data, make sure you evaluate the site to see that it has good exposure to the wind, is free of turbulent air flows, and is capturing the wind resource at a hub height similar to your potential project. In some states, anemometer loan programs for small wind are used to collect data. That data is often posted on line and may be a good source for your project. Neither Montana nor Wyoming currently have an anemometer loan program in place. The free mapping tools based on existing local data are often the best information available to you. Remember that these sources do not give you nearly as accurate data as on-site data collection would provide. Wind speed is key to accurately calculating both the energy production and economic return of the small wind turbine. Error in the wind speed estimates will result in errors in these calculations. Most purchasers of small wind turbines will have to accept at least a moderate amount of uncertainty in the average annual turbine energy production. Consider if you're reasonably confident that your wind speed information is accurate; and if you're comfortable with the possibility that economic or energy output calculations might be off because of error in the wind speed estimate.
  3. Calculate energy production
    • The best energy output calculations rely on an accurate wind resource assessment. Unfortunately, publicly available data is typically used to make a “best guess” about the wind resource. This leads to significant error and variability in energy calculations. There is also a lack of industry standards. In 2010, the Small Wind Certification Council (SWCC) began testing turbines to newly established standards. This is a valuable step. Manufacturers volunteer to have their turbines tested, but because it is voluntary not all turbines are tested. It will also take time for enough tests to be done to make good comparisons between turbines. Today, manufacturers are able to define many terms and set their own standards. This makes it hard for homeowners to compare information from turbine to turbine. The terms ‘power’ and ‘energy’ often are used interchangeably when describing generation output from a small wind turbine, but they are different. Power typically
    • refers to instantaneous generation, whereas energy will refer to power generation over time, such as a kilowatt-hour. Many times, manufacturers will provide estimates of power output. However, it is energy which is of value to the owner and what is being offset in regard to purchases from the utility company. Energy output depends on several variables, but fundamentally come down to the following variables: Wind speed (v) – Turbines with access to the best wind speeds are installed in windy areas on tall towers free from obstructions; Swept area (Πr²) – Larger rotor diameters will capture more wind and generate more energy; air density (ρ– This variable cannot be controlled, but recognize there is less power in the wind at high elevations than at sea level; and time (t) – The more a turbine operates the more energy it will make. Accurate energy production estimates can be difficult to derive, but here are some suggestions that will help estimate system size and energy production without relying on manufacturer-defined terms.
    • Understanding how wind turbines generate power from the wind may help you to realize the importance of the wind energy resource:

      P = ½ρv³Πr²

      Energy = ½ × Air Density × Velocity³ × Swept Area of Rotor
      Remember: In wind power generation, velocity is a cubic function. If the wind velocity is doubled, eight times the amount of power is produced (2*2*2). This means that wind power generation is very sensitive to wind speed.
    • To get a rough estimate of required turbine size to serve your electricity needs: 1) total your annual use in kilowatt hours; 2) calculate the average load (annual consumption /8,760 hours per year); 3) divide the load by 0.1 – 0.2 to get a rough estimate of the turbine size for your application. The simple calculation is problematic for two important reasons. First, this is a very rough estimate of system size and, while it does provide a general indication, it is by no means accurate.
      You will need to work with a qualified installer to better estimate the system size. The bigger issue with this calculation, however, is that it provides the result in rated power (defined below). Rated power is not defined consistently in the industry. This inconsistency makes it a poor measure of comparison. While this quick math might help you to get a general “range” of system size, recognize that it is limited in accuracy.
      Example (system size should be between 5 and 11 kW)
      Total Annual Kilowatt Hours 10,116
      Average Load (10,116/8,760) 1.15
      Average Load Divided by 0.2 5.77
      Average Load Divided by 0.1 11.5

  4. Select tower height
    • The tower should be tall enough for the bottom edge of the turbine blades to be at least 30 feet above the tallest obstacle within 500 feet. Many small wind manufacturers recommend a minimum tower height of 65 feet (20 meters). To better understand the importance of tower height in capturing the wind resource, refer to the previous step on assessing your wind resource.
    • Here are a few things to keep in mind on tower height. Think long term. Trees will grow. What is their final or mature height? Are there any structures planned nearby? Plan for the future. Are there a variety of tower heights sold in your area? In some areas, dealers may only carry two or three tower heights. If the tallest available tower is not right for you, you might want to consider another renewable energy technology, such as solar. Remember that a short
      tower on a wind turbine is akin to placing a solar panel in the shade. Are there zoning or homeowner association restrictions that would limit your tower height?

Where can I learn more about wind power?

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