UNIVERSITY OF CALGARY

Electrical Generation Using Wind for Community Development in Ecuador

by

Julio Baldeón
Carlos Jácome
Juan Francisco Romero
Stephen C. Welty

A Masters Degree Project submitted to the Faculty of Graduate Studies in Partial Fulfillment of
the Requirements for the Degree of Master of Science in Energy and Environment

Faculty of Graduate Studies

Quito, Ecuador

August, 2003
Approval Page

CERTIFICATE OF COMPLETION OF GROUP PROJECT

FOR THE UNIVERSITY OF CALGARY/OLADE

MASTER OF SCIENCE DEGREE IN ENERGY AND THE ENVIRONMENT

The undersigned certifies that she has read, and recommends to the Faculty of Graduate Studies

for acceptance, the Group Project Report entitled “Electrical Generation Using Wind for

Community Development in Ecuador” submitted by Julio Baldeón, Carlos Jácome, Juan

Francisco Romero, and Stephen C. Welty in partial fulfillment of the requirements for the degree

of Master of Science in Energy and the Environment.

____________________________ ____________________________
Supervisor: Dr. Julie Rowney Date

ii
 ABSTRACT
This project introduces an alternative for a marginalized community in the north of Ecudor to face
its economic problems. The district of Mira has suffered a prolongued drought for years. Thus,
agriculture, the region’s main economic activity, has decreased significantly. Unemployment,
poverty and migration are consequences.

Based on the availability of wind resource in the region and the applicable legal framework, this
project assesses the technical and economical feassibility of generating electricity at large scale for
the Ecuadorian wholesale market. A community based cooperative could share the revenues with
an interested investor. The cooperative could either use directly generated electricity for pumping,
or use the economic gains to invest in an irrigation program. Additionally, the project analyses the
convenience of different funding options and participation schemes for implementation, including
CDMs and public-private partnerships. It was found that a 14.4 MW wind farm is feasible under
the mentioned premises.

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 ACKNOWLEDGMENTS

We appreciate the support of our families; without it, this project would have not been possible.

We acknowledge also to Dr. July Rowney and Norm Althouse because their teachings on Team
Building were essential for the success of this project.

Our special recognition is also for the Mayor of the District of Mira, Mr. Fausto Ruiz, for his
cooperation with the project; and for Eng. Ernesto Clavijo, Public Works Director of the District,
because of the information he contributed with.

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 TABLE OF CONTENTS

Approval Page ____________________________________________________________ii

Abstract ________________________________________________________________ iii
Acknowledgments ________________________________________________________ iv
Table of Contents _________________________________________________________v
List of Tables____________________________________________________________ ix
List of Figures ____________________________________________________________x

CHAPTER 1: INTRODUCTION __________________________________________1

1.1 Problem Identification and Importance of the Project_____________________2
CHAPTER 2: METHODOLOGY __________________________________________5
CHAPTER 3: PROBLEM IDENTIFICATION & SOCIAL ANALYSIS___________7
3.1 General Information _______________________________________________7
3.2 Social and Economic Analysis _______________________________________8
3.3 Description of the Basic Services in the Areas that have Wind Potential ____12
3.4 Current Problems in the District of Mira______________________________13
3.4.1 Poverty _____________________________________________________13
3.4.2 Drought and Lack of Irrigation Programs ____________________________14
3.4.3 Emigration ___________________________________________________15
3.4.4 Municipality Problems __________________________________________16
3.5 Possible Positive and Negative Impacts ______________________________16
3.5.1 Economic Gain and Local Employment______________________________16
3.5.2 Development of Irrigation Program_________________________________18
3.6 Additional Information ____________________________________________19
3.6.1 Electricity service ______________________________________________19
3.6.2 Water Service ________________________________________________19
3.7 Community Participation in the Electricity Program_____________________19
3.7.1 A Cooperative Based Association _________________________________19
3.7.2 The Municipality_______________________________________________20
3.7.3 Expanding Capital Markets ______________________________________21
3.8 Summary of Social Feasibility Analysis _______________________________21
CHAPTER 4: TECHNICAL FEASIBILITY STUDY AND SITE SELECTION ____23
4.1 Wind Energy Basics ______________________________________________24

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 4.1.1 Wind Power Density ___________________________________________24
4.1.2 Air Density___________________________________________________24
4.1.3 Wind Velocity ________________________________________________24
4.1.4 Surface Roughness_____________________________________________25
4.1.5 Weibull Distribution ____________________________________________26
4.1.6 Betz’ Law ___________________________________________________27
4.1.7 Power Density Function_________________________________________27
4.2 Wind Turbines___________________________________________________28
4.2.1 Power Curves ________________________________________________28
4.2.2 Annual Energy output of a wind turbine______________________________29
4.2.3 Wind Turbine Types____________________________________________30
4.2.4 Wind Turbine Components_______________________________________30
4.2.5 Size of Wind Turbines __________________________________________31
4.3 Wind Prospecting & Site Selection __________________________________32
4.3.1 Macro Siting Considerations______________________________________32
4.3.2 Micro Siting Considerations ______________________________________34
4.3.3 Wind Potential Assessment_______________________________________34
4.3.4 Measurement Equipment ________________________________________36
4.4 Site of the Project and Review of Available Data _______________________37
4.5 Preliminary Wind farm Design______________________________________40
4.6 Calculation of the energy production _________________________________42
CHAPTER 5: ECONOMIC EVALUATION ________________________________45
5.1 Optimization of Capacity and Cost___________________________________45
5.2 Breakdown Costs into Major Proje ct Activities ________________________46
5.2.1 Feasibility Phase Costs__________________________________________46
5.2.2 Construction Phase Costs________________________________________46
5.2.3 Operation and Maintenance Costs _________________________________48
5.3 Determination of the Unitary Cost of Electricity________________________49
5.3.1 Determining the Annualized Cost of Electricity ACE ____________________49
5.3.2 Determining the Annual Electricity Production AEP _____________________50
5.4 Determination of the Profits ________________________________________51
5.5 Sensitivity Analysis _______________________________________________51
5.5.1 Interest Rate _________________________________________________51
5.5.2 CDM_______________________________________________________51
5.5.3 Wind farm Arrangement _________________________________________52
5.5.4 Cost of each kW Installed. _______________________________________52
CHAPTER 6: PRELIMINARY DISCUSSION OF ENVIRONMENTAL IMPACTS54
6.1 Spatial and Temporal Boundaries ___________________________________54

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 6.2 Issues of Concern ________________________________________________55
6.2.1 Visual Impact_________________________________________________55
6.2.2 Noise pollution________________________________________________56
6.2.3 Bird strike ___________________________________________________57
6.2.4 Construction impacts ___________________________________________58
6.2.5 Electric and Magnetic Fields (EMF) ________________________________58
6.2.6 Access roads _________________________________________________59
6.2.7 Cumulative Effects _____________________________________________59
6.2.8 Positive impacts _______________________________________________59
6.3 Description of the Environment _____________________________________60
CHAPTER 7: LEGAL FEASIBILITY ANALYSIS ___________________________62
7.1 Legislation for Renewable Energy___________________________________62
7.2 Construction and Operation Permits _________________________________64
7.3 The Concession Contract __________________________________________64
7.4 Land Leasing Contract ____________________________________________65
7.5 Environmental protection __________________________________________65
7.5.1 Chapter I General _____________________________________________66
7.5.2 Chapter II Environmental Administrative Responsibilities for the Electrical Sector66
7.5.3 Chapter III Environmental Protection _______________________________67
7.5.4 Chapter IV Instruments for Environmental Control _____________________67
7.5.5 Chapter V Environmental procedures and Requirements to Obtain Concessions,
Permits or Licenses ____________________________________________________67
7.6 Brief Overview of Private Enterprise Laws ____________________________68
7.6.1 General _____________________________________________________68
7.6.2 Specific to the Community _______________________________________69
CHAPTER 8: FINANCING MECHANISMS AND IMPLEMENTATION
SCHEMES 70
8.1 Private Funding and Implementation_________________________________71
8.2 Public/Private Partnerships_________________________________________72
8.2.1 Transfer of Plant vs. Transfer of Ownership in BOOT schemes ____________73
8.2.2 The BOOT Consortium _________________________________________74
8.2.3 Requirements for the successful packaging of a BOOT project ____________74
8.2.4 Allocation of Risks_____________________________________________75
8.3 Public Funding and Implementation__________________________________77
8.4 Agencies, Institutions and Companies ________________________________77
8.4.1 Government Agencies __________________________________________78
8.4.2 Lending Banks________________________________________________78
8.4.3 Investors ____________________________________________________80

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 8.4.4 Constructors/Suppliers (Wind Energy Companies) _____________________80
8.4.5 Bi-Lateral and Multi-Lateral Agencies ______________________________82
8.5 Economic Instruments for Sustainable Development ____________________83
8.5.1 Clean Development Mechanism ___________________________________83
8.5.2 Small and Medium Scale Enterprise Program (SME) ___________________86
CHAPTER 9: CONCLUSIONS AND RECOMMENDATIONS ________________87
9.1 Social Aspects ___________________________________________________87
9.2 Technical Feasibility ______________________________________________88
9.3 Financing and Economics __________________________________________90
9.4 Environmental Impacts ____________________________________________91
CHAPTER 10: REFERENCES __________________________________________93

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 List of Tables
Table 3.1 Educational Level in Mira......................................................................................... 8
Table 3.2: Age Distribution of the active economic population. ................................................. 8
Table 3.3: Main Economic Activities of Mira’s citizens ............................................................. 9
Table 3.4: Migration of Mira’s citizens................................................................................... 15
Table 3.5. Job generation for the Zafarana wind project. ........................................................ 17
Table 4.1: Roughness Class and Roughness Length (m) for different landscape types.............. 26
Table 4.2: Wind Distribution.................................................................................................. 38
Table 4.3: Approximate Weibull distribution parameters derived from the .............................. 39
Table 4.4: Selected turbine’s specifications ............................................................................ 43
Table 4.5: Results of the WTPC for a single NEG MICON 600/48 working at the site........... 43
Table 4.6: Main Features of the wind farm according to the preliminary design........................ 44
Table 5.1: Investment required in the Feasibility Phase............................................................ 46
Table 5.2: Investment required in the Construction Phase ....................................................... 48
Table 5.3: Operational and maintenance costs........................................................................ 48
Table 5.4: UCE, IRR and payback periods working with different interests rates. ................... 52
Table 5.5: Economic indexes varying the number of turbines of 600 kW................................. 52
Table 5.6: Economic indexes considering no sales of CRES varying the Cost of kW installed.. 53
Table 5.7: Economic indexes considering purchase of CRES varying the Cost of kW installed. 53
Table 6.1: Noise levels for different activities.......................................................................... 57
Table 6.2: Principal Native Species of Flora........................................................................... 60
Table 6.3: Principal native fauna species................................................................................. 61
Table 7.1: Current Environmental Regulations in Ecuador....................................................... 67
Table 8.1: BOOT Project risks divided into stages................................................................ 76
Table 8.2: World Bank Programs for Sustainable Energy. ...................................................... 78
Table 8.3: Firms involved in the Wind Energy Industry........................................................... 81
Table 8.4: GEF and World Bank Investment in Renewable Energy......................................... 83

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 List of Figures
Figure 3-1: Location of the district of Mira............................................................................... 7
Figure 3-2: Agriculture activities of the Concepción’s citizens. ................................................ 10
Figure 4-1: Typical Weibull distribution with mean velocity of 7 m/s........................................ 26
Figure 4-2: Power Density of the Weibull Distribution in Figure 4-1....................................... 28
Figure 4-3: Power curve for a typical Danish 600 kw wind turbine. ........................................ 28
Figure 4-4: Most favorable wind resource areas in Dominican Republic.................................. 33
Figure 4-5: Example of a Wind Rose..................................................................................... 36
Figure 4-6: Approximate Weibull Distribution for Site #50 ..................................................... 40
Figure 4-7: Power Curve for the selected NEG MICON 600/48 turbine ................................ 43
Figure 6.1: Location of the project Area, near to Mira Town.................................................. 54
Figure 6.2: Probable Location for the Wind Farm................................................................. 56
Figure 8-1: Typical BOOT Consortium................................................................................. 74

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 1

CHAPTER 1: INTRODUCTION
Poverty is a major problem both for society as a whole and for the environment that society
depends upon, but in order to alleviate poverty, clear plans and mechanisms must be developed
such as opening different sectors of the economy so that marginalized communities can participate.
It may be possible to integrate the rural poor or marginalized communities into the electrical
generation sector using wind energy from wind farms and otherwise unproductive land.
To evaluate the feasibility for such a plan, a community in the Andean highlands of Ecuador
has been chosen. The results of this project may lead to a conclusion that the best way to
proceed on the project is the “No Action” option due to technical, social, legal or economic
factors. In order to reduce the risk of having such a conclusion, a number of measures have been
taken at the onset of the project and they include:
• Selection of community based on cohesiveness and self help attitude,
• Selection of an area close to meteorological stations with some wind data,
• Selection of the site with an annual average of at least 5 m/s at 10m.

The reasons for selecting the first two constraints are obvious and will be referred to
throughout the paper. The third reason is based on information that projects the cost of electricity
at sites with 5 m/s at a height of 10 meters to be on the order of US$0.04/kWh (Cavallo et. al,
1993), which from early evaluations seems to be a competitive price for energy in Ecuador
especially considering that non-conventional energy sources are given preference in the law and
have a guaranteed price of 10.05 cents per kWh.
The area chosen is the district of Mira located in the northern mountainous region of Ecuador.
The district is the newest canton in the province of Carchi, it was founded in 1980. The district
consists of one urban parish and three rural parishes Juan Montalvo, Jijón y Camaño and
Concepción. The last one is a community of black people. Studies of the current organization of
the communities and legal constitution are required. In addition, a Local Development Plan would
be useful but according to the Mayor of the district and the Association of Ecuadorian
 2

Municipalities, that document will be prepared this year and is not available for this work. This
plan will provide information on the programs that will be implemented in the district in order to
improve the quality of life of the citizens.
The district, led by its Mayor, has worked with some NGOs to deal with irrigation programs
in order to deal with the draught problem of the zone. In April, 2002 the municipality and 14
others undertook a program called 3D (Decentralization- Democracy – Development) with ARD,
a NGO that works together with national and international consultants to comply with the USAID
requirements in Ecuador. This program seeks to strengthen the municipality and public
participation (Municipality of Mira, 2002).
There are 12,919 people living in the district; 2890 live in the urban area while about 10,029
live in the rural area (INEC, 2002). The main economic activity of the people in the district is
agriculture; however, draught, dollarization and the Plan Colombia have limited the activity. There
are no industries in the district and due to this, some people, especially young people, had to
emigrate to other provinces and countries (INEC, 2003). The professional people from the region
study in other cities but they usually do not go back to work in the district due to the lack of
opportunities (Clavijo, 2003).
Wind Energy is a relatively new economic activity in Ecuador. There are plans to build a of 10.8
MW wind farm in Salinas, in the province or Imbabura. The feasibility studies from this project
have finished and currently the project sponsors are looking for financing (Electroviento, 2002).
Although, there is no development of non-traditional renewables, CONELEC has a policy of
purchasing renewable energy (not including large scale hydropower) at higher rates and
guaranteeing a market for such energy provided a reasonable cost of electricity can be achieved
(CONELEC, 2002).

1.1 Problem Identification and Importance of the Project

The existence of an unused wind resource, and the presence of barren lands that surround
communities, which traditionally were dedicated to agriculture, is the reality of the district of Mira.
This results in lost opportunities to generate income so community members have emigrated within
 3

the country and abroad trying to improve their well being and strive to pull themselves out of their
poverty.
The project has as its objective to take advantage of the wind resource and build a wind
farm according to the results of the technical, economic, financial and legal feasibility analyses. The
use of wind energy based on its sustainability to produce electricity has increased drastically in the
last years due to its competitive prices. According to Renewable Energy World (Jul- Aug 2002)
there is even a goal that aims to generate 12% of the world’s electricity in the year 2020 from
wind energy.
Based on international and national experiences it is proposed to generate electricity using
wind for the development of the community. A good illustration of wind generation for community
development in Ecuador is what is happening in the Province of Loja, which is working in the
feasibility phase of a project for electricity generation using wind energy to pump water for
irrigation purposes. This program started as an initiative to deal with the draught problem of the
region that caused the citizens of Loja to emigrate but it was determined that the best alternative
was to provide electricity for water pumping and other uses. The site conditions indicate that the
best alternative for electricity generation is using wind energy. It is clear that the problems in the
district of Mira have some similarities with the problems in Loja; however, the conditions in terms
of government organization and administration resources are different.
This project will deal with different funding agencies and wind energy enterprises possibly
interested in investing in a wind farm. One possibility is to use a Build-Operate-Transfer (BOT)
contract so that after the turn over period, a legal enterprise made of community members could
manage the company. By doing this, barren lands will have a good use and the rate of
unemployment and emigration may decrease for the citizens of Mira.
Due to the fact that community members could work in the management and O&M of the
legal electricity enterprise and that they will manage a service that allows them to be more
productive and provide more opportunities to work inside their community, migration,
unemployment and poverty will decrease. As a note, according to UN studies the rate of poverty
 4

for Ecuadorians in 2002 was 60% in spite of the rate of unemployment and underemployment
decreasing to 8.7% and 32.5% respectively according to INEC.
The project incorporates different fields covered in the master program courses resulting in
a truly multidisciplinary work. Technical background is useful to determine a proper design that
can tap the resource potential to generate electricity but this must be inside the selling capacity
framework according to the Ecuadorian legislation. Preliminary Environmental studies have
considered possible impacts produced by the construction and operation of the project.
An economic analysis is required so not only investors but also funding agencies will be
interested in investing in the project. CDMs will be analyzed as a complement to other funding due
to the CO2 emissions offset by the use of a renewable energy.
 5

CHAPTER 2: METHODOLOGY
This project has been broken down into six parts including: Problem Identification and Social
Feasibility Analysis, Technical Feasibility Analysis, Environmental Impacts, Legal Analysis,
Funding Mechanisms, and Economic Evaluation. There is really no good sequential order that
these parts can be done in due to the interaction between them. For example, the legal
framework may put limits on the size of the wind farm or the Funding Mechanisms will only
contemplate funding a project larger than a certain size. For this reason, the different sections
were completed by a team in tandem to offer timely feedback in the elaboration of the other
sections.
The Problem Identification and Social Analysis were done based on data from earlier census
from the INEC and conversations with the district mayor and other people in the area. The
demographic situation was analyzed as well as the social and economic situation of the area. The
current status of cooperatives in the area were also reviewed to understand how they are
organized and if it would be possible to use such a system with the wind park project.
The Technical Feasibility Analysis was done based on the international literature. It is difficult
to do the technical analysis before knowing the size constraints of the project, which require inputs
from the Legal Analysis, the Funding Mechanism survey and the economic evaluation. For this
reason the outcome of the technical feasibility analysis was to develop parameters which could be
used to optimize the wind farm design using constraints from the other sections. Typically, when
an electrical generation station is designed, a demand analysis must also be carried out to
determine the market. This is not necessary for the current project since the idea is to build a base
load plant from which all of the generated energy will be purchased by the state transmission
company. However, other issues such as substation distance and capacity are also considered in
this section for connecting to the electricity grid.
The economic evaluation is closely tied with the technical analysis and is an important input
for the funding mechanisms section. The project will be analyzed from a number of different
perspectives including return on investment (ROI), present value (PV), and pay back period
 6

(PBP). A unified cost of electricity (UCE) is calculated based on the initial cost, the cost of
capital (interest rate), and the operation and maintenance costs. This UCE will then be compared
to both the regular price paid by the state transmission company for energy and any preferential
price that the state may pay for renewable energies. The technical analysis will determine the life
of the wind farm for calculating economic gains that can be achieved after the project is paid off.
The environmental impacts are roughly the same independent of the size of turbines or the
extent of the wind farm. The only factor that changes in the environmental impact with a changing
scale is the magnitude of impact. Since the environmental impact section is not meant to be a
complete site specific EIA (Environmental Impact Assessment) only a broad overview is given of
the potential impacts.
The Legal Analysis comprises a broad overview of the legal framework in Ecuador. This
analysis includes a review of the Electric Sector Laws, company laws, cooperative laws as well as
other bodies of law. The objective of this section is to determine the actors that are legally
permitted to own and operate an electrical generation station in the country as well as to determine
any preferential treatment for renewable energy.
The Funding Mechanism section was done to evaluate the financial arena with respect to wind
farms in developing countries. The idea of private implementation was considered as well as
public implementation. A number of different contractual types were analyzed for Private/Public
Partnerships as well. The goal of this section was to have an idea of how best to fund such a
development and identify some agencies, institutions or companies that could be used to carry out
the project.
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CHAPTER 3: PROBLEM IDENTIFICATION & SOCIAL

ANALYSIS

3.1 General Information

The district of Mira is located in the North of Ecuador and belongs to the Province of Carchi
which is a Mountain Province that borders with Colombia. Figure 3.1 shows the location of the
district of Mira in the province of Carchi. Mira is the newest district in the Province. It was
founded in 1980 because of the growing agricultural, commerce, and urban development in the
area. Mira is located between 2200 – 2500 meters above the sea level (masl) (Clavijo, 2003). It
has an area of 587,8 square kilometers. According to the last population and housing survey
performed by INEC in November 2001 there are 12,919 people in the district. Of these 2,890
live in the urban area while 10,029 people live in the rural areas. The population density is 22
people/ km². The male index, which is the ratio of males to females , is 101.8.
The district has three rural parishes: Juan Montalvo, Concepción and Jijón y Camaño.
According to the district Mayor, Mr. Fausto Ruiz, there are three parishes with a good deal of
wind resource: El Hato milk and cheese producers, Pisquer and El Mirador. Additionally, he said
that the wind blows from east to west in winter and in the summer it blows in the other direction,
that is from west to east. The months when the wind is at its maximum velocity are April and
August. Mira does not have natural areas nor protected reserves.
Figure 3-1: Location of the district of Mira.

Source: Ecuadorian Maps

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3.2 Social and Economic Analysis

The educational level, which is defined as the average number of approved school years by
the population older than 10 years old, is 5.4 in the district of Mira. The level of illiteracy in the
district is 8.12 %, 3.85 % in the urban area and 9.4 % in the rural area (INEC, 2003). Table 3.1
shows the educational level of the citizens of Mira. The district has schools in urban and rural
areas. Two high schools are located in the urban area. Once students finish high school and decide
to go on to higher education, they usually go to universities located in Ibarra or Tulcan.
Table 3.1 Educational Level in Mira
Not declared 714 6.2%
University 531 4.6%
Secondary School 2508 21.7%
Primary School 6806 58.8%
Literacy 68 0.6%
Illiteracy 938 8.1%
Source: INEC, 2003

The Table shows that there are professionals from the district; however, due to the lack of
opportunities of employment in the region most of them do not work there. They prefer to
emigrate to other cities and to other countries (Clavijo, 2003).
The active economic population consists of 4,925 people divided in 3,519 working in the
primary sector, 398 in the secondary sector, 855 in the tertiary sector, while 146 are not
identified and 7 are new workers (INEC, July 2002). The total number of houses is 4,055.
Table3.2 shows the age distribution of the active economic population by area.
Table 3.2: Age Distribution of the active economic population.
Age Group Area
[years] Urban Rural Total
From 5 to 9 13 13
From 10 to 14 5 247 252
From 15 to 19 49 511 560
From 20 to 24 107 436 543
From 25 to 29 105 381 486
From 30 to 34 75 360 435
From 35 to 39 123 296 419
 9

From 40 to 44 140 274 414

Age Group Area
[years] Urban Rural Total
From 45 to 49 96 258 354
From 50 to 54 88 245 333
From 55 to 59 69 214 283
From 60 to 64 46 192 238
From 65 to 69 41 173 214
From 70 to 74 34 129 163
From 75 to 79 22 87 109
From 80 to 84 9 42 51
From 85 to 89 9 24 33
From 90 to 94 9 9
Above 95 3 13 16
Total 1021 3904 4925
Source: INEC, 2003

Table 3.3 shows the main economic activities that the citizens of Mira are dedicated to. As
can be seen in the table, the most important activity is agriculture. The active economic population
refers to the people from the district that work in certain areas without necessarily working in the
same place. According to the mayor of Mira, 95% of the population work in agriculture while the
others are dedicated to hand weaving and sell their products in the market in Otavalo each
Saturday. He also mentioned that there is no industry in the district; therefore the job opportunities
are limited to agriculture, commerce and handicrafts.
Table 3.3: Main Economic Activities of Mira’s citizens
Economic Activity Area
Urban Rural Total
Agriculture, cattle, hunting 371 3098 3469
Forestry, timber 2 35 37
Fishing 1 1
Oil, Natural gas, coal 7 7
Mining pitting 1 4 5
Beverage and Food Processing 10 52 62
Textiles Production 9 110 119
Tanning and clothing 23 19 42
Wood processing 7 14 21
 10

Construction 47 72 119
Wholesale Commerce 1 5 6
Retail Commerce 70 83 153
Transportation 67 29 96
Economic Activity Area
Urban Rural Total
Informatics and communications 1 3 4
Public Administration, National defense 63 36 99
Teaching 163 51 214
International Organizations 75 71 146
Others 236 82 318
Source: INEC, 2003

Among the common products harvested in Mira are corn, beans (kidney bean, pea), oat,
wheat, barley, tomatoes, peach, grape, plums and sugar cane and the kind of products depends
on the parish. People from El Hato and Juan Montalvo communities are milk producers and cattle
breeders.
The district has multicultural variety and that can be seen in the activities performed by each
of these groups. For instance, citizens from Jacinto Jijon y Camaño and Juan Montalvo are half-
caste and are dedicated to agriculture and cattle raising (breeding), while citizens from La
Concepción are black people dedicated to growing tomatoes, beans, plums and sugar cane.
Figure 3.2 shows women from La Concepción dedicated to classifying and selling tomatoes.
Figure 3-2: Agriculture activities of the Concepción’s citizens.

In El Hato, which is considered as an area that has wind resource potential, a great deal of
eucalyptus trees are present. People that live along the road make fired bricks using the local
 11

eucalyptus as firewood in their furnaces. There is a clear sign of deforestation in the area. In
addition, there is corn, wheat, blackberries crops, and cows. In El Hato there is a small cheese
factory called Quesinor, that produces 120-130 cheeses per day using 450 litres of milk per day.
Quesinor clusters 13 milk producers along the highlands. They are trained by technicians from the
Belgium Commission, who supported the Quesinor Project with technical background, to produce
different kinds of cheeses. The cheeses are sold in delicatessens in big cities. The plant operates
under a cooperative arrangement and has 25 members (6 de Julio Co-operative). According to
Miguel Leon, a Plant worker, there are 4 workers in the plant. There are about 40 milk suppliers
that belong to the region who used to sell milk at very low prices to the intermediaries and they
had to do so otherwise the milk spoiled. Nowadays, they sell the milk to the plant and receive a
fair price. He agreed that the sector had a substantial wind resource. The shape of the trees
provide evidence of strong winds in the region.
The Cooperative El Hato includes families from the region, approximately 120. This
cooperative is led by a President, Manuel Castro, who is responsible for coordinating the
meetings. The cooperative members are accustomed to having frequent meetings in order to
discuss the communities’ necessities. The most common problems identified are a lack of water
for irrigation purposes, migration, lack of industrial development and job opportunities. There are
no programs to preserve the crops that they grow nor to process these products and give them an
added value. The citizens also complain that the technical support that they get comes from
international organizations such as the Belgium Commission rather than national institutions.

For the wind electricity generation program there is the possibility that the community will be
involved in part of the program. They could have the opportunity of acquiring some shares of the
project, which could be real if there is a contract that stipulates share benefits for land possession,
for instance. As it can be seen in the case of El Hato, its members have experience in dealing with
community organization; however, more technical background is required, which could be
 12

obtained from training from a multinational company or from those that are citizens of Mira and
have a university education but have had to emigrate because of the lack of opportunities.

3.3 Description of the Basic Services in the Areas that have Wind
Potential
As mentioned before, there are three different places in Mira that have a substantial wind
resource; therefore, it is useful to mention the current conditions, in terms of basic services, of the
people that live in these places.

El Hato.- It has 392 people, 151 of them work. There are 101 homes divided in 91
houses, 1 room, 1 department, and 8 makeshift structures. All of the housing has electricity
service, 99 do not have telephone service, 84 have public sewer service, 89 get water from public
service, and the rest get it from a brook. The garbage collection system only provides its service
to 19 homes, 5 families incinerate it and the rest throw it into a gorge or empty terrain (INEC,
2003).

Pisguer.- It has a population of 218, 89 of them work. There are 31 homes divided in 23
houses, 3 rooms, 4 makeshift structures, and 1 hut. Six of the homes do not have electricity
service, 31 do not have telephone service and 3 have public sewer service. Seventeen homes get
water from public service while 4 get water from a well and the rest from a brook. The garbage
collection system does not provide its service to this sector, 31 families incinerate it and the rest
throw it into a gorge or an empty terrain (INEC, 2003).

El Mirador.- It has a population of 363, 145 of them work. There are 110 houses divided
into 93 homes, 1 room, and 16 makeshift structures. Three homes do not have electricity service,
108 do not have telephone service and 33 have public sewer service. From all the houses, 108
homes get water from public service while only 1 gets it from a well and the rest from a brook.
 13

The garbage collection system provide its service to 31 homes, 7 families incinerate it and the rest
throw it into a gorge or an empty terrain (INEC, 2003).

3.4 Current Problems in the District of Mira

There are numerous difficulties that the district faces and they can be summarized as
poverty, emigration, drought and lack of good irrigation programs, lack of job opportunities in the
area, and a centralized government system that does not promote the development of
infrastructure.

3.4.1 Poverty

Seventy eight percent of the population of Mira is considered to live in poverty and 19.5%
of its citizens live in extreme poverty (Larrea, 1996). There are several reasons why people live in
poverty and one of them can be said to be the lack of industrial infrastructure in the region.
According to the town Mayor, Fausto Ruiz (2003), there is no industry in the district; therefore
the job opportunities are limited. In addition, the main economic activity, agriculture, has
decreased due to the period of drought that the region has and is facing. This has limited the
agricultural potential of the zone. Furthermore, the economic situation of the country has intensified
the problem, because Mira’s farmers used to export their products to Colombia. When Ecuador
started the process of dollarization, the cost of crops that were sold in Colombia became more
expensive making the business unattractive for Colombians. Another cause that worsened Mira’s
economic situation was the Plan Colombia, as there was more control on commerce and it was
limited to certain hours in the day making the transportation costs more expensive; therefore, the
prices for the Colombian consumer of Ecuadorian products increased (Clavijo, 2003).
As a consequence of poverty, children from rural areas withdraw from school in order to
help their parents in their agricultural activities. Children do that because their older brothers have
migrated to other cities looking for a better future. Therefore the level of education in rural areas is
very low.
 14

3.4.2 Drought and Lack of Irrigation Programs

“There is little water resource to have good agricultural practices, this problem has made
people abandon their lands and emigrate” (Ruiz, 2003). According to Ernesto Clavijo (2003),
emigration and drought produced mainly by deforestation of eucalyptus trees and the lack of a
good irrigation service are the main problems that Mira citizens face everyday. There are serious
troubles of bad water distribution. The Provincial Prefect has said , “There is no award and
technical concession from the irrigation water, which should be according to the population’s
needs” (Yandún, 2003).
As a consequence of indiscriminate deforestation of the eucalyptus forest that surrounded
the city, drought has intensified in the last years creating problems to agriculture mainly. Eucalyptus
wood is used as firewood for cooking and brick making. There are plans to develop irrigation
programs from El Angel river basin, which is being carried out by an NGO (ARD). Citizens from
San Isidro were against the construction of an irrigation channel due to their own interest (Clavijo,
2003).
In Ecuador, the irrigation water system only covers 500,000 hectares, which represents
30% of the cultivated land in Ecuador (1,850,000 ha). In the district of Mira, the irrigation water
comes from the El Angel river basin; however, the distribution system favors those with economic
and political power in the zone, which is a clear evidence of inequality (Proaño, Poats, 2000).
The Municipality of Mira organized and launched a seminar called Decentralization-
Democracy – Development ARD 3D whose objectives are to strengthen the municipal capacity in
service areas, local planning, financing, administration, environmental management and
identification of priorities for community development. Furthermore, it aims for public participation
to build policies and democratic mechanisms. Finally, the project seeks an effective
decentralization (Municipality of Mira, 2002). Eight different projects were identified that focused
on the current problems of the district. However, of the eight projects only one will be executed
and will help to improve the development of the district. The different projects presented were:
irrigation management program, development and route equipment, optimization of the economic
 15

resources of the district, public training, popular housing, integral strategic plan, environment unit
creation, and implementation of the public health programs.
From the different proposals, the different stakeholders at the seminar decided that the
irrigation management program was a priority for the district because its implementation will
promote agricultural development, will reduce emigration and poverty and will benefit the majority
of citizens (Municipality of Mira, 2002).

3.4.3 Emigration
According to the Mayor of Mira, people abandoned the district after dollarization started.
As a consequence of migration there are few young in the district devoted to agricultural practices.
People have gone to work in flower plantations, kitchen farms located in Tabacundo, Cayambe
and Salinas and even others have gone to other countries as table 3.4 indicates. In addition, “The
majority of professionals do not come back to the town because they do not have opportunities to
apply what they learned in their universities” (Clavijo, 2003).
Table 3.4: Migration of Mira’s citizens.
Country of Destiny Men Women Total
Spain 31 29 60
Brazil 1 1
United States 5 1 6
Russia 1 1
Chile 1 1
Colombia 5 2 7
Honduras 1 1
Guatemala 2 2
Czech Republic 1 1
Belgium 1 1
Italy 2 2
United Kingdom 3 2 5
Cuba 1 1
Sweden 1 1
Costa Rica 1 1
Austria 1 1 2
Total 51 42 93
Source: INEC, 2003
 16

3.4.4 Municipality Problems

There is no department of planning or district development program and there are no

factories in the district (Ruiz, 2003). According to the Public Works Director, there is little interest
by the central government to support the development of works in the region, specifically from the
Ministry of Public Works. The Municipality depends on the state since it works in a centralized
system. “The property value appraisals and real estate tax-list from the rural area has not been
done; therefore, citizens do not pay taxes nor contribute with the development of works for the
community” (Clavijo, 2003).
There is no tourism development infrastructure in the region. There is only one hot spring
called UYAMA. In addition, there is no development even in the vicinity of the protected reserve
“El Angel”.

3.5 Possible Positive and Negative Impacts

There are different benefits that the community could receive from the implementation of an
electric generation program. One of the main advantages of a wind project in a community that
has the wind resource is the economic gain. In addition there will be a generation of employment,
which would lead to a reduction in emigration and poverty, and there may be the possibility of
using some of the energy to develop an irrigation program.

3.5.1 Economic Gain and Local Employment

One of the main benefit that the implementation of an electricity generation program in a
rural area that does not have opportunities for industrial development is the improvement of the
economy in the region due to capital movement and job generation. One of the biggest problems
that Ecuador has is unemployment. According to UN studies the rate of poverty for Ecuadorians
in 2002 was 60% despite the fact that the rate of unemployment and underemployment decreased
to 8.7% and 32.5% respectively (INEC, 2003). The wind electricity generation program could
contribute to the people from Mira with employment; therefore, it would reduce the
unemployment at least in the district.
 17

In the feasibility, construction and operational phase of the project, there is a requirement
of skilled and unskilled people. In addition, it provides opportunities for local shopkeepers, hotels,
restaurants and car rentals because workers from the electric company will live in Mira and this
will increase the average income of its citizens. However, this economic component of the project
is difficult to estimate. In the feasibility and in the construction phase local people could be
involved in the civil works, erection of mills, transportation, measurement of wind velocities and
directions and the construction of monitoring towers.

The number of people involved in a 15 MW project is around 17 people (Renewable

Energy magazine, 2000). Five man years are required for the installation of every MW and 17 for
every MW manufactured (Wind force, 2000). However, in the case of Ecuador there is no
experience in wind energy and engineering. The job opportunities will be limited only to the phases
shown in table 3.5. The table shows the typical job generation of skilled and unskilled people in
the Zafarana wind farm project of 60 MW in Egypt. There is more job generation during the
feasibility and construction phases of the program; nevertheless, the operation and maintenance
phase will be carried out during 20 years, which is the life of the wind project (Ringuis et al.,
2002). The economic analysis can be seen in the fifth chapter.
Table 3.5. Job generation for the Zafarana wind project.
Civil Works Erection of Transportation Tower O&M Total
Mills Construction
Skilled 5 3 16 25 20 69
Unskilled 25 4 8 0 15 52
Source: Riso National Institute

Mira has professional people that could join to the construction and operational phases of
the projects but previously they should receive training in wind energy management because it is a
new field. Moreover, it will increase the opportunity of constructing factories or increasing the
capacity of the milk and cheese industries from the region that nowadays do not have refrigeration
systems that allow product conservation.
 18

By having integration between the electric company and the local community members, the
wind electricity program provides economic gains for Mira’s citizens. This is without taking into
account the option for community members to acquire some shares of the wind electricity
program.

3.5.2 Development of Irrigation Program

One of the main difficulties that the area has is the lack of good irrigation programs to deal
with the drought of the region. There are water bodies that flow in and near the district. One is the
Angel basin and the other the Mira River. There is a water basin by a creek in Juan Montalvo that
could be used to provide water, however it needs to be pumped (Clavijo, 2003). It is clear that
the incorporation of a sustainable electricity program will assure that electricity is available for
water pumping and will help to irrigate barren lands. A good example of interconnection between
irrigation programs and electricity generation using wind energy is the Aerogeneration for the
sustainability of the pumping systems in the Province of Loja in Ecuador, as was mentioned before
(H. Consejo Provincila de Loja, 2003).
By implementing such a program the main economic activity, agriculture, will flourish again.
This will allow the district to become the agricultural hot spot that it was in the past, and it will also
allow for emigration and poverty reduction.
A reforestation program could also be incorporated as the bad practice of cutting trees
has destroyed the forest belt that the district had. Deforestation practices produces erosion and
then drought (Bouchart, 2003). By incorporating a reforestation program, which may eventually
be incorporated into a CDM program, the drought problem could decrease and this would make
the irrigation problem less critical.
 19

3.6 Additional Information

3.6.1 Electricity service

A representative from the electric utility company, EMELNORTE Mira subagency,

indicated that the substations are located in Chota, province of Imbabura and El Angel province of
Carchi. They do not know how much electricity is consumed monthly by the district. The price of
each kWh for the residential sector is almost 10 cents including taxes. Emelnorte has a
concession area of about 12,000 square kilometers with about 288,000 MWh of energy available
per year. One of the problems that Emelnorte faces is the loss of energy which accounts for about
18.5% of its sales of energy (CONELEC, 2002).

3.6.2 Water Service

Mira citizens have potable water (97% of the district, INEC, 2003). The piping system
was changed from asbestos to PVC. Clavijo (2003) emphasized that “The problem appears in the
irrigation water for agricultural purposes”. There is a water basin by a creek in Juan Montalvo that
could be used to provide water, however it would require a pumping system.

3.7 Community Participation in the Electricity Program

One important thing that should be taken into account is who will be the local stakeholders
of the project (Mitchell, Bradley, & Wood, 1997). For this reason the pros and cons of the two
broad categories of probable stakeholders of the wind electricity generation company were
analyzed.

3.7.1 A Cooperative Based Association

Based on the experience that Mira’s citizens have in organizing cooperatives such as El
Hato, it would be a good initiative that the owners of the land where the windmills will be built
organize some sort of cooperative. A strategic alliance between the investors of the wind project
with the community members could be done as in the case of Honduras, where a group of farmers
 20

with land properties containing rivers became shareholders of the hydro electric plants on their
property (OLADE, 2003). One disadvantage of such an initiative is that in most of the cases the
main beneficiaries are the richest people from the region because they are the ones who own the
maximum amount of land in the district and the probabilities that the windmill is built in their land is
high. Therefore, the problem of poor wealth distribution would continue.
For this reason, it would be good to create a cooperative where most of the citizens will
benefit. It is necessary that a commitment exists among the citizens to contribute to the creation of
a cooperative where a fair welfare distribution exists. The cooperative must be representative of
the district that means it should include small, medium and large scale farmers, milk producers, and
merchants. Some of the difficulties with applying this method based on the other stakeholders in
the projects will be discussed in the financial chapter.

3.7.2 The Municipality

Another option to manage the project could be that the Municipality administrates the
income of the electricity program because it has a complete overview of the district needs and if it
works well it will maximize the welfare and the equity throughout the district. One benefit of is to
undertake projects that will promote the development of the region such as those mentioned in the
3-D seminar.
Nonetheless, there are some disadvantages of such a proposal and one of those is the
duration of a particular administration in the Municipality. In Ecuador the Mayor of the district
lasts 4 years and in most cases they are accustomed to developing short term projects rather than
long term projects like this one. For this reason the continuity of the project in hands of the
Municipality is not guaranteed. Furthermore, inside a government organization with good profits
comes the issue of corruption could destroy any benefits. This has been very common in Ecuador
and needs to be considered.
The selection of the right shareholders for the electric utility company will guarantee the
sustainability of the project. For this reason it is very important to analyze all the pros and cons of
both proposals.
 21

3.7.3 Expanding Capital Markets

One problem that has plagued Ecuador for many years is the poor banking sector (Saltos &
Vázques, 1999). With the bank holidays and money lost in the banks during the administration of
Jamil Mahuad, very few people have confidence in putting their money in banks. One way that
this project could be carried out is by looking for national investors in the project. Developing
infrastructure programs in developing countries should not only have the goal of providing services
to the citizens but it should also help to develop local capital markets where nationals can invest
and earn a reasonable return on their investment with a low risk (Churchill, 1991). The obvious
difficulty with this method is that it would once again favor those who have money to invest in such
a project and would do nothing for the people that are considered to be poor.

3.8 Summary of Social Feasibility Analysis

Mira has been known for its agricultural potential. However, in the last years bad
agricultural practices, deforestation and the lack of good irrigation programs, coordinated by the
Municipality of the district has provoked drought in the area. In addition, dollarization and the Plan
Colombia have intensified the problems, making the main economic activity, agriculture,
noncompetitive, in turn increasing the level of poverty in the region. In order to cope with this
situation people had to migrate to other areas inside and outside the country in spite of the
educational level they had.
The wind energy project could make good use of the available resource in the area and one
of its benefits could be to promote a sustainable irrigation program by providing electricity for the
water pumping needs. In addition, the integration of the community members that have not had
previous opportunities to develop their skills in the development of the district could be exploited.
The community could be involved in the construction and operation phases of the project and this
would increase the income in the district, decreasing at the same time the poverty and the
migration levels of the area.
Finally, the construction of a cooperative based association or the integration of the
Municipality as shareholders of the wind energy project could allow people from the community to
 22

receive the benefits. These benefits are related to improvements in the economic income and the
execution of public works that are vital for the community’s development. This could be achieved
if the wind energy project becomes a reality in Mira.
 23

CHAPTER 4: TECHNICAL FEASIBILITY STUDY AND SITE

SELECTION
The present Chapter’s goal is to do a preliminary design of the wind farm. Wind Resource
Characterization has not taken place in the country, except for isolated projects of private interest,
and only monthly averages are available from the competent national organization, INHAMI.
Unfortunately, the data barely give an idea of the availability of the resource in the district of Mira
and does not allow for reliable wind power calculation. Site specific wind speed distribution is
necessary (Danish Wind Industry Association DWIA, 2002). In the Mira river basin, 150 km to
the north of Quito, in the province of Imbabura at a site known as the Salinas Valley, there is a
project for electric generation from wind. This project, held by a wind prospecting private
company PROVIENTO, is called “Proyecto de Energía Eólica de Salinas” and is currently in
progress (PROVIENTO, 2000). PROVIENTO has been registering wind measurements at the
site since 1996. The feasibility study of that project presents the wind speed distribution during a
year for three measurement points. This data will be used for the calculations for the wind farm
preliminary design in the present project, due to the absence of more site specific data. It will take
a long time to gather the required logs as will be described later.
In summary, this chapter as a first step offers a literature review to establish the main terms
and definitions to be used for assessing the technical feasibility of the project; then, details for a
necessary wind resource characterization are described. Next, by using the available wind data
of the Salinas project, the annual energy production is calculated.
The acquisition of this data is essential to assess the project’s economic feasibility. In the event
that an actual wind farm is to be built it would be necessary to design a wind measurement
program for at least 2 years, if possible, at the appropriate sites and heights where turbines are to
be placed (DWIA,2002). Therefore, this chapter provides only the basic methodology for the
wind farm calculations and design but its results have only a referential character.
 24

4.1 Wind Energy Basics

4.1.1 Wind Power Density

The energy flux, or wind power density, of a stream of air of density ρ [kg/m3] moving with
velocity v [m/s] is given by: (Cavallo, Hock, Smith.,1993)
(Pw)dens = ρv3/2 [watts/m2]
A wind turbine obtains its power input by converting the force of the wind into a torque (turning
force) acting on the rotor blades. Then, the amount of energy transferred from the wind to the
rotor depends on the density of the air, the rotor area A (m2), and the wind speed (DWIA, 2002).
The power (Pw) of a wind turbine is given by the expression: (Barriga, 2002)
Pw = ρAv3/2 [watts]

4.1.2 Air Density

The "heavier" the air, the more energy is captured by the turbine. At normal atmospheric
pressure at 15° Celsius air weighs about 1.225 kilogrammes per cubic metre, but the density
decreases slightly with increasing humidity. Also, the air is denser when it is cold than when it is
warm. At high altitudes, (in mountains) the air pressure is lower, and the air is less dense
(DWIA,2002). Therefore, air density is one of the characteristics making wind power extremely
site specific.

4.1.3 Wind Velocity

The energy content of the wind varies with the cube (the third power) of the average wind
speed, as derived from the last expression. Wind velocity is inherently variable in both magnitude
and direction. In fact, wind velocity may fluctuate from second to second. Wind patterns vary also
seasonally and may vary from year to year for a given location (DWIA,2002). These
characteristics necessitate a long period of wind characterization to gather reliable data for a
specific place within an area of interest for a wind farm. However, the strong winds usually come
 25

from a particular direction and this should be evident in the data collected over time
(DWIA,2002).

4.1.4 Surface Roughness

Wind velocity up to 100 meters is very much influenced by the ground surface. The wind
will be slowed down by the earth's surface roughness and obstacles. In general, the more
pronounced the roughness of the earth's surface, the more the wind will be slowed down. Forests
and large cities obviously slow the wind down considerably, while concrete runways in airports
will only slow the wind down a little. Water surfaces are even smoother than concrete runways,
and will have even less influence on the wind, while long grass and shrubs and bushes will slow the
wind down considerably. A high roughness class of 3 to 4 refers to landscapes with many trees
and buildings, while a sea surface is in roughness class of 0.
Roughness lengths and roughness classes are used in the wind industry to quantify the
influence of the ground surface. The term roughness length refers to the distance above ground
level where the wind speed theoretically should be zero because of the influence of the surface
roughness. The European Wind Atlas defines the roughness class on the basis of the roughness
through the following logarithmic function (DWIA,2002):

If (roughness length <= 0.03)

Roughness class = 1.699823015 + ln(length)/ln(150)
If (roughness length > 0.03)
Roughness class = 3.912489289 + ln(length)/ln(3.3333333)

Table 4.1 provides values for roughness class and roughness length for different landscape
types, in accordance to definitions of the European Wind Atlas (Troen & Lundtang, 1991). Those
values are important for the determination of velocities at different heights away from the
measurement height (for which wind speed measurement was taken).
 26

Table 4.1: Roughness Class and Roughness Length (m) for different landscape types
Landscape Type Rough- Roughness
ness Class Length (m)
Water surface 0 0.0002
Open terrain with a smooth surface (e.g. runways, in airports, 0.5 0.0024
mowed grass, etc)
Open agricultural area without fences and hedgerows and very 1 0.03
scattered buildings. Only softly rounded hills
Landscape Type Rough- Roughness
ness Class Length (m)
Agricultural land with some houses and 8 metre tall sheltering 1.5 0.055
hedgerows with a distance of approx. 250 mts
Agricultural land with some houses and 8 metre tall sheltering 2 0.1
hedgerows with a distance of approx. 500 metres
Agricultural land with many houses, shrubs and plants, or 8 metre 2.5 0.2
tall sheltering hedgerows with a distance of approx. 250 metres
Villages, small towns, agricultural land with many or tall sheltering 3 0.4
hedgerows, forests and very rough and uneven terrain
Larger cities with tall buildings 3.5 0.8
Very large cities with tall buildings and skyscrapers 4 1.6
Source: DWIA, 2002

4.1.5 Weibull Distribution

Weibull distribution describes the wind variation for a typical site. Normally, the
measurements are carried out during 1 year. The graph of the distribution shows the number of
hours a year in which the velocity is within each different class or range of velocities i.e. the
probability density distribution. Therefore, the probability of occurrence of any velocity may be
derived from this distribution. A Weibull distribution is defined by two parameters: mean velocity
and shape parameter. Figure 4.1 (DWIA,2002) is a typical Weibull distribution in which the mean
velocity is 7 m/s and the shape parameter is 2.
Figure 4-1: Typical Weibull distribution with mean velocity of 7 m/s

Source: DWIA, 2002

 27

If each tiny wind speed interval is multiplied by its probability of occurrence, and those
values are added up, the result is the mean wind speed. In other words, the mean wind speed is
the average of the wind speed measurements for the site. The most common wind speed is called
the modal value of the distribution; in the case of the figure it is 5.5 m/s. The statistical distributions
of wind speeds are not symmetrical. The shape factor describes how the distribution is skewed. If
the shape parameter is exactly 2, as in the graph, the distribution is known as a Rayleigh
distribution. Turbine manufacturers often use this distribution to give standard performance figures
for their machines.

4.1.6 Betz’ Law

When wind passes through turbines, it is slowed down. Aerodynamics of this energy
transmission process explains that an ideal turbine would slow the wind down by 2/3 of its original
speed. Derived from this fact, the Betz law expresses that any turbine can only convert less than
16/27 (or 59%) of the kinetic energy in the wind to mechanical energy. This generalization applies
for any turbine with a disc-like rotor (DWIA,2002).

4.1.7 Power Density Function

The power density function is derived from the Weibull Distribution, by multiplying the
power of each wind speed with the correspondent probability of that speed. If average wind
velocities were used instead of the power density function, the power calculation will be
underestimating wind resources by nearly 100%, provided that high wind speeds although rare,
account for a big share of the harvested energy (DWIA,2002).
Also as a consequence of this, the Weibull curve changes shape. The resulting power
density function derived from the previous Weibull distribution is shown in the Figure 4.2.
 28

Figure 4-2: Power Density of the Weibull Distribution in Figure 4-1

Source: DWIA, 2002

4.2 Wind Turbines

4.2.1 Power Curves

Figure 4-3: Power curve for a typical Danish 600 kw wind turbine.

Source: DWIA, 2002

The power curve is a graphical register of the electrical power output for a given turbine at
different wind speeds. Power curves are obtained from field measurements, and are provided by
the turbine’s manufacturer. This data allows building the turbine power output curve in the
 29

previous graph. Figure 4.3 shows a power curve for a typical Danish 600 kw wind turbine
(DWIA,2002).
Given the continuous fluctuation of wind velocity it is difficult to get accurate data for the
power curve. It results in the possibility of errors up to plus or minus 10 percent even in certified
power curves (DWIA,2002). Additionally, power curves are registered at standard air pressure
and temperature, (1 atm, 298 K); consequently it is necessary to make corrections for changes in
air density.
The turbines, also called aero-generators are the devices used to capture and convert the
wind energy into electrical energy. Those devices are designed to start running at a certain wind
speed called the cut in speed, which is usually somewhere around 3 to 5 m/s (DWIA,2002).
Similarly, there is a cut out speed at which the wind turbine is programmed to stop. It occurs at
high wind speeds, around 25 m/s, in order to protect the turbine from excessive loads and the
surroundings.

4.2.2 Annual Energy output of a wind turbine

The energy output in kWh per year, tells how much electrical energy the wind turbine will
produce in an average year and is one of the features that is used to calculate the unit cost of
electricity on an annual basis as will be described later. In order to calculate the energy output of
a wind turbine, it is necessary to combine the site’s meteorological data, the site’s Weibull
Distribution and the selected turbine’s power curve. If the probability of each velocity on the
Weibull Distribution is multiplied by that velocity and its corresponding power value from the
turbine’s power curve (adjusted for the meteorological conditions) and all of these partial products
are summed up, the result is the average power output for that turbine. If this value is multiplied by
365 day/year and 24 hour/day, the total energy output for an average year is obtained. It must be
noted that power curves are obtained empirically by the manufacturer for standard conditions (1
atm and air pressure 1,225 kg/m3). Upon this calculation, site meteorological conditions are also
used to determine the theoretical maximum output, and then, the turbine’s capacity factor. It is the
 30

actual annual energy output divided by the theoretical maximum output, if the machine were
running at its rated (maximum) power all along the year (DWIA,2002).

4.2.3 Wind Turbine Types

As regards to axis orientation, two types of wind turbines exist: horizontal axis or vertical
axis. However, “all grid-connected commercial wind turbines today are built with a propeller-type
rotor on a horizontal axis (i.e. a horizontal main shaft)” (DWIA,2002). Additionally, there are
Upwind and Downwind Machines. Upwind machines have the rotor facing the wind. The basic
advantage of upwind designs is that one avoids the wind shade behind the tower. By far the vast
majority of wind turbines have this design (DWIA,2002). Finally, wind turbines may also differ in
the number of rotor blades. Most modern wind turbines are three-bladed designs with the rotor
position maintained upwind (on the windy side of the tower) using electrical motors in their yaw
mechanism. This design is usually called the classical Danish concept and the vast majority of
turbines sold in world markets have this design (DWIA,2002). For the purposes of this research,
and given the scope of the technical feasibility analysis, only typical Danish wind turbines are
considered for selection. A required further analysis of the technical design may explore other
possibilities.

4.2.4 Wind Turbine Components

The basic elements in typical wind turbines are: nacelle, rotor blades, hub, tower, gearbox,
electrical generator. Additionally modern wind turbines include other mechanisms that make
possible their operation such as: low speed shaft, high speed shaft with its mechanical brake yaw
mechanism, electronic controller, hydraulics system, cooling unit, tower, anemometer, and wind
vane. The nacelle contains key components of the wind turbine, including the gearbox and the
electrical generator. The turbine rotor includes both the rotor blades and the motor hub. Rotor
blades capture the wind and transfer its power to the rotor hub. This hub is attached to the low
speed shaft of the turbine which goes into the gearbox. On a modern 600 kW wind turbine the
rotor rotates slowly, about 19 to 30 revolutions per minute (rpm) (DWIA,2002). The high speed
 31

shaft at the gearbox output rotates 50 times faster than the low speed shaft. It is nearly 1500 rpm,
and drives the electrical generator. It is equipped with an emergency mechanical disc brake. The
electrical generator is usually an induction or asynchronous generator. On modern wind turbines
electric power ranges between 500 and 3000 (kw). The tower of the wind turbine holds the
nacelle and the rotor. Towers may be either tubular towers or lattice towers. Modern turbines
include an electronic controller consisting of a computer continuously monitoring the condition of
the wind turbine and controlling its operation. The electronic controller also senses the wind
direction, and operates the yaw mechanism which turns the nacelle and the rotor to keep it against
the wind when its direction changes. The anemometer and the wind vane measure the speed and
direction of the wind and send their signals to the electronic controller.

4.2.5 Size of Wind Turbines

Higher towers have the advantage that wind speeds increase farther away from the
ground. A typical modern 600 kW turbine will have a tower of 40 to 60 meters (DWIA,2002).
Longer rotor blades implies a higher capacity of capturing energy from the wind, since power is
proportional to the area swept by the rotor (i.e. the square of the rotor blade length), as seen in
the expression of the power of a wind turbine. Nevertheless, large rotor turbines and generators
require also large wind power to be moved. On the other hand smaller generators in low wind
areas provide more electrical power output, because they will be running more hours during a year
(DWIA,2002).
The Danish Wind Industry Association exposes economies of scale and efficiency in the use
of wind resource as reason to select large turbines instead of smaller ones. Other advantages of
large turbines are that they are more suited for weak electric grids while the electricity output of a
wind farm of smaller turbines fluctuates. On the other hand, the costs of transportation and
mounting of smaller components are frequently lower and the risk of temporary failure is spread in
several small units rather than in a few large ones (DWIA,2002). All of these factors must be
 32

balanced in attention to local conditions in order to select the most convenient turbine arrangement
for a wind farm.

4.3 Wind Prospecting & Site Selection

4.3.1 Macro Siting Considerations

For the initial site selection, there are a number of methods to identify regions with a
significant wind resource. Most countries have a national meteorological institute for predicting the
weather in order to warn their citizens of imminent natural disasters or for general weather
forecasting. Measurements are also taken for aviation purposes. While this data can be helpful in
getting a general idea of where there is a considerable wind resource, they are usually very local as
is the case for airport data or are measurements of upper wind speeds using weather balloons
which are not very helpful for knowing the surface wind speed. The area of Mira in this project
was chosen based on information from INAMHI, which has a wind station in the town of Mira.

Another way to identify areas of considerable wind resources is to use upper air pressure/
wind data and combine it with high resolution surface topology information to estimate surface
wind potential (Hamlin, 2001). The United Nations Environment Program (UNEP) is carrying out
a project called Solar and Wind Energy Resource Assessment (SWERA), which uses this
approach to characterize the wind resource in 13 developing countries. The resource information
collected through SWERA will be widely available as a user friendly Geographical Information
Systems (GIS) tool including geospatial information such as proximity to grid substations,
population density, roads and non-electrified areas (UNEP, 2002). Unfortunately, Ecuador is not
one of the 13 countries to have had the wind resource map developed for it during the initial
phases of the SWERA program. This informational tool will give a considerable advantage for
foreign investment to those nations that have it.
 33

SWERA uses a number of wind mapping models including WRAMS, which is a model
developed by the US National Renewable Energy Laboratory (NREL) that selects the most
favourable topology for wind and calculates the wind power from upper air data and then
calibrates that to ground data (Hamlin, 2001). WAsP is another model developed by the Riso
National Laboratory in Denmark and predicts wind power from wind data measured at weather
stations in the same region, taking into account topology and obstructions (WAsP, 2003). Figure
4-4 shows the wind resource map for the Dominican Republic.
Figure 4-4: Most favorable wind resource areas in Dominican Republic.

Source: Hamlin, 2001

 34

4.3.2 Micro Siting Considerations

Skewed trees and shrubs as well as traces of erosion may show evidence of intense winds
and their prevailing direction at the site. Likewise, topographic characteristics give an idea of the
better places for locating wind turbines. Two speed up effects are known: Tunnel effect and Hill
effect. The first occurs due to the compression experienced by the wind when passing between
two mountains or gulch walls (DWIA,2002). Turbines are commonly placed on hills overlooking
the surrounding landscape. The wind becomes compressed on the windy side of the hill, what is
known as the Hill effect (DWIA,2002). Therefore, both tunnels and hills are places likely to have
higher wind speeds than in other areas. Nevertheless, if the tunnel walls or the hill are uneven and
are not softly embedded in the landscape, it may cause turbulence and consequently cancel the
advantages of those speed-up effects. In general, desirable characteristics for a site to place wind
turbines include wide and open spaces as possible in the prevailing wind direction, few obstacles
and low roughness in that same direction.
Other issues to take into account for defining the location of a wind farm are: the availability
of the appropriate electrical facilities to transport the electricity, the feasibility of building
foundations of the turbines, and road construction to reach the site with heavy trucks transporting
the equipment (DWIA,2002).

4.3.3 Wind Potential Assessment

According to the World Bank Industry and Energy Department (1986), the principal
descriptive parameter of a wind regime is the annual average wind speed. Wind resource
assessment, also known as anemometry, is commonly carried out for aviation or weather
forecasting purposes, consisting quantifying the amount, variability and other characteristics of the
wind. However, those aviation and meteorological data are not sufficiently reliable for assessment
of wind energy potential, given the cube relationship existing between wind power and wind
speed. Consequently, small differences in wind speed can have significant effects on the total
power available (The World Bank Industry and Energy Department, 1986). As stated before,
(Section: Power Density Function), if average speed values were used in wind power calculation,
 35

the outcome would underestimate wind potential by nearly 100% (DWIA,2002). The World
Bank guidelines for assessing wind potential asserts “Before any wind energy system can be
seriously contemplated, good wind regime data must be available” (The World Bank Industry and
Energy Department, 1986), and then describes “good” in terms of accuracy and range of data
collected as well as length of time over which measurements take place. As regards to length of
time the WB Guidelines estimate that 5 years would be “highly desirable”, 2 years would be
“sufficient to have a reasonable certainty of the distribution”, and a 1 year period would be the “a
bare minimum”.
The devices used to measure the wind speed over a given period of time, or averaging
time period are called anemometers. “The ideal averaging period for any situation is the longest
one which still permits one to capture the type of oscillations in the wind pattern which are deemed
relevant for the application in question” (The World Bank Industry and Energy Department,
1986). Finally, the Danish Wind Industry Association as well as the WB guidelines endorse that a
10 minutes averaging period is suitable for wind potential prospection purposes (DWIA,2002).
In this way, conventional anemometers (10 minute average period) allow 144 observations per
day and 52,560 per year. All of that data is sorted into bins or ranges of velocity to obtain a
frequency distribution or Weibull Distribution, described before. WB Guidelines presents, as
example, ranges or bins of 1m/s.
Another resource used to characterize the wind of a site is a Wind rose. It is a graph used
to illustrate the relative energy content of the wind coming from the varying wind directions, at a
specific measurement site. Wind roses are extremely useful to locate wind turbines, and for the
general wind farm layout, if a large share of the energy in the wind comes from a particular
direction, it would be desirable to have as few obstacles as possible in that direction. The next
figure shows an example (DWIA,2002).
 36

Figure 4-5: Example of a Wind Rose

Source: DWIA, 2002

Standard Wind Roses have 12 sectors, one for each degree of the horizon. The radius of
the outermost wide wedges gives the relative frequency of each of the 12 wind directions. The
next wedge provides the same information but multiplied by the average wind speed in the
correspondent direction, normalized and expressed as percentage. It shows how much each
sector contributes to the average wind speed at our particular location. Finally, the innermost
wedge gives the energy content of wind coming from the diverse directions expressed as a
percentage, by taking into account the cube of the respective wind speed.
As supported by the Danish Wind Industry Association as regards to wind rose graphs,
“Planners of large wind parks will usually rely on one year of local measurements, and then use
long-term meteorological observations from nearby weather stations to adjust their measurements
to obtain a reliable long term average” (DWIA,2002).

4.3.4 Measurement Equipment

Wind speeds are usually measured using “cup anemometers”. Those devices have a
vertical axis and three cups which capture the wind, its revolutions per minute (rpm) are
electronically registered. Additionally, typically used anemometers include a vane to detect the
 37

wind direction. Other types of anemometers may include propellers, ultrasonic laser devices,
however those are less common, and the analysis of its convenience goes beyond the scope of this
research. What is important to know about anemometers is that, professional and well calibrated
anemometers are required for purposes of wind potential assessment. Poorly calibrated
anemometers available in the market for meteorological purposes may include errors of 5 to 10
percent that could cause a disaster in economic terms if used for wind prospection (DWIA,2002).
The anemometer’s data of wind speeds and directions is registered and collected on a data
logger, a battery operated electronic chip or a small computer (DWIA,2002).
At a prospective wind turbine site, anemometers are placed at the top of a mast in the
prevailing direction of the wind. In order to minimize the uncertainty involved in recalculating the
wind speeds at a different height, the best is to have the anemometer at the same height as the
expected hub height of the turbine to be used (DWIA,2002). The log Relationship is used to
calculate the wind mean velocity at a given height when wind prospection data is available for
other heights at which prospection took place (The World Bank Industry and Energy Department,
1986) as shown through the following expression:

V ( h2 ) ln( h2 / R)
=
V ( h1 ) ln( h1 / R)

Where: V(x) represents the average wind speed at height x, h1 and h2 are the two respective
heights in meters and R is a surface roughness constant.

4.4 Site of the Project and Review of Available Data

The Mira location is known for its intense winds, especially during the summer in July and
August. The confirmation of this observation was requested from Mira’s Mayor (Ruiz, 2003) and
the inputs from some inhabitants of the zone. The mentioned official acknowledged also that
several places within the district of Mira could serve for the purposes of placing wind turbines,
mainly the locations known as “El Hato”, and “El Mirador”. Those areas are agricultural lands;
consequently, the presence of wind turbines would not considerably affect the current land use
 38

(DWIA,2002). However, more of those lands are untilled. The presence of high winds was also
verified by visual inspection of the site where the skew of the trees and shrubs gives an idea of
strong winds in a given direction towards the Salinas valley. In addition, the zone has the highest
hills in the surrounding landscape, where turbines could be placed to take advantage of the hill
effect, explained before.
As discussed, the necessary wind resource characterization for a project of large scale electricity
generation implies a long period of measurements at specific points where the power density of
wind is suspected to be considerable. In the face of the absence of this data, available data for
the Salinas Valley is used referentially as explained before. The characterization has been carried
out by the company PROVIENTO in three sites from 1997 to 1999. PROVIENTO denominated
the sites: #40, #50 and #21. The measurement height for all of them is 40 meters. It is important to
note that PROVIENTO changed its name to ELECTROVIENTO by the year 2002 and the
project studies done by the latter company have changed the features with respect to those of the
former.

Given the scope for the present technical feasibility study, it is assumed that the District of
Mira has available a number of points with similar wind potential in which wind turbines may be
placed. This wind potential is represented by the Weibull Distribution given for a test measurement
point upon the PROVIENTO’s wind distribution data in the Salinas Project. The two first rows in
table 4.2 present such information.
Table 4.2: Wind Distribution
Speed Hours/year Probability Prob*Speed Weibull Absolute
(m/s) (h) Deviation
0 86 0.0098 0.0000 0.0000 0.0098
1 457 0.0522 0.0522 0.0645 0.0123
2 668 0.0763 0.1525 0.0907 0.0145
3 792 0.0904 0.2712 0.1035 0.0131
4 858 0.0979 0.3918 0.1069 0.0090
5 854 0.0975 0.4874 0.1035 0.0060
6 818 0.0934 0.5603 0.0956 0.0022
7 744 0.0849 0.5945 0.0849 0.0000
8 656 0.0749 0.5991 0.0731 0.0018
 39

9 582 0.0664 0.5979 0.0611 0.0053

10 475 0.0542 0.5422 0.0498 0.0044
11 277 0.0316 0.3478 0.0397 0.0080
12 265 0.0303 0.3630 0.0309 0.0006
13 256 0.0292 0.3799 0.0236 0.0056
14 211 0.0241 0.3372 0.0177 0.0064
15 205 0.0234 0.3510 0.0130 0.0104
16 181 0.0207 0.3306 0.0094 0.0113
17 128 0.0146 0.2484 0.0067 0.0079
18 99 0.0113 0.2034 0.0047 0.0066
19 69 0.0079 0.1497 0.0032 0.0047
20 32 0.0037 0.0731 0.0022 0.0015
21 20 0.0023 0.0479 0.0015 0.0008
22 20 0.0023 0.0502 0.0010 0.0013
23 5 0.0006 0.0131 0.0006 0.0001
24 2 0.0002 0.0055 0.0004 0.0002
25 0 0.0000 0.0000 0.0003 0.0003
Total 8760 1.0000 7,1501 0.1442

Source: ELECTROVIENTO Report , 2002

The ELECTROVIENTO data does not reflect exactly a Weibull distribution. However,
by using the SOLVER tool of MICROSOFT EXCEL, different values of shape parameter were
tested with the WEIBULL DISTRIBUTION function (in EXCEL too) with the series mean
velocity to find the shape parameter for which the difference between the sum of absolute
deviations is the minimum. Where absolute deviation is the absolute value of the difference
(Weibull calculated probability – Measured probability). This way, an approximate Weibull
distribution given by the mean velocity of the series and the obtained shape parameter was found
for each measurement point. Those parameters are shown in table 4.3. Figure 4.6 shows the
ELECTROVIENTO Site data and the approximated Weibull Distribution.
Table 4.3: Approximate Weibull distribution parameters derived from the
Measurement Sites #40
Mean velocity 7.150
Shape parameter 1.617
Source: ELECTROVIENTO Report , 2002
 40

Figure 4-6: Approximate Weibull Distribution for Site #50

Approximate Weibull Distribution Site #50

0.1200

0.1000

0.0800
Probability

0.0600

0.0400

0.0200

0.0000
0 5 10 15 20 25 30
Wind Speed

Measured Wind Data Weibull Distribution

4.5 Preliminary Wind farm Design

In broad terms, and for the purposes of this study, given a specific location, designing a Wind
Farm involves the determination of parameters such as:
• Definition of the installed power of the wind farm
• Selection of the turbines or aero-generators to be used
• Definition of the farm layout
• Definition of the number of turbines
• Definition of the annual energy output of the wind farm

Basically the objective of this section is to determine the annual energy output of the wind farm
and main components of investment required for the farm to be installed and generating. Those
results will be used for the economic feasibility evaluation.
All of the parameters for the design of the wind farm are somehow related to each other.
Then, it is necessary to start from certain restrictions or even assumptions to simplify the problem
in order to narrow it down and come up with referential results according to the scope of the
 41

present research. However, parameters of optimization of the wind farm design will be identified
along the process of design.
First, with regard to installed power there are several factors to take into account such as:
economies of scale of wind farms, size of the investment, investment’s period of return and the
availability of physical space and others. However, the Ecuadorian legislation ensures preferential
dispatch for electricity coming from alternative sources including wind energy up to 2% of the
installed capacity of the generators of the Wholesale Electricity Market, which is around 65 MW
since the total capacity in Ecuador is 3247 MW (CONELEC, 2002). However, in order to get
preferential treatment for non-conventional renewable energies, a single plant can be no bigger
than 15 MW. The installed capacity for the ELECTROVIENTO’s project at the Salinas Valley is
10.8 MW: and this project has been demonstrated to be feasible (ELECTROVIENTO, 2002).
Different arrangements of turbines as regards to size and number may result in the desired
installed capacity, in such a way that those variables are parameters of optimization for the design
of the wind farm. The referred (PROVIENTO, 2000) project also selected 24 600-kw turbines,
for the feasibility study of their farm. In consequence, as a first approximation it looks like a good
option to define the same to achieve an installed capacity lower than the preferential dispatch limit.
Naturally, a site specific analysis carried out on the basis of the presented theoretical principles
would allow the determination of optimal values for installed power, number and size of turbines.
However, it does not make sense here, since no site specific data is available.
As for wind farm layout, it largely depends on the available area in the proximity of the points
where the resource has been characterized and found adequate for commercial generation of
electricity. For spacing wind turbines the wind park effect that occurs when more than one turbine
is located facing the wind in a column must be considered, since each turbine will slow down the
wind behind as it dissipates energy. Although at a smaller scale, perturbation takes place also
perpendicular to the direction of the wind, when the turbine intercepts the flow. As a rule of
thumb, turbines in wind parks should be spaced somewhere between 5 and 9 rotor diameters in
 42

the prevailing direction of the wind and between 3 and 5 rotor diameter in the transversal direction
(DWIA, 2002).
For the present calculations it is assumed that the available area is not restrictive for placing
approximately twenty four 600KW turbines in the district of Mira, as supported by Mira’s Mayor
in an interview. He mentioned that the Municipality had the authority to expropriate terrains if it is
considered necessary for a project in the public interest, and the availability of the resource is
given as explained in the section “Site of the project and review of available data”.

4.6 Calculation of the energy production

The Danish Wind Industry Association (DWIA,2002) provides a software tool on its
website called the “Wind Turbine Power Calculator” (WTPC), that allows manipulating and
adjusting all the parameters involved in selecting wind turbines as required for a given location, in
conformity with the analytical calculations described in the literature review.
The WTPC consists of 3 parts: the first one asks for site information including: temperature,
atmospheric pressure and/or altitude (meters above sea level, masl) in order to calculate the local
density of air. The average temperature at the location is nearly 15ºC and the altitudes range from
2300 to 2500 masl (Clavijo, 2003). The average value of altitude, 2400 masl, was used.
Second, the program requires information about the Wind Distribution for that site: Weibull
Shape Parameter, Mean Velocity, measurement height and either the roughness length or the
roughness class. The last parameters are important to determine the velocity distribution at heights
different from the one measurement height. Then mean velocity and Weibull shape parameters are
those shown in Table 4.3. The measurement height is 40 meters, and the roughness class is 1.5, as
indicated in Table 4.1 for “Agricultural land with some houses and 8 meters tall sheltering
hedgerows with a distance of approx. 250 meters”. This appears as the most adequate
description of the location from the site visual inspection.
Third, the program requires Wind turbine Data: power output, cut in wind speed, cut out
wind speed, rotor diameter and hub height. In this section it is possible either to play with different
values of those parameters and build a power curve for an ideal turbine or to select one of several
 43

typical Danish turbines, whose parameters and power curves are predefined by the manufacturer.
For the present calculations NEG MICON 600/48 turbines were selected. The aero-generators
have the specifications shown in Table 4.4.
Table 4.4: Selected turbine’s specifications
Turbine NEG MICON 600/48
Nominal Power 600 kw
Rotor Diameter 48 meters
Hub Height 46 meters
Cut in wind speed 4 m/s
Cut out wind speed 25 m/s
Manufacturer NEG
Source: DWIA , 2002

The manufacturer’s power curve for the selected turbine is shown in Figure 4-7. The data
also comes from the WPTC, (DWIA,2002).
Figure 4-7: Power Curve for the selected NEG MICON 600/48 turbine

Source: DWIA , 2002

Finally, the WTPC displays the power calculation results for the selected turbine working
with the entered wind distribution and at the selected site. Table 4.5 presents those results for the
present calculation.
Table 4.5: Results of the WTPC for a single NEG MICON 600/48 working at the site
Mean Velocity Shape Power Density Turbine’s Capacity
[m/s] Parameter [W/m2] Energy output Factor
[kWh/year]
7.15 1.62 82 1300732 24.7%
Source: DWIA , 2002
 44

By taking into account the recommendation for spacing wind turbines, the number of
turbines and their rotor diameter the wind farm area could be nearly 2 square Kms. However, in
the real case the layout would be determined by the wind potential at specific points.
Table 4.6: Main Features of the wind farm according to the preliminary design
Turbines NEG MICON 600/48
Number of turbines 24
Installed Capacity 14.4 MW
Annual Energy Output 31217568 kwh/year
Source: DWIA , 2002
 45

CHAPTER 5: ECONOMIC EVALUATION

The purpose of this chapter is to determine whether or not the project is feasible in terms of
economics. One of the disadvantages of projects that requires intensive capital investments is that
they do not become realistic due to their low profitability, long payback periods, unstable
economy, and political and legal conditions in the country. For this reason, the Chapter will look
for different alternatives to make the project feasible by presenting an option that makes the
project attractive for investors taking into account the Ecuadorian situation.

5.1 Optimization of Capacity and Cost

The optimization of the capacity of the plant means to determine the best conditions by
which the wind farm produces the maximum amount of energy with the lowest cost. In this aspect
it is very important to select the turbines not only in terms of efficiency of energy production but
also in terms of cost of turbines. The economic analysis will use the results from the scenario
presented in the technical analysis. Once this is done, the next step is to input that data into the
wind power calculator, which gives the opportunity of choosing turbines among the different
turbine manufacturers. The turbine selection depends on the capacity factor, the ones that have the
highest capacity factor are chosen. The wind power calculator displays data of the total energy
produced by each turbine and its capacity factor. The total energy produced by the wind farm will
depend on the energy produced by each turbine multiplied by the total number of turbines to be
installed in the wind farm.
The number of turbines to be installed at the site will depend on the land surface availability
with wind potential and the willingness to invest in the project. Additionally, it should be taken into
account that the article 21 of the Regulation for the Ecuadorian Wholesale Electricity Market
states that in order to have preference in the electricity dispatch done by CENACE the installed
capacity of the wind farm should not be higher than 2% of the Ecuadorian installed capacity
whose value was 3270 MW in the year 2001 (Ecuadorian Ministry of Energy and Mines, 2002).
 46

After using the wind power calculator the turbines NEG MICON 600/48 were chosen.
Twenty four turbines were selected for the farm in order to decrease the transportation cost,
consultants wages and maximize the energy output and work inside investment values for Energy
Projetcs common in Ecuador (H. Consejo Provincial de Loja, 2003). The available area for the
wind energy is not known but is not considered to be a limiting factor for reasons explained in the
technical analysis.

5.2 Breakdown Costs into Major Project Activities

There are two types of cost, which are investment and operational and maintenance
(O&M) costs. The investment cost are divided into feasibility phase and construction phase,
which consists of production, transportation and erection cost of wind turbines, project
preparation costs (permits), cost of land if this is not leased and cost of the infrastructure.

5.2.1 Feasibility Phase Costs

For the feasibility phase the amount of money varies with the number of turbines placed in
the region with possible wind potential. According to José Aguirre (2003), Renewable Energy
Coordinator from the Loja Project, the cost of 50 m high towers that support the anemometers, in
the country is around 4000 USD. Moreover, the price of the anemometer, wind direction meter,
barometer, and data logger for each tower varies from 10,000 to 13,000 USD according to the
manufacturer. The rest of the investment is required in labor.
Table 5.1: Investment required in the Feasibility Phase
Description Units USD/unit Total
Tower construction 6 4000 24000
Equipment 6 13000 78000
Labor 1 16000 16000
Total 118000

5.2.2 Construction Phase Costs

For the construction phase the investment costs increase drastically. For instance, for the
construction of a 10.8 MW- project in Salinas, Electroviento (2002) estimated that the total
 47

required investment was 14.3 M USD. The investment distribution is the following: turbines
(65.1%) custom duties (3.3%), marine transportation (4.7%), land transportation (3.3%), civil
works(2.5%), grid connection (14.4%), permissions (0.3%) and studies ( 7.2%) (PROVIENTO,
2000).
On the other hand, according to the Beurskens and Hjuler (2001) article for onshore wind
farms up to 8 MW the cost distribution is the following: turbine manufacture 80%, transportation,
installation and infrastructure 15%, project development that includes permits, insurance, land
property 5%. It is important to know the cost of each kW installed in situ. A good illustration of
this is the wind energy program carried out in Costa Rica that has an installed capacity of 20 MW
and had a cost of 18 M USD (International Development and Energy Associates, 1992) . In other
words the cost of each kW installed was 900 USD. Nevertheless, according to the Electroviento
(2002) information, the installation cost is 1324 USD/ kW installed, which is expensive, especially
the description of studies, which has a high percentage in the investment cost.
Additionally the report of Vicky Pollard (2000), in the Renewable Energy magazine
analyses the cost of each kW installed. For instance, in the year 2000 the cost is 925 Euro/kW
and for the year 2010 it is forecasted to be 700 Euro/ kW. For these arguments, it is difficult to
believe that the cost of each kW installed in Salinas would be 1324 USD/kW taking into account
that the analysis was carried out at the end of 2002. For the Loja project, located in Ecuador the
expected investment is 15 M USD approximately for a 15 MW project. This means that the cost
of each kW in another Ecuadorian place is around 1000 USD/kW installed.( Consejo Provincial
de Loja, 2003)
Based on the information of one of Costa Rica’s wind energy projects, the Ecuadorian
Loja project and Pollard’s projections, some modifications have been made to the cost presented
by Electroviento. The reference for establishing the costs will be the unitary cost of each kW
installed. By doing this analysis for the case of Mira that will have an installed capacity of 14.4
MW, the investment cost for the feasibility phase for the setting of 6 towers and all the electronic
equipment, and the labor cost is 11.800 USD. For the construction phase, the investment is
 48

14,070,460 USD, which produces an installed cost of 977.1 USD/ kW but it is still higher than
the Costa Rica’s project; however, it is lower than the one proposed by Electroviento.
For the Mira project the cost distribution for the feasibility phase is shown in Table 5.1.
For the construction phase the cost distribution is presented in Table 5.2, this table does not
include the cost of studies but it includes the interconnection to the substation located in the Chota
valley at about 20 Km from Mira (ELECTROVIENTO, 2002).
Table 5.2: Investment required in the Construction Phase
Description Units USD/unit Total
Turbines 600 [kW] 24 420000 10080000
Custon Duties* 24 21000 504000
Sea Transportation 1 787260 787260
Land Transportation 24 18200,0 436800
Income tax 0% 0
Cementation 24 10000 240000
Access road 24 5000 120000
Grid Connection 1 1800000 1800000
Permissions, Consultants 1 52400 52400
Crane 10 5000 50000
Studies, Supervision 24 0 0
Total Investment 14070460
* Considering a duty rate of 5%
Estimated life span of the project: 20 years.
Salvage value: 40,000 USD for each turbine after the life span of the project.

5.2.3 Operation and Maintenance Costs

In addition to the investment cost there are recurrent expenses that will be presented
throughout the life time of the project, and are related to operational and maintenance costs. These
costs are presented in Table 5.3.
Table 5.3: Operational and maintenance costs
Description Units USD/unit Total
Maintenance 3000 24 72000
Spare parts & material 100800
Insurance 4000 24 96000
Reduced insurance 0
Management 40000
 49

Accountancy 10000
Rent of landuse(1) 10000
Rent of landuse(2) 8000
Miscellaneous costs 10000
Reserves for removal 3000
Total 349800

5.3 Determination of the Unitary Cost of Electricity

According to Barriga (2002), the way to determine the unitary cost of electricity consists
of dividing the annualized cost of electricity for the total amount of electricity generated during a
year.
Annualized Cost of Electricit y [USD] ACE
UCE = =
Annual electricit y production [kW − h] AEP

5.3.1 Determining the Annualized Cost of Electricity ACE

In order to determine ACE it is required to work on a yearly base, which can be the first
year once the project enters into operation. It is required to translate the feasibility investment, the
construction investment and the salvage value to the base year by using the following formula.

FV = PV * (1 + i )
t

Where:
FV means money after a time t (future value)
PV means money in the time t = 0 (present value)
i = the loan interest rate. There are different cases presented in this chapter as a function of this
value.
By doing this and using an interest rate of 7% the value of investments and the salvage
value (TIS) in the base year is equal to 13,004,946 USD. A life span of 20 years is assumed,
which is common for wind energy projects (Ringius at al, 2002). The annualized value (AV) of the
total investments and the salvage value are calculated by using the following formula:
 50

 
 
 i 
AV = TIS *
 1 
 1− 
 (1 + i )
t

Where:
i = the loan interest rate.
t = the life time of the project, 20 years.
By using data AV = 1227575 USD/ year
ACE is equal to AV plus the cost of operation and maintenance. Therefore:
ACE = 1227575 + 349800
ACE = 1577375 USD /year

5.3.2 Determining the Annual Electricity Production AEP

The outputs from NEG MICON 600/48 wind turbines subjected to a mean wind velocity of
7.15 m/s and a shape parameter of 1.62 are the following:
• Energy output =1364182 kwh / year /turbine
• Capacity factor = 25.93%
• Number of Selected turbines = 24
• Considering a Technical availability1 of 95%
• Total energy production = Number of turbines* Output of each turbine* technical
availability
TEP = 31103349,6 kW - h / year
1577375 [USD]
UCE = = 0.0507 USD / kWh
31103349.6 [kW − h ]

1 A technical availability of 95% means the turbines will work the whole year except for 5% due to maintenance or other

factors.
 51

5.4 Determination of the Profits

According to CONELEC, the price established for wind power energy is 10.05 cents/
kWh. Additionally, there is a payment for electricity transportation to the (National Interconnected
System) SNI, which is 0.06 cents/ kWh/km, that multiplied for the 20 km to the connection to the
substation gives an additional 1.2 cents/ kWh. That means the price is 11.25 cents/ kWh. This
tariff is guaranteed for 10 years only if the approval is obtained from CONELEC before 2004.
Profits = (Price – UCE) * TEP
Profits = 1,921,752 USD/ year

Other Outputs
Internal Rate of Return = 12.28%
Net Present Value =6,410,429 USD (In the year of the construction phase)
Payback period = 10.77 years

5.5 Sensitivity Analysis

5.5.1 Interest Rate

There are always uncertainties with regard to the interest rate whose value makes the
project more or less attractive. Table 5.4 presents the changes in the UCE, internal rate of return,
net present value and payback period if the interest rate changes.

5.5.2 CDM

In addition, Table 5.4 includes the changes in the economic analysis output if the project is
subjected to CDM negotiations, that means the selling of Carbon Emission Reductions (CREs).
For this analysis, it is considered that the wind power plant will substitute a thermal plant that
works with diesel with an efficiency of 33%. Therefore, the generation of each MWh of electricity
using wind energy will avoid the production of 0.785-ton CO2/ MWh. According to David Neira,
representative of CORDELIM (Corporation for Clean Development in Ecuador), the price of
 52

each credit or ton of CO2 reduced is 3 USD. In other words for the 14.4 MW project considered
the CO2 selling would increase the profits by 73,249 USD yearly.
Table 5.4: UCE, IRR and payback periods working with different interests rates.
Interest rate 5,0% 5,0% 7,0% 7, 0% 9,0% 9,0% 11,0%
CO2 sales NO YES NO YES NO YES YES
UCE 0,0452 0,0452 0,0507 0,0507 0,0565 0,0565 0,0623
IRR 13,68% 14,27% 12,28% 12,88% 10,79% 11,40% 9,85%
NPV 12269374 13182218 6410429 7186430 1884284 2552941 -1072728
Pay back period 8,5 8,1 10,8 10,2 15,3 14,1 22,2

5.5.3 Wind farm Arrangement

On the other hand, table 5.5 presents the changes in the investment required and the cost
of each kW installed by changing the number of 600 kW-turbines. All of this is made considering
no carbon credits sales, and using an interest rate of 7%. As table 5.5 shows the investment is
proportional to the number of installed turbines. However, the cost of each kW installed increases
while the number of turbine decreases, this is due to the economics of scale of wind farms mainly
related to overhead and transportation costs. By having a wind farm of an installed capacity lower
than 7.2 MW, the project does not become attractive, economically speaking.
Table 5.5: Economic indexes varying the number of turbines of 600 kW
Number of Turbines 24 20 16 12 10 8
Installed Capacity [MW] 14,4 12,0 9,6 7,2 6,0 4,8
UCE 0,0507 0,0528 0,0560 0,0613 0,0655 0,0718
IRR 12,28% 11,14% 9,53% 7,09% 5,29% 2,76%
NPV 6410429 4293558 2176686 59814 -998622 -2057058
Cost kW installed 977.1 1014.5 1070.5 1163.9 1238.6 1350.7
Investment 14,070,460 12,173,660 10,276,860 8,380,060 7,431,660 6,483,260

5.5.4 Cost of each kW Installed.

The Cost of kW installed is an important variable that affects the economic feasibility of
the project. If this value is high, that means a high investment, the project does not become
economically attractive. Table 5.7 includes an analysis considering purchase of CREs.
 53

Table 5.6: Economic indexes considering no sales of CRES varying the Cost of kW installed
Cost kW installed 977 1000 1100 1200 1300
UCE 0,051 0,052 0,056 0,061 0,065
Price kWh 0,113 0,113 0,113 0,113 0,113
Price ton CO2 0 0 0 0 0
Interest rate 7,0% 7,0% 7,0% 7,0% 7,0%
IRR 12,3% 11,7% 9,1% 6,9% 4,9%
NPV 6410429 5739504 2809593 -123396 -3053307
Cost kW installed 977 1000 1100 1200 1300
Pay back period 10,77 11,40 14,43 18,00 22,25
CO2 avoid t/ year 24416 24416 24416 24416 24416
CO2 selling 0 0 0 0 0
Income 1921752 1889535 1748843 1608004 1467313

Table 5.7: Economic indexes considering purchase of CRES varying the Cost of kW installed
Cost kW installed 977 1000 1100 1200 1300
UCE 0,051 0,052 0,056 6,08% 6,53%
Price kWh 0,113 0,113 0,113 0,1 0,1
Price ton CO2 3 3 3 3 3
Interest rate 7,0% 7,0% 7,0% 7,0% 7,0%
IRR 12,9% 12,2% 9,7% 7,5% 5,4%
NPV 7186430 6515505 3585594 652605 -2277306
Pay back period 10,19 10,79 13,66 17,00879 20,96564
CO2 avoid t/ year 24416 24416 24416 24416 24416
CO2 selling 73249 73249 73249 73249 73249
Income without CRE 1921752 1889535 1748843 1608004 1467313
Income with CRE 1995001 1962784 1822092 1681253 1540562
 54

CHAPTER 6: PRELIMINARY DISCUSSION OF

ENVIRONMENTAL IMPACTS
The object of this section is to identify the spatial and temporal boundaries of the project,
make a preliminary identification of the issues of concern that should be addressed in the
Environmental Impact Assessment and a brief description of the ecosystem. In an Environmental
Impact Assessment, these activities are usually grouped into the Scoping Phase. The next phase is
an effects analysis which will be briefly discussed here based on the literature and not on
measurements in the field.

6.1 Spatial and Temporal Boundaries

Since the exact location for the wind farm has not been selected, the spatial boundary of the
project will be taken to be the aerial and terrestrial area in the immediate vicinity of the wind
turbines, and the terrestrial and aquatic areas in the vicinity of the access roads and newly
constructed cables to the substation (direct). The general area of influence will be extended to
include areas where the noise is heard, where EMF affects communications and where
construction workers will be active (indirect).
Figure 6.1: Location of the project Area, near to Mira Town

Mira
 55

The temporal boundary will be taken to be 3 years for the construction phase, 20 years for the
operational phase, and 2 years for decommissioning. All of these values are estimates and based
on the literature including the Nai Kun Wind Farm EIA Study Design (Pottinger Gaherty Group,
2002).

6.2 Issues of Concern

Although wind farms are usually considered to be environmentally friendly there are a few
impacts which must be taken into account. The literature suggests that wind turbines will only take
up about 3% of the land area used for the wind farm and that the area can be used for grazing
area, tillage or natural habitat (Irish Energy Centre, 2002).

6.2.1 Visual Impact

The visual impact is one of the most notable environmental impacts of wind turbines. There
are no mitigation possibilities for visual impacts so the configuration and layout of the farm must be
considered from the very beginning of the project so that this factor can be taken into account and
minimized. The Irish Energy Centre (2003) recommends the following guidelines for minimizing
the visual impact:
• Areas of unique scenic beauty are not recommended as wind farm sites
• Turbine layout should avoid turbines appearing one behind the other from main visibility
points
• Consider local screening (e.g. with tree plantings) from some local points of visibility within
1 – 2 km of wind farm
• Turbines should be painted off-white or light gray with a matt finish
• Blades should be left to spin when the turbines are off
• The number of machines should reflect the landscape of the site
• Non-linear layouts may be more suitable where the topography is uneven
• All the turbines should be of similar size and design, with blades rotating in the same
direction
 56

• Other structures (transformers) should be within the tower if sizing allows

• On site, cabling should be underground to avoid a cluttered look
• The site should not be fenced off (except normal livestock fencing).

While the area is not a heavily trafficked area in terms of tourism, the hot springs in the near
vicinity could eventually draw visitors, especially if the armed conflict near the Colombian border
can be resolved. It is important to keep in mind the visibility of the wind farm from the tourist
centers so as to avoid adverse visual impact.
Figure 6.2: Probable Location for the Wind Farm

6.2.2 Noise pollution

There are two types of noise generated by wind turbines: aerodynamic (the movement of the
blades in the wind) and mechanical (noise generated by the turning of gears or other parts).
Mechanical noise can be reduced to a negligible level using proven engineering techniques and a
number of turbines on the market have imperceptible levels of mechanical noise when compared
to the aerodynamic noise. The aerodynamic noise is more difficult to mitigate but improved
aerodynamic designs have been done that reduce the noise to reasonable levels. The table below
shows the noise levels for different activities including wind turbines.
 57

Table 6.1: Noise levels for different activities

Source/Activity Indicative noise level dB (A)

Threshold of hearing 0
Rural night-time background 30-40
Quiet bedroom 35
Wind farm at 350m 35-45
Car at 40mph at 100m 55
Busy general office 60
Truck at 30mph at 100m 65
Pneumatic drill at 7m 95
Source: Irish Energy Centre, 2003

According to the Irish Energy Centre (2003), the noise level at the center of a wind farm is
from 50 to 60 dB and the single greatest factor in determining the impact of noise is distance. It is
estimated that beyond 400m there is unlikely to be any significant effect.

6.2.3 Bird strike

The threat to birds due to bird strike is generally considered to be quite small in properly
sited wind farms (DTI, 2003). Studies carried out at operational wind farms in the UK indicate
that in general, birds live in harmony with wind turbines (DTI, 2003). Additionally, a number of
studies have been carried out in America and Europe with the following situation being sited in one
study: “At a near-shore Danish wind farm, which borders a sensitive, protected site for Eider
Ducks, it was found that approximately 1% of bird deaths were due to collision with wind
turbines. This was a three year study, followed by a further two year monitoring study, which
confirmed its findings.” (Irish Energy Centre, 2003).
Wind farms have been found to pose little or no threat to other wildlife or fauna since they
occupy only 2 to 3% of the land area of the farm. In a number of cases livestock have been found
to graze right up to the towers. However, for a new project, the impact on the flora and fauna
should be analyzed by a qualified ecologist especially in terms of the access roads and
construction activities.
 58

6.2.4 Construction impacts

The construction phase will be the phase of highest environmental and social impact. The
social impact of having outsider workers in the area could be great and if not planned and
controlled, it could be very negative. Likewise, it will be the time of greatest earth moving in terms
of access roads and foundation building for the towers. But the construction phase is temporary
and if proper mitigating strategies and remedial measures are taken, there is no reason why lasting
adverse effects should be produced.

6.2.5 Electric and Magnetic Fields (EMF)

Wind turbines generate electric-magnetic fields (EMF) on the same scale as a diesel
generator and would have a very minor impact on humans especially since the turbines are high
above the ground and further from the potential receptor. All European and American electrical
equipment is required to meet strict standards for electro-magnetic radiation and most of the wind
turbines sold today are fit to enter those markets.
Of more concern is the effect wind turbines could have on electro-magnetic signals emitted
elsewhere. This occurs due to the physical blocking of the signal by the blades or by the blades
acting as an unwanted relay transmitter. This is highly unlikely and according to the Irish Energy
Center (2003), this effect has not been found in any of the 22 wind farms in Ireland. The kinds of
signals potentially affected include microwave signals, mobile phone signals, radar and air traffic
control signals, and UHF or VHF television signals.
Despite the low probability of impact, this potential impact should not be overlooked
especially if an airport is nearby. Figure 6.1 shows that the nearest airport to the district of Mira is
in the city of Ibarra, which is more than 50km away and according to the figures from the Irish
Energy Centre (2003) that is a safe distance since the effects described here usually only happen
at a maximum of 2km.
 59

6.2.6 Access roads

During the installation phase, the turbines and towers can be transported by sea to the
ports of Guayaquil or Esmeraldas. The road connecting Esmeraldas, San Lorenzo, and Ibarra will
facilitate transportation from the coast to the Project site because it is shorter than the road to
Guayaquil. In the immediate area where the project will be installed there is a need to build access
roads and platforms for the cranes and cement trucks and small storage buildings for supplies and
materials.
The access roads will be constructed prior to the construction phase but will remain in use
for the life of the wind farm. The access roads have the highest potential for negative
environmental impact and a similarly high potential for positive socio-economic impact. The roads
must be constructed with careful attention being paid to erosion, waterways and potential positive
social impacts that could be created.

6.2.7 Cumulative Effects

An important concept that has emerged in environmental impact assessment is the

cumulative effects assessment (CEA). “Cumulative effects are changes to the environment that are
caused by an action in combination with other past, present, and future human actions. A CEA is
an assessment of those effects” (Hegmann, et al., 1999, pg.3). For this project that includes
extending the temporal boundaries to include projects or activities performed in the area in the
past and projects or activities planned for the future.

6.2.8 Positive impacts

Based on the fact that a conventional thermoelectric power plant consumes one gallon of
diesel fuel to generate 10 kWh, the project will avoid the use of more than 3.1 million gallons per
year at the 31 GWh/year energy production calculated in the economic analysis section. Since at
present Ecuador imports part of its diesel the project will save not only valuable natural resources
but also foreign currencies which would have been spent in the importation of diesel. The project,
 60

due to its special curve of daily production will replace in first degree the cost of expensive and
contaminating thermoelectric power plants operating in Ecuador’s national energy grid system.
Studies performed by CONELEC indicate that the mean contamination level of the power
plants working in Ecuador is 0,775 ton of CO2/MWh per year. The project will therefore avoid a
contamination of 24,025 tons of CO2 per year. Over the lifetime of the project, this will mean
avoidance of 480,500 tons of CO2.
The Project will offer many temporary jobs during the construction phase, as well as a
range of permanent jobs during its 20-year life span (very important in this rural area).
In addition, aesthetically, a wind turbine array (with 48 m diameter blades turning silently at
a height of 40 meters), is nothing short of spectacular. Considering that there are no equivalent
projects in Colombia or Peru, the area may become a tourist site bringing many additional dollars
into the economy of the district of Mira.

6.3 Description of the Environment

The area of the project is located at 2500 meters above the sea level in the northern
highlands of the Carchi province. The high areas where the wind farm could be placed are mainly
composed of grasslands with small groups of trees in protected depressions of the terrain. Most of
the hillsides are covered by eucalyptus and pine trees which are chopped down periodically for
the timber.
The main components of the typical flora and fauna that corresponds to this altitude and
geographic location are mentioned in the following tables.
Table 6.2: Principal Native Species of Flora
Community Name Scientific Name Elevation
Quishuar Buddleja incana High-Low
Freilejon Espeletia pycnophylla High
Capulí Prunus serotina Low
Aliso Alnus acuminata HBK Low
Pumamaqui Oreopanax spp Low
Arrayán Myrcianthes spp Low
Colle Buddleja spp Low
Guantu Brugmansia spp High-Low
Sacha capulí Vallea stipularis L. f. Low
Cabuya Agave Americana Low
 61

Laurel Myrica spp Low

Yagual Polylepic spp High-Low
Romerillo Podocarpus spp. High-Low
Chilco Baccharis spp. Low
Source: UNORIG (1999).

A large number of non-native plants were seeded in cultivatable lands and became part of
the flora diversity of the region. Among the most common crops are potatoes (Solanum
tuberosum, Solanaceae), melloco (Ullucus tuberosus, Basellaceae), oca (Oxalis tuberosa,
Oxalidaceae). Other crops are corn (Zea mays, Poaceae), la quinoa (Chenopodium quinoa,
Chenopodiaceae) and different varieties of beans with commercial value.
The native fauna of the region can comprise the following species which are common in the
High Andean Grasslands Areas (Paramos).
Table 6.3: Principal native fauna species.
Community Name Scientific Name
Lobo de páramo* Psudalopex culpaeus
Curiquingue Phaalcoenus carunculatus
Conejo silvestre* Syilvilagus brasiliensis
Ligle Vanellus resplendens
Zorro
Fucungo
Mirlo
Raposa
Chucuri
Rana
Sapo
Guamanito
Perdíz
Solitario
Source: UNORIG (1999). *in danger of extinction

However, the situation in the area is highly changed from its natural state with the inhabitants in the
area relying on a wide variety of introduced species (cattle, poultry, dogs, cats, etc) which
displaced the native fauna.
 62

CHAPTER 7: LEGAL FEASIBILITY ANALYSIS

The legal considerations involved in the project comprise the following components which are
analyzed in detail separately.

7.1 Legislation for Renewable Energy

To promote the development of renewable resources of energy, the Ecuadorian State enacted
the Law of Regime for the Electric Sector which includes regulation that gives preference to
electricity generation from wind, solar, geothermal and biomass sources. In detail:

Article 63.-
“The State will foment the development and use of non conventional energy
resources through the public organisms, development banking, universities and
private institutions.”
Article 64.-
“The National Council of Electricity (CONELEC) will dictate norms that can be
applied for the dispatch of electricity produced with non-conventional energies
looking for its utilization and priority.”
Moreover, in the Regulation for the Ecuadorian Wholesale Electricity Market, article 21 states:

Article 21
“The preferring dispatch of power plants that use non-conventional renewable
energies, by the National Centre for Control of Energy (CENACE), could not exceed
2% of the installed capacity of the generators of the Electricity Market.”
All the energy coming from renewable non-conventional sources given to the
National Interconnected System (SNI) will not be a part of the economic dispatch;
this is, its costs will not be taken into account for fixing the marginal cost.
“CONELEC will establish the prices that CENACE will use to assess the production
of each one of the power plants, on the basis of international references, which total
 63

value will be proportionately distributed among the economic transactions made by

the Distributing Companies and Great Consumers in the Wholesale Electricity
Market.”
On March 26th 2002, CONELEC amended a previous regulation referring to the prices of
energy produced by non-conventional renewable energy resources. In order to expand the time of
the guaranteed feed-in-tariffs this new regulation (CONELEC 003/02) established a 10-year
period of fixed feed-in-tariffs from the time of operation on. Its most important parts are:
Preferring Dispatch
“The CENACE will dispatch, in a preferring and obligatory way, all the electric
energy that the power plants that use non-conventional renewable resources give to
the System….”

“...The preferring and obligatory dispatch will be made by the power plant and the
prices of energy will not be taken into account to determine the marginal cost per
hour in the Wholesale Electricity Market.”

Price of Energy
The prices to be considered for the energy measured at the point of delivery,
expressed in cents of USA dollars per kWh, for wind power energy is of 10.05
cUSD/kWh. In order to stabilize the income of the energy delivered, these prices will
be valid for a ten-year period, starting at present date of the regulation, for the
power plants entering into operation until the year 2004. After this timeframe, the
prices fixed by CONELEC for the next years will prevail. No payment will be
considered for the power to the production of non-conventional power plants.
Additional Payment for Transportation
An additional payment is established for transportation, in the case that a line of
transmission will be required from the Generation Power Plant to the point of
 64

connection to the SNI, this payment is of 0.06 cUSD/kWh/km, with a maximum limit
of 1.5 cUSD/kwh.

Liquidation of the Energy.

“The CENACE, on the basis of the established prices in this Regulation, will liquidate
monthly the values that will get the non-conventional generation companies for the
energy measured in the point of delivery, under the same norms of invoicing that are
applied to the conventional generators…”
The additional price paid per kWh for transportation with a 20 km distance of the projected wind
farm to the grid interconnection amounts to 1.2 cUSD/kWh. Hence, the fixed tariff totals to 11.25
cUSD/kWh payable for 10 years of operation to the project company.

7.2 Construction and Operation Permits

The company shall obtain a Permission Certificate for the construction and operation of the
Wind Power Project. The contract of concession will be signed between the legal representatives
of the company and the national authority CONELEC.

7.3 The Concession Contract

The concession contract, which will be signed between the company and CONELEC shall
explicitly state the price of purchase and sale of energy and the preferring dispatch, giving the
project, in this way, a greater security.
In addition, these concession contracts shall have provisions for:
• Compensations for the company in case of unilateral alteration of the clauses of the
contract by the government.
• Access Rights and Expropriation to have access to the real estate where the company
has installations related to the activity or where it should build installations or buildings
related to this permission of generation of electric energy.
 65

• To transfer or to remit abroad of its utilities, previous the compliance with the pertinent
legal norms.
• The concession contract shall give in some of its clauses security to the investors for future
changes in the laws or rules, maintaining the economic and financial stability of the project.
• Legal mechanisms for resolution of controversies.

7.4 Land Leasing Contract

The land where the project will be built is owned by natural persons, which facilitates the
paperwork and negotiations.
A preliminary contract with the land owner would be necessary for the first phase of the
project. This preliminary contract should address two main components:
• The necessary surface to establish the wind installation and the additional installations
(transformation, connections and network station) will be paid in X USD per square
meter.
• The owner of the land will receive Z% of the profits from the energy of the wind
turbines that are on his land.
Although the company’s interest is to maintains the best relationship with the landowner, in a
worst case scenario, the contract of concession shall give the company wide rights to apply for
expropriation of the land used within the project area. The expropriation process will be realised
by CONELEC, which by law was given the power to do so. An independent appraiser will fix the
cost of the land which obviously will be very low.

7.5 Environmental protection

The Ecuadorian Constitution guarantees the protection of natural resources and the
prevention of pollution. The legal framework of Ecuador composed of laws, regulations, decrees,
and ministerial agreements and the State guarantees the compliance of the legal framework by
public and private institutions.
 66

Article 3 of the Electric Sector Law states that energy generators, transmitters and
distributors of electricity will obey the legal regulations pertaining to environmental protection. To
comply with this edict each sector of the industry should prepare an independent environmental
impact evaluation study to determine the environmental impacts during the construction, operation
and abandonment of electric projects. These studies must include mitigation and/or recovery plans
of affected areas and a cost analysis.
The definition of an EIA is described in the:
• Regulation of the Electric Sector Law, Chapter III
• Regulation of Concessions and Permits, section IV, art. 35
The Environmental Regulation for electric activities is the legal document that establishes
and regulates the content, reach and development of an EIA. This regulation includes the following
sections:

7.5.1 Chapter I General

Section 1, article 1: promotes the sustainable development of the electrical sector in

Ecuador, by establishing an environmental management plan to avoid, control, mitigate, rehabilitate
and compensate for the effects of the electrical activities to the environment and society.
Article 3: defines who may participate in the electrical industry, i.e. natural and legal
persons of the public or private sector who perform generation, transmission or distribution of
electrical energy and the consumers or users of the service.
Environmental Regulation policy for CONELEC (Ecuadorian Electricity Regulatory Body)
is described in articles 4, 5 and 6 of section 1.

7.5.2 Chapter II Environmental Administrative Responsibilities for the Electrical

Sector

This chapter defines the areas of competence of CONELEC (art. 7). The administrative
relationship between CONELEC and other State organizations to establish areas of coordination,
cooperation and competence. (arts. 8,9,10,11).
 67

Section 3 establishes the obligations of concession holders, permit owners etc. (art. 13).

7.5.3 Chapter III Environmental Protection

This chapter is the most important regarding environmental issues as it establishes norms
for different parameters within the project (arts. 14, 15). It also establishes the required prevention
and mitigation techniques to reduce the environmental impacts.

7.5.4 Chapter IV Instruments for Environmental Control

This chapter establishes the characteristics and content of EIA’s and environmental
management plans (arts. 17, 18, 19, 20, 21, 22, 23, 24, 25). It also defines the type and
characteristics of environmental audits (arts. 26, 27, 28, 29, 30).

7.5.5 Chapter V Environmental procedures and Requirements to Obtain

Concessions, Permits or Licenses

This section describes the procedures required for companies who wish to obtain
concessions, permits and licenses.
The following table provides a brief outline of the current environmental regulations in
Ecuador:
Table 7.1: Current Environmental Regulations in Ecuador.
Law or regulation Document

Constitution of Ecuador Art. 2,23,86,88,91244,248, August 10, 1998.

Health Code RO 158, February 8, 1971.
Water Law RO 69, May 30, 1972
Environmental Technical Regulation for Version 6, October 2000
Electrical Activities in Ecuador
Law of Prevention & Control of RO 97, May 31, 1976
Environmental Pollution.
Conservation of Forest, Wildlife and Natural RO 64, August 24, 1981, Ref. February 22,
Areas. 1983.
Regulation for the use and cultivation of Bio- RO 262, September 2, 1985
aquatic species.
Instructions for the preparation of reports and Ministerial Agreement 764, RO 330 December
EIA’s 9, 1985
 68

Security and Health Regulations for workers RO 565 November 17, 1986
and the improvement of the working
environment
Regulation for the prevention of pollution to RO 204 June 5, 1989
water resources
Regulation for prevention and control of the RO 560, November 12, 1990
environmental pollution by noise.
Regulation of Air Quality and measurement RO 726, July 15, 1991
methods
Regulation for Solid Waste disposal RO 991, August 3, 1992
Regulation on general norms of emission for Supplement of the RO 303, October 25, 1993
fixed sources of combustion and general
measurement methods
Regulation for collection and transport of RO 360, January 17, 1994
recyclable paper
Basic Environmental Policies of Ecuador DE 1802, June 1, 1994, published in the RO
456, June 7, 1994
Environmental Management Law RO 245, July 30 1999
Source: Ministry of Environment

7.6 Brief Overview of Private Enterprise Laws

In article 245 of the Ecuadorian Constitution, it is established that the Ecuadorian
economy is organized and unfolds with the coexistence and cooperation of the private
and public sectors. Economic companies can be private, public, mixed, or community
based. The state will recognize, guarantee and regulate them.

7.6.1 General

The Constitution guarantees the investments of foreign or national firms especially when
they are destined for production of goods to be consumed nationally and those to be exported
(Article 244). It also gives special guarantees to investments made in less developed areas or
areas of national interest.
The Law of Companies establishes the different kinds of companies that can be formed
and puts forth the requirement for foreign companies operating within the national territory. There
are a number of opportunities for private companies in Ecuador in terms of the legislation and the
 69

continual opening of the economy based on the Law of Modernization of the State and the
TROLE I (Law of Economic Transformation) & TROLE II (Law for the promotion of investment
and public participation).

7.6.2 Specific to the Community

Article 246 of the Constitution states that the government will promote community
companies such as cooperatives, craft workshops, councils to administer potable water whose
property and management belongs to the community or the people who work permanently in
them. The Law of Cooperatives governs how cooperatives are formed and how they operate.
The Ministry of Social Welfare is assigned the responsibility to study and approve proposals for
the formation of Cooperatives (Article 7, Law of Cooperatives). Depending on the activity that
the cooperative is going to carry out, it must belong to one of the following categories: production,
consumption, savings and loans or services.
Article 102 of the Law of Cooperatives provides for the free development and autonomy of
cooperatives based on the fact that the state views these organizations as positive for economic,
social and moral development of the country. Based on that, cooperatives are given the following
benefits: (1) exemption from fiscal, municipal, or any other tax on immovable estates purchased by
the cooperative, (2) preference in bidding on projects from state, municipal or other organisms,
(3) liberalization from taxes on tools, machinery or other inputs to the cooperative, (4) exemption
from export taxes on goods produced by artistic or craft based cooperatives, and (5) preference
in expropriation of land in favor of cooperatives formed by peasants.
 70

CHAPTER 8: FINANCING MECHANISMS AND

IMPLEMENTATION SCHEMES
There are a number of ways to fund energy infrastructure projects including national
government funding, private sector funding, and loans from international banks to governments or
the private sector. The actual construction is most often carried out by a private company with
specific expertise in the project to be executed. It would be too expensive for the government to
maintain a roster of experts in all of the potential infrastructure projects that could be carried out.
It is also important to note that most potential private sector investors prefer to lend to private
companies rather than to national governments due to the perceived risk of loans to the
government and the inherent lower efficiency of public institutions. McCowa and Mohamed
(2002) suggest that international firms generally have a greater credit standing and capacity to
finance large scale projects. This is especially true in developing countries.
According to Mathrani (1990), ten years ago billion dollar projects in developing countries
were done entirely in the public sector with the aid of the World Bank and other bilateral
institutions. Additionally export credit agencies provided guaranteed credit as a mechanism to
expand markets for their domestic firms. Ferrigno (1990) discusses the successful packaging of
BOOT Projects from his broad experience base. However, most of the projects he mentions are
billion dollar projects with the smallest project being a US$300 million Hydropower project in
Turkey. The type of contract or implementation mechanism depends on a combination of factors
including capital requirements, technical complexity, risk environment, political ideology among
others.
In a number of countries, the energy sector has been reformed in the last decade to allow
greater private involvement both independently and in contractual relationships with the public
sector. Ecuador is one of those countries as can be seen from the laws that have been passed in
the last years (see chapter 7). The legal structure depends primarily on the ideological stance of
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the state and of external pressures in terms of possibilities for funding. In the next sections the
different implementation mechanisms will be discussed.

8.1 Private Funding and Implementation

Since the Ecuadorian law is very favorable to the private sector in non-conventional energy
projects and the initial capital requirement for this project will be low compared to typical projects
carried out under Public/Private Partnerships, a single company endeavor may be feasible.
Capital would most likely need to be sought from private investors but development funds could
also be leveraged if there was an acceptable level of local social and economic development
projected.
Even if the project were carried out entirely by the private sector, there would have to be a
number of guarantees provided by the government to make the project feasible. Due to the nature
of the electric energy industry and its condition of being a natural monopoly in the transmission
aspects, there is a single buyer of the electricity, the state-owned transmission company
(Transelectric). The current Ecuadorian Electric Sector Law stipulates that it will purchase all of
the electricity generated from non-conventional sources of energy at a favorable rate up to 2% of
national installed capacity. It also specifies that there will be no import tariffs on the equipment
and that it will subsidize part of the transmission costs from the plant to the grid. While this is a
tremendous advantage, there is some political risk in the country and the investors need to be
convinced that the government will not change the rules of the game during play.
It is important to note, however, that the objective of this project is not simply to build a
wind farm for private gain subsidized by an indebted government, but to develop capability in the
country for future projects, develop capital markets, and contribute to the economic and social
development of the region where the plant is located. One option is to transfer the plant to a
community cooperative after an agreed upon period. This will be discussed in more depth in the
next section. Another option is to extend development agency funding to the project under the
condition that local people are hired and trained. Also, local private funds could be invested in the
project in order to develop capital markets.
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8.2 Public/Private Partnerships

One way local governments can fund infrastructure projects is through private concessions
such as Build-Own-Operate-Transfer (BOOT), Build-Own-Operate (BOO), Design-Build
Operate (DBO), and Lease-Own-Operate (LOO) (Arndt, 1999). The BOOT concession
contract is often times referred to as the BOT (Build-Operate-Transfer) mechanism. Arndts
(1999) definition of BOOT is the same as Lam’s (1988) definition of BOT.
Following is Arndt’s definition of the different contractual types.
• Build-Own-Operate-Transfer (BOOT): The service provider designs, constructs,
finances, operates and maintains the infrastructure owning the project throughout the agreed upon
concession period. At the end of the concession period, the infrastructure is transferred to the
government.
• Build-Own-Operate (BOO): This contractual type is very similar to BOOT with the only
difference being that the service provider retains ownership of the infrastructure indefinitely while
the government agrees to purchase the services for a fixed amount of time.
• Design-Build-Operate (DBO): This contractual type stipulates that the contractor design,
build, operate and maintain the facility. In most cases it is also responsible for the funding. Upon
completion of the project and prior to commissioning, the government purchases the facility from
the contractor for a pre-agreed price.
• Lease-Own-Operate (LOO): This mechanism is similar to the BOO type but involves a
previously constructed facility that may require expansion or refurbishment.
Since the wind farm this paper deals with is not a pre-existing asset, it is clear that the
LOO contractual type is not an option. BOO, BOOT, BOT and DBO could be used for this
project. In light of the fact that it is the goal of this project to investigate the possibility of including
the community in the national economy, all the schemes initially seem to be suitable mechanisms
for the design, financing and construction of the infrastructure. However, if the BOOT mechanism
is selected, it is important to add another ‘T’ for train since local people will be operating and
maintaining the plant after the transfer occurs. Phillips (1990) among other authors emphasizes the
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importance of the training process in BOOT projects in developing countries to develop local
capabilities and to make the transfer process feasible. It is probably safe to discount the
possibility of using DBO since for the case of the wind farm in question, this contractual type is not
advisable because there is not the sufficient experience and know-how in the government or
community to take on full responsibility of the wind farm upon commissioning.
Since the different contractual types are similar in most respects with the only differences
being whether or not the assets are transferred and if so when in the process that happens, the
following discussion will focus on the BOOT mechanism and its variants will be discussed where
appropriate.

8.2.1 Transfer of Plant vs. Transfer of Ownership in BOOT schemes

There is some debate in the literature about whether a BOO is preferable over a BOOT
contract. Mathrani (1990) argues that the transfer requirement often complicates the contract and
makes financing more difficult and reduces the number of potential genuine long-term investors.
According to him “The need to value and transfer the assets at the end of the concession period
exacerbates the problem, because it tends to decrease the value of the assets and thus the
attractiveness of BOOT projects” (Mathrani, 1990, pg 2-3). Both Mathrani (1990) and Churchill
(1991) argue the importance of bringing projects to capital markets so that local investors can
invest in them. Churchill offers an alternative to transferring the project that will assist in
developing capital markets. He states “Rather than transferring a plant back to the public
monopoly, which has done so poorly in running that type of plant in the past, the foreign
shareholders in the plant would be expected to divest themselves of their stock, up to some
negotiated percentage.” (Churchill, 1991, pg 86). In this way, ownership is transferred rather than
the plant, which helps develop the local capital market. In his opinion, the primary objective of
these contracts should not be to build another plant but to develop capital markets. He points out
that typically, in the highly indebted Latin American countries, there is a savings rate of 18% of the
GNP compared to only 8% in the United States. These savings are not being mobilized for
development purposes but could be if legitimate investment opportunities were available.
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8.2.2 The BOOT Consortium

According to Arndt (1999), in BOOT projects there is usually no one single entity looking
to take on the project so a consortium of different companies is developed. Figure 1 below
shows the general arrangement of such a consortium. The sponsor is usually a lead participant
and may often be a construction company seeking work. Debt and Equity providers also become
part of the consortium with the debt provider being banks or other purchasers of capital market
instruments such as bonds. The sponsors and contractors are often times equity providers but
other investors may also take part as pure equity investors. The operators, contractors and
advisers also form part of the consortium. It is important to recognize that these consortia
members are far from homogeneous which can complicate negotiations with the public sector.
Figure 8-1: Typical BOOT Consortium

Source: Arndt, 1999

The other contractual types, namely BOO and DBO, would have a similar structure. For
the case of DBO, the asset would be transferred to the government before commissioning for an
agreed upon price.

8.2.3 Requirements for the successful packaging of a BOOT project

Ferrigno defines successful packaging of this type of project as “getting all of the political,
technical, commercial and financial elements of a project together so that adequate funds have
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been committed and advanced to the project company and construction has started.” (Ferrigno,
1990, pg 3-1). The prerequisites that he claims are necessary are the following:
• There must be a high need for the project which has been perceived for years by
government officials
• There are inadequate government funds available and there is sufficient political will to
utilize the private sector
• There are highly credible contractors and suppliers that are willing to enter into a turnkey
design/construction contract with firm prices and completion terms;
• It is believed that the private sector possesses all of the technical expertise to design, build
and operate the project;
• The project is considered financeable on a limited-recourse basis.
Another question that needs to be answered is how big should the project be before it
qualifies for a BOOT contract? According to Moore (1990) the minimum investment that Asea-
Brown-Boveri (ABB) will make in a project is half a million to three quarters of a million dollars
whether it is a 50 MW hydro station or a 1000MW coal fired station. This is from the equipment
manufacturer or developers viewpoint but the investors or suppliers have a different perspective.
According to Strzelecki (1990, pg 6-25), from the view point of the investor or supplier, “the
minimum size of BOOT project that is worthwhile developing in the international market is about
150 MW”. He claims that anything smaller is a dilution of resources and larger projects can more
easily carry the overhead costs. But he acknowledges that the minimum size that will attract
interest depends on the options available. However, he is speaking of thermoelectric plants that
have a much higher operating cost due to the expenses related to fuel and the accompanying
supply risks. These issues were discussed in more depth in the economic analysis section.

8.2.4 Allocation of Risks

For all of the parties to be satisfied with the contract, they must feel that they are not taking
on a disproportionate share of the risk. For this reason, the allocation of risks is a crucial element
in developing a successful BOOT project (Phillips, 1991). The main risks in a BOOT project are
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1) there is a finite concession or franchise period in which to recover costs, 2) there are political
and economic risks due to a single buyer – the state owned electric utility, 3) foreign exchange and
convertibility risks, and 4) few OECD countries have domestic private sector power companies
so there are few private players interested in those concessions (Mathrani, 1990). The fourth risk
is no longer as much of a problem as it was in 1990 when Mathrani published that article and a
number of countries have privatized their energy sectors; the situation for wind energy is especially
exempt from this problem since most developers are private companies. For the case of Ecuador,
the third risk is non-existent due to the change of national currency to the dollar in the year 2000.
The second risk will continue to be a risk due to the fact that the electric transmission
infrastructure is a natural monopoly. The first risk of the finite concession period could be averted
by using a BOO contract instead of a BOOT contract and requiring the initial investors to divest a
certain percentage of their shares to local capital markets, the government or a community
cooperative after an agreed period.
The risks associated with the project can be further broken down into the following periods:
pre-commissioning, post-commissioning, and project lifetime risks. The risks associated with
each period are shown in the table below.
Table 8.1: BOOT Project risks divided into stages.
Pre-Commissioning Risks Post-Commissioning Risks Project Lifetime Risks
Abortion of project by shareholders Output Shortfalls due to: Foreign exchange rates
Late start-up - Physical Damage Increased interest rates
Cost overruns - Strikes Nationalization
Delays from Force Majeure - General operational reasons Expropriation
Damage - Inadequate fuel supply Delays in commissioning
Bankruptcy of shareholders or Lower offtake than desired Shareholders do not fulfill their
suppliers joint venture responsibilities
Fuel supply infrastructure problemsPower prices lower than forecasted General political risks – change in
taxation conditions,
Gov. requirements – customs, Inflation and operational costs higher - abrogation of foreign
procurement and construction labor than forecasted purchase agreements
Gov. action – import restrictions, tax - Changes in requirements for
regime, safety or environmental indigenous involvement.
regulations, fuel supply arrangements
Source: Mathanri, 1990.

Moore (1990) discusses how the risks should be allocated to the different partners from the
developers perspective. He divides the risks into market risks, sovereign risks, project risks, and
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commercial risks. He states “ABB is, without hesitation, willing to take the risks of plant
availability, output and performance, but is unwilling to take the risks of expropriation and any of
the components of sovereign risk, unless sufficient benefits are offered to offset such risks” (
Moore, 1990, pg 7-6). For ABB, a private power company, the optimal distribution of the risks
is as follows: the utility should take the market risk, the multi-lateral agencies and bi-lateral
agencies should take the sovereign risks, the lenders should take the project risks and the private
power company should take the commercial risks.

8.3 Public Funding and Implementation

While it is conceivable that the government of a nation could take on a project like the one
discussed in this paper and many governments may take on such a project on their own, it goes
against the Ecuadorian policy of modernization of the state and privatization (see law section).
However, even amongst communist countries, there is a trend to begin to use the private sector to
develop infrastructure as can be seen in the case of Cuba (Torres, 2003).

8.4 Agencies, Institutions and Companies

Even if the project could be financed, constructed, operated and owned by a single
company, the goals of this project would not be fulfilled in this scheme. Since such a company
would have to be a foreign multinational due to experience and expertise, a dynamic of foreign
companies building projects in developing nations and taking the profits home would be continued.
In light of these problems, it is clear that despite the added complexity, it would be advantageous
to form some kind of BOOT or BOO contract under which the following criteria are fulfilled:
• Added Electricity infrastructure in Ecuador
• Promotion of Renewable Energies in Ecuador
• Added value to the community in the vicinity of the wind farm.
• Acceptable ROI for investors.
The next sections are a discussion of the different actors who could be involved and the
criteria that must be met for them to be willing to participate in a BOOT Consortium.
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8.4.1 Government Agencies

Some of the government agencies in Ecuador that need to be involved, by law, in the
development of this project have been identified in the Legal Framework section of this report. In
general, CONELEC is responsible for granting concessions to generation plants, signing purchase
agreements for the energy from non-conventional power plants and setting prices that the
generators and distributors will be paid (CONELEC, 2001). CONELEC is also responsible for
dividing and selling the state owned generators. The state, however, does maintain ownership in a
number of generators and there may be interest for the state to purchase shares in the new
development with the shares going into the Fondo de Solidaridad. TRANSELECTRIC is the
state owned transmission company but all agreements and contracts are signed through
CONELEC.

8.4.2 Lending Banks

The World Bank has been motivated into new partnerships such as the GEF-World Bank
Group Strategic Partnership for Renewable Energy, which uses Adaptable Program Loans
(APL) to permit flexible project support over periods of up to 10 years (Saghir, 2002). Another
such partnership is the Renewable Energy and Energy Efficiency Fund, which is the first global
private equity fund dedicated entirely to investments in renewable energy and energy efficiency
(Saghir, 2002). Some of the World Bank programs specifically geared towards sustainable
energy are shown in Table 8.2.
Table 8.2: World Bank Programs for Sustainable Energy.
Entity Implementing Agency Geographic Focus
IBRD/IDA Lending WB Global
GEF WB UNDP UNEP Global
ESMAP WB UNDP Global
ASTAE WB Asia
AFFREI/RPTES WB Africa
SDC WB IFC Foundations Global
IFC – REEF PVMTI RE Financing WB Commercial banks Fund/Project Dependant
SME Foundations
Prototype Carbon Fund WB Global
Source: Saupin, 2000
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The International Development Bank has set aside a family of untied trust funds to support
the preparation of Sustainable Energy and Urban Transportation projects in Latin America called
the Hemispheric Sustainable Energy and Transportation Funds (HSET) (IDB, 2003). In
order for a project to be eligible for these trust funds, it must meet the following criteria:
• Sited in a borrowing member country of IDB
• Well developed in structure and location
• Strong emphasis on a role for the private sector
• Clear support from private and public partners
• Consistent with the countries priorities and the Banks investment priorities.
The institutions eligible for receiving these funds are national governments and their political
subdivisions, NGO’s, and private entities with the legal authority to borrow such funds.
According to Saupin (2000), “The IFC's Renewable Energy and Energy Efficiency Fund
(REEF) is expected to be the first global fund dedicated to investing in private sector renewable
energy and energy efficiency in developing countries.” The fund provides from 150 million to 210
million USD of IFC and private capital for financing projects of less than 50 MW.
National Banks within the country of development can also be approached for funding but
the project developer must be careful to negotiate a reasonable interest rate since some of these
banks often times require high interests for repayment of the loan.
Other private banks in other nations such as Fortis Bank in England provide specialized
services for wind energy developments and may be able to offer loans with interest rates lower
than national banks.
A number of countries also have Export Credit Agencies (ECA) with the mission of
helping their national companies expand their markets abroad through the provision of credits for
the purchase of their equipment. This mechanism has been used extensively in technology transfer
and could be used in this case as well.
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8.4.3 Investors

In many projects, the project participants themselves may invest in the project as indicated
in section 8.2.2. Some of the wind energy companies discussed in the next section provide
financial services as well as technical and managerial services.
If the project is placed under the responsibility of a publicly traded company or
consortium, funding can be raised through a stock market by selling shares in the company. This
would help to develop capital markets in the nation as discussed earlier. Ecuador does have a
stock market but its effectiveness is not clear. Their web site is not developed and there appears
to be very little information on it. However, it may not be necessary to have a functional stock
market to divide shares in a corporation, using Over The Counter (OTC) traded shares instead
(Howstuffworks, 2003). In this model, the community, individuals or the municipality could be
part owner in the project depending on their ability to contribute funds or buy shares. This,
however, has the obvious difficulty of giving more opportunities to those who already have
resources to invest.
Additionally, there are a number of Social Funds in developed nations that offer
opportunities for people to invest in ecological funds. One such fund is a Green Loan Fund that
supports environmental enterprises in Latin America offered through EcoLogic Enterprise Funds.
This fund provides small business loans to firms in Latin America whose business activities support
biodiversity conservation and equitable development (SocialFunds.com, 2003).

8.4.4 Constructors/Suppliers (Wind Energy Companies)

The manufacturers of Wind Turbines frequently offer installation and other services related
to a wind farm project. The list of companies involved in the wind industry from data logging to
training includes over 1000 entries in the Renewable Energy World Directory of Suppliers
(REW, 2001). The world’s top ten manufacturers, in terms of megawatts sold, include Vestas (in
the lead with 17.9% of market), Bonus, Nordex, Gamesa, Ecotecnia, DeWind, Suzlon, NEG
Micon, Enron Wind Corporation, and MADE (BTM Consult, 2001). In 2001, these companies
had 91.8% of the market.
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Table 8.3: Firms involved in the Wind Energy Industry

Company Country Services
Vestas Denmark Core business is the development, manufacture, sale, marketing,
and maintenance of wind power systems. Sizes from 660 kW to
3MW.
Nordex Germany Turnkey Development from site selection to operations. It also
manufactures wind turbines from 600kW to 2.5MW.
NEG Micon Denmark Offers a wide range of wind turbines from 750 to 2750 kW.
Also offers wind resource assessment, park layout, construction,
financing, and O+M.
Bonus Energy Denmark 600 kW to 2.3 MW wind turbines. Limits operations to
A/S development, production, sales and servicing of wind turbines.
enXco USA Developer, Operator
SeaWest USA Turnkey Development from site selection to operations and
Windpower maintenance. Helps generate and structure investment capital.
Not a manufacturer.
DeWind Germany Manufactures wind turbines from 600 kW to 3.5MW. They also
offer wind farm monitoring, maintenance and training. They work
with subcontractors for installation.
ReSoft Ltd. UK Software developer with a product called WindFarm for the
analysis, design and optimization of wind farms.
NRG Systems USA Offers the design and manufacture of wind resource assessment
systems.
Fortis Bank UK Leaders in financing wind energy power plants world-wide.
SIME-Stromag France Manufacturer of disc brakes for wind turbines
Tech-Wise Denmark Takes projects from drawing board to final implementation.
Source: Saupin, 2000

The table above lists some of the firms involved in Wind Energy and their services.
The small selection of firms shown in Table 8.2 demonstrates the diversity of services
offered by different companies in the wind industry. It is clear that the wind industry opens a wide
array of opportunities for the private sector and depending on the competencies of the firm or
agency executing the wind farm, different levels of services can be sought from a wide range of
firms in the industry. For example, if it was determined that the government were going to develop
the wind farm, they could purchase a turnkey wind farm from firms such as Nordex or SeaWest.
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8.4.5 Bi-Lateral and Multi-Lateral Agencies

There are a number of bi-lateral and multi-lateral agencies that could contribute to this
project. For example, the German government has a wind energy program called TERNA. It is
administered through GTZ and is aimed at helping to develop and fund wind park programs in
developing nations. They will either work through the Energy Ministries in a given country or
directly with private industries to develop wind energy capacity in developing nations (GTZ,
2003). Alongside the TERNA program, GTZ also offers risk sharing in Public-Private
Partnership projects through its PPP program (GTZ, 2003). The risk sharing service works like
an insurance that only gets paid out if something goes wrong.
The United States government also offers support for development through its USAID
agency. There is a specific program called “Ecuador Northern Border Development” with a
strategic objective of improving the quality of life of the population living along the northern border
of Ecuador. USAID uses Andean Counterdrug Initiative (ACI) funds and Economic Support
Funds (ESF) to develop projects related to water and sanitation systems, roads, bridges, irrigation
and small energy projects (USAID, 2003).
The Global Environmental Facility (GEF) is a financial mechanism for providing grants and
concessional funding for projects in developing countries that contribute to protecting the worlds
environment (Saupin, 2000). The GEF has a mandate to link its efforts with national sustainable
development efforts and complement regular development assistance funding, not replace it. As
indicated in section 8.4.2, GEF works closely with the World Bank and Table 8.4 shows some of
the investments made by GEF and the WB in Renewable Energy Throughout the World.
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Table 8.4: GEF and World Bank Investment in Renewable Energy.

Source: Saupin, 2000

The Danish International Development Cooperation Agency has helped to fund wind
power developments in India (Terim, 2003). Other national development agencies that might
contribute to wind power developments are the Canadian International Development Agency
(CIDA) and the Swedish International Development Agency. However, to secure funds from
these agencies one of the criteria is often that a private sector company from that nation must be
involved in the project.

8.5 Economic Instruments for Sustainable Development

Due to a recent increase in awareness of environmental problems stemming from activities
in the energy sector, a number of economic instruments have been devised to reduce emissions of
harmful chemicals. Economic instruments for the reduction of SO2 and NOx have been used for
several years in the United States. The mechanisms seem to be working well with the prices for
allowances of these emissions jumping dramatically early in 2003 (Biello, 2003). As the prices for
the emissions allowance increase, there is a corresponding increase in the will of industry to invest
in reducing those emissions.

8.5.1 Clean Development Mechanism

Unfortunately, there is no such scheme in place in Ecuador for SO2 and NOx but a new
development stemming from the activities of the UNFCCC and the countries that have ratified the
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Kyoto Protocol could offer opportunities for emissions trading related to CO2. While Ecuador is
a non-Annex I country with no obligation to reduce its CO2 emissions, the Kyoto Protocol allows
for a flexibility mechanisms called the Clean Development Mechanism (CDM) that could yield
opportunities for developing countries to access funds for sustainable development and clean
energy technologies (Thompson, 2002).
The Annex I signatory countries to the Kyoto Protocol have an obligation to reduce their
greenhouse gas (GHG) emissions to a certain percentage below 1990 levels depending on the
country. In order to meet this obligation they can increase efficiency, substitute fuels, or implement
renewable energies in their own countries or use the flexibility mechanisms such as Joint
Implementation (JI), emissions trading or the CDM (Thompson, 2002). The reasons a nation
would want to use a flexibility mechanism instead of reducing all of the emissions within its own
countries are economic reasons. A certain amount of reduction could be achieved at a reasonable
cost within the nation but the costs increase as the most economically viable projects are carried
out. For that reason, CDM presents significant opportunities for the Annex-I country as well as
the developing nation where the project will be carried out.
In the European Union (EU) governments are going through the process of distributing
GHG emission allowances throughout the industries. While there is some controversy in this
process and concerns over fairness, once the allowances have been distributed the companies will
actively be seeking CDM projects for which they can claim Certified Emissions Reductions
(Nicholls, 2003). Despite a lack in structure and some ambiguities about how CDM will work, a
number of companies have already begun selling carbon credits such as the company
EcoSecurities that sold between 2.6 million and 5 million tones of carbon dioxide emissions to the
Dutch Government (Nicholls, 2003). The credits for that sale were generated from the
NovaGerar Brazilian landfill gas project.
Even in countries that did not ratify the Kyoto Protocol, there is increasing activity in
relation to GHG emission trading. In Australia, a great deal of time and effort is being devoted to
GHG policy and the development of a national system of GHG emissions reductions (Griffin,
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2003). This climate of increased activity in GHG policy among countries that have ratified the
Kyoto Protocol and those that have not gives some reason to be optimistic of the opportunities for
CDM projects in developing nations.
According to David Neira (2003) (CORDELIM official) the current price being paid for
Certified Emissions Reductions (CERs) in CDM projects is between $3 and $5 depending on the
quality of the project. The quality of the project is related to aspects of the project like added
benefits or consequent disadvantages. A project that offers renewable energy, provides local
economic development and biodiversity conservation is a high quality project. On the other hand
a large hydro-electric dam that displaces a population and floods land with endangered species
would be considered a low quality project. With the current price for CERs, a project developer
could not expect to finance a significant portion of a project with a CDM deal but the CERs could
make the difference between a marginal project and a profitable project.

8.5.1.1 Certified Emission Reduction Units Procurement Tender (CERUPT)

The Dutch government is one of the worlds largest buyers of carbon credits and it is
learning important lessons that could be applied in future projects (de Jonge, 2003). Senter
International of the Dutch government has set up a website at www.carboncredits.nl through
which it purchases carbon credits that projects in renewable energy and energy efficiency
generate. However, only carbon credits generated through JI can be sold through this site under
the first tender called the Emissions Reduction Unit Procurement Tender (ERUPT) (Senter
International, 2003). ERUPT formed the basis for the CERUPT tender for credits from CDM
projects which was launched in late 2001. Through the CERUPT tender, the Dutch government
has purchased carbon credits from Wind projects in China, India, and Jamaica (de Jonge, 2003).
One of the most ambiguous and controversial subjects in CDM projects is the baseline
from which CERs are calculated. “A baseline should reasonably represent the anthropogenic
emissions of GHGs that would occur in the absence of the proposed project ” (paragraph 44 of
the Marrakech Accords). CERUPT has developed a baseline methodology based on key factors
such as financing, economics, local legislation and others (de Jonge, 2003). One key factor used
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by CERUPT that has received criticism from NGO’s is the financial additionality (Mathias, 2003).
According to de Jonge (2003), head of the CDM division in the Dutch environment ministry,
financial additionality does not need to be proved since it was not included in the 2001 Marrakech
Accords. But CDM Watch, an NGO that monitors CDM projects, says that the purchases made
by CERUPT “will merely make already profitable projects more profitable - they will not achieve
additional reductions in GHGs”(Mathias, 2003). But it is clear from the analysis in this report, that
CDM deals will not significantly change the economics of projects and it would be very difficult to
apply the financial additionality requirement.

8.5.1.2 Prototype Carbon Fund

The World Bank has prepared the Prototype Carbon Fund which has as its objectives to
show how project based GHG emissions reductions can contribute to sustainable development
and reduce costs of compliance with Kyoto, to disseminate knowledge on CDM and JI, and to
demonstrate how the world bank can work with public and private partnerships to mobilize
resources for development (Prototype Carbon Fund, 2003). Carbon Credits can also be sold
through this fund.

8.5.2 Small and Medium Scale Enterprise Program (SME)

Another climate change initiative, separate from Kyoto, that can be used to finance climate
change projects is the Small and Medium Scale Enterprise Program (SME) through the
International Finance Corporation (IFC). It is a $21 million activity of IFC supported by GEF. It
is geared toward financing climate change projects carried out by small and medium scale
enterprises in GEF-eligible countries (Saupin, 2002). Contingent, concessional loans are provided
to financial intermediaries (FIs) including NGOs and commercial enterprises. These FIs then
finance the SMEs.
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CHAPTER 9: CONCLUSIONS AND RECOMMENDATIONS

9.1 Social Aspects

The main economic activity of the district, agriculture, can be improved by the
implementation of a sustainable irrigation program that relies on a secure source of energy for its
pumping requirements. This energy could be supplied by the wind farm discussed in this project.
The reasonable level of education of Mira’s citizens, 21,7% with high school and 4.6%
with University education will facilitate the implementation of the wind energy project in the
district. The integration of some of Mira’s citizens, with a good educational level that did not have
opportunities to develop their skills within the district in the past, in the operation phase of the
wind energy project could allow the economy of the district to improve.
Although the number of people involved in the feasibility, construction and operation
phases of the project are few, there could be secondary economic effects with respect to the
development of local shopkeepers, hotels, restaurants, and other supporting activities. This
potential extra economic income will increase the average income of the citizens. Indirectly, the
incorporation of an irrigation program that will promote the agricultural development will improve
the economy of the district.
If the irrigation program enters into operation, it is expected to cause a growth in the
agricultural activities. However, in order to guarantee a sustainable agriculture project in the
district it is recommended to integrate the agroindustry professionals to promote the development
of the agriculture and livestock sectors. Other activities of food processing can give an added
value to the products and incite further economic growth.
Although, almost all the district has electricity and potable water systems, the incorporation of a
wind energy electricity project would promote the industrial development in the district, which
nowadays is limited to cheese production. For instance, if there were more electricity generation in
El Hato, people from that area that are organized in a cooperative could enhance their cheese
production because at the current conditions the refrigeration capacity is limited.
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The integration of the municipality into the project is an option that needs to be
considered, taking into account that this institution is responsible for the execution of public works
that are vital for the community’s development but that have not been prioritized due to the lack of
budget.
Most of the social benefits mentioned until now are secondary or minimal since the
quantity of human resources needed from the district is small and the specific expertise for a
number of the jobs is not available within the district. The scheme that would most benefit the
population of the district is the operation and management of the wind farm under a cooperative
structure so that benefits and profits are shared equally by the members. The citizens of Mira
have shown the ability to work well in cooperatives. While most of the cooperative experience in
the area is based on low skilled work, there is a very good example of complex work being done
under a cooperative structure in the Basque region of Spain called the Mondragon Group of
Cooperatives. Mondragon is the umbrella organization for a group of separate cooperatives that
engage in activities ranging from agriculture to the production of domestic appliances (Whyte,
1988). All of the cooperatives support each other under a policy of import substitution. While
the cooperatives also produce for markets outside the cooperative group, many of the inputs for
the different activities come from suppliers within the group. A similar idea could be used in a
community such as Mira starting with the base cooperatives of agriculturalists and cheese
producers already existing in the area. However, one main limitation to using a cooperative
scheme for the wind farm is that funding will be difficult to find.

9.2 Technical Feasibility

The project has been demonstrated to be technically feasible on the basis of the referential data of
the ELECTROVIENTO’s Salinas Project which has similar meteorological characteristics. Of
course, a further resource characterization along 1 year will be minimally necessary to demonstrate
the convenience of the site for commercial generation of electricity.
To define the precise location of windmills, it would be desirable to have at least a 2 years of
wind characterization. Preliminarily, the measurement towers should be placed on the basis of the
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landscape clues, such as skewing of trees or wind erosion. In addition, two speed-up effects: hill
effect and tunnel effect should be considered for those purposes. The chosen location, the district
of Mira, presents several places where the aero-generators could take advantage of the hill effect,
especially the site called El Mirador .
As for the selection of aero-generators, it was based on its capacity factor working at the site.
However, on the basis of a site specific reliable wind resource characterization, the turbines, the
number of turbines, its size (height of the hub and rotor’s diameter), the generator size and the
costs associated to those variables, in addition to the capacity factor, constitute parameters for
economic optimization. Economic optimization basically consists of obtaining as much energy
production as possible with the minimum investment cost, which is the driving figure of the
calculation.
In this particular project, other issues such as availability of road accesses, proximity of
electrical facilities, and transport of equipment do not constitute major barriers for the
development.
For the layout of the wind farm, in addition to the availability of the wind resource, the minimal
spacing between windmills and other obstacles causing wind shade both in the wind’s direction
and the transversal direction must be taken into account. Given the current agricultural activities of
the district of Mira, the presence of scattered wind turbines, based on the recommendations, will
have a minimal effect on the current use of land.
Although the Danish, German, and US based Industries lead the field of Windmill
Manufacture, by providing the most efficient and sophisticated equipment, the possibility of
involving local design and manufacture could be surveyed in terms of its economic convenience
and opportunities for funding as it would constitute a local project for technical development in
renewable energy. It might be in the interest of international funding agencies. However, it is best
to use proven technology in this type of project.
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9.3 Financing and Economics

The wind energy project is economically feasible if certain assumptions are made such as an
interest rate of 7%. To study the feasibility of the project using different interest rates, a sensitivity
analysis has been carried out that shows that at 11% interest the project is no longer economically
feasible.
The costs of the project have been broken down into separate activities and discussed.
For the feasibility phase an investment of 118,000 USD is estimated. On the other hand, for the
construction of a 14.4 MW wind farm, 14,070,460 USD is required. The estimated unitary cost
of electricity considering an interest rate of 7% is 5.07 cts US / kWh. The yearly profits
considering a electricity price of 11.25 USD cts /kWh are 1,921,752 USD/ year. This electricity
selling price for the plant is guaranteed for a period of 10 years if the approval is obtained from
CONELEC before 2004. If the project can sell carbon credits using CDM, the yearly profits
increase by 73,249 USD. The internal rate of return is 12.28% and the payback period is 10.77
years. At an interest rate of 7%, the wind farm does not become economically attractive if the
number of turbines is lower than 12.
The Ecuadorian government provides a regulatory framework, which certainly favours the
financial security of renewable energy projects through a special price for energy during a
timeframe of 10 years and preferential purchase of the produced energy. However, the regulation
(CONELEC 003/02 - Prices of Energy Produced by Non-conventional Renewable Energy
Resources) also states that power plants entering into operation in year 2005 and thereafter will
have new prices and timeframes defined by CONELEC according to international references for
this class of energy.
In view of the current social and financial analysis, the most favourable way to promote
community participation in the project as an active partner or shareholder will be through land
leasing or providing some kind of funding for the project. Those funds could come from
multilateral agencies that provide financial support to projects to alleviate poverty in developing
countries. One possible scheme for providing the funds is to form a cooperative that would
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borrow money or get grants from development agencies and then receive dividends from
ownership in the project. Obviously, the dividends received would have to be significantly higher
than any debt servicing that would be required. Alternatively, individuals in the region or nation
could invest in the project as shareholders. This would have the effect of expanding local capital
markets and give legitimate investing opportunities to those that wish to do something other than
put their money in banks or invest in foreign markets.
The options for financing include private funding, public funding and private/public
partnerships. If a BOOT scheme is selected, it gives the opportunity for local government to
obtain ownership in the plant after a certain period of time. But it also has the effect of making the
project less attractive to private investors since the period in which they can recover their
investment is limited.
Other opportunities include using credit from export credit agencies or leveraging funding
from the Clean Development Mechanism (CDM) of the Kyoto Protocol to sell carbon credits to
developed nations. Another sustainable development mechanism that could be leveraged is the
Small and Medium Enterprise (SME) fund offered through the International Finance Corporation
(IFC) that provides loans for small-scale sustainable energy generation.

9.4 Environmental Impacts

The environmental impact of the project has been demonstrated to be minimal with most
of the impacts coming from road construction for access to the site. Proper measures should be
taken to minimize these impacts and to mitigate any possible impacts. Some other considerations
include the noise levels, bird strike, EMF and the visual impact. The noise levels measured at
existing wind farms indicate that there will be no significant noise impact at about 400m away from
the wind farm and the noise within the radius of 400m is still acceptable. Data from the Irish
Energy Centre indicates that the noise level at the center of a wind farm is between 50 and 60 dB,
which is equivalent to the noise level at 100 m of a car traveling at 40mph. The bird strike problem
has also been studied extensively at existing wind farms and the data suggests there is very little
problem here but proper precautions should be taken in the siting of the plant. EMF is not a
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problem if proper equipment is selected that is certified by the competent authorities in the USA
and Europe, however there could be some effect due to the blades blocking signals or acting as
unwanted relay transmitters. With proper siting precautions these problems can easily be avoided.
The visual impact should also be considered for any wind farm development but since there are no
major tourist destinations in the area, there is likely to be little if any problems caused by this
impact. The positive environmental impacts include the offsetting of 480,500 tons of CO2 over
the lifetime of the project and the offsetting of any NOx or SOx emissions that would result from
an equivalently sized thermal power plant.
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