I need help computing B & C. I have already figured out A.
Wind turbine capital investment analysis
Central Plains Power Company is considering an investment in wind farm technology to reduce its use of natural gas. Initial installation costs are expected to be $1,200 per kilowatt-hour of capacity. The wind turbine has a capacity of generating 2 megawatts per hour. A kilowatt-hour is 1,000 watts generated per hour and a megawatt hour is 1,000 kilowatts generated per hour.
Annual operating information related to the wind turbine project was developed as follows:
| Wind capacity factor | 25 | %* | |
| Operating cost per wind turbine megawatt hour | $10 | ||
| Variable operating, fuel, and maintenance costs per natural gas megawatt hour | $95 | ||
| Days per year | 365 |
*A factor that measures the reduction from full capacity due to the variability of wind
a. Determine the initial investment cost of the
wind turbine.
$ 2.400,000 (This is a correct answer when I check my work)
b. Determine the annual cost savings from the
wind turbine in replacing natural gas generation. Round to nearest
whole dollar.
$
c. Determine the net present value of the
project assuming a 15-year life and 12% minimum rate of return.
(Use the present value tables in Appendix A.)
$
Appendix A:
Homework Answers
Part B) Assuming the capacity of the natural gas is same as that of wind farm technology, i.e. 2 megawatts per hour, the total savings would be $1,533,000 as explained in the following steps;
Step 1 - Total annual hours under natural gas = 365 days * 24 hours a day * 2 Megawatts per hour = 17,520 hours p.a.
Step 2 - Annual running cost of natural gas = 17,520 hours (per step 1) * $95 = $1,664,400 p.a
Step 3 - Total annual hours under wind farm technology = 365 days * 24 hours a day * 2 Megawatts per hour * 75% factor = 13,140 hours p.a.
Step 4 - Annual running cost of wind turbine technology = 13,140 hours (per step 3) * $10 = $131,400 p.a.
Step 5 - Hence, the total savings by using wind turbine technology = Step 2 minus Step 4 = $1.664.400 minus $ 131,400 = $1,533,000
Part C) Net present value of the project would be $3,294,947 for 15 years at the rate of 12% p.a rate of return as explained below.
Step 1 - Annuity factor from the table for 15 years at 12% = 6.81086
Step 2 - Net present value of the project = 6.81086 annuity factor * $131,400 annual cost per step 4 in part B above plus initial cost of $2,400,000 = $3,294.947.
Add Answer to:
I need help computing B & C. I have already figured out
A.
Wind turbine capital...
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