Question

A university spent $1.4 million to install solar panels atop a parking garage. These panels will have a capacity of 900 kilowatts (kW) and have a life expectancy of 20 years. Suppose that the discount rate is 10%, that electricity can be purchased at $0.20 per kilowatt-hour (kWh), and that the marginal cost of electricity production using the solar panels is zero. Hint: It may be easier to think of the present value of operating the solar panels for 1 hour per year first. Approximately how many hours per year will the solar panels need to operate to enable this project to break even?

1,096.30

913.58

548.15

1,187.65

If the solar panels can operate only for 822 hours a year at maximum, the project will or will not break even.

Continue to assume that the solar panels can operate only for 822 hours a year at maximum. In order for the project to be worthwhile (i.e., at least break even), the university would need a grant of at least

Answer 1

[14:20, 3/23/2019] nag: Working note:

Value of electricity per year = 900*.2 = $180 per year

Life of the project 20 years

R = 10%

PV of the electricity = 180*(1-1/1.1^20)/.1 = 1532.44

So,

Break even hours = 1.4*1000000/1532.44

Break even hours = 913.58 hours

2.

It will not achieve the break even when only 822 hours are used, since break even hours are 913.58 hours.

3.

At the operational level of 822 hours,

PV = 822*1532.44 = $1259665.68

So,

Grants required = 1400000 - 1259665.68

Grants required = $140334.32