Question

Set up a cash flow spreadsheet using the following parameters. Capital costs $2500/KW. 10% discount rate, 20 year life, capacity factor of 30% and O&M costs of $30/KW. No fuel costs and ignore taxes. Calculate what you will need to sell electricity for to obtain a zero NPV. What does a zero NPV mean and what happens at this point? How does this relate the levelized cost of energy?

Answer 1

		Assume Installed Capacity =1KW
		Capacity Factor =30%=	0.3
		Annual electricity generation(KW hour)	2628	(365*24*0.3)
		Capital Cost =1*$2500	$2,500
		Annual O& M Costs=$30*1=	$30
		For zero NPV, Present Value of cash inflows=$2500
	Rate	Discount rate	10%
	Nper	Number of years	20
	Pv	Present Value of Cash inflows	$2,500
	PMT	Annual Cash inflows	$293.65
		(Using PMT function of excel)
		Annual O& M cost	$30
		Annual Revenue =293.65-30=	$263.65
		Annual electricity generation(KW hour)	2628
		Selling Price of electricity per KW hour	$0.10	(263.65/2628)
		Levelized Cost of electricity	$0.10