Question

Assume the following additional values:

Price of selling regulation services to PJM is $35/MWh

Capacity sold for regulation is 1 MW (1 MW up or 1 MW down).

Battery can operate 23 hours per day, 365 days per year, for 10 years.

(a) What is the revenue in one year from this way of using the battery? Show your work.

(b) Create a vector to hold 10 years of the annual revenue in nominal dollars.   Use pvvar() to calculate the present value of this stream of revenues at a discount rate of 8%.

(c) Subtract the capital cost from the present value of revenue to get the NPV for Project B. What is the NPV of this project? Is it profitable?

(d) Would the project be profitable at a discount rate of 10%? What is the NPV?

(e) Would the project be profitable at a discount rate of 6%? What is the NPV?

Answer 1

a. Total revenue for 1 year = 23*365*$35/MWh = $293,825

b. Present value of the annual stream of cash flow of $298,825 for 10 years is calculated using the PV of an annuity formula as in:

PV =P*(1-(1+r)^-n)/r

We have P = 293,825 from previous part and r = 0.08

PV = 293,825*(1-(1+ 0.08)^-10)/0.08

PV = $1,971,589.67

The present value of this stream of revenues at a discount rate of 8% =$1,971,589.67

Note: We have solved (a) and (b). Parts(c),(d) and (e) cannot be solved since we do not know the capital cost. Please provide the full question to answer all parts