Question

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.
$_________

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.)
$__________

Answer 1

Initial installation cost expected is $1200/kilowatt hr. of capacity

Wind turbine has a capacity of generating 2 megawatts /hr

But wind capacity factor is 25% which is the reduction due to the variability of wind

So initial cost of installation = 1200*2*1000*1.25

= $ 3000000

b) operating cost per wind turbine megawatt hr is$ 10

So annual operating cost is 2*10*8*365*1.25 =$ 73000

(assuming 8hr operation cycle per day)

And variable operating /natural gas megawatt hr is 95*8*365=$277400

So annual cost saving =$204400 =$200000

c) NPV is 200000*( 1 - 1.12^-15/.12) =1362172