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.)
Transcribed Image Text:Present Value of Ordinary Annulty of $1 per Perlod Present Value of Ordinary Annulty of $1 per Period Periods 4.0% 4.5% 5% 5.5% 6% 6.5% 7% Periods 8% 9% 10% 11% 12% 13% 14% 0.96154 0.95694 0.94340 0.00090 0.90909 1.73554 2.48685 3.16987 3.79079 1 0.95238 0.94787 0.93897 0.93458 1 0.92593 0,91743 0.89286 0,88496 0.87719 1.88609 2.77509 3.62990 1.87267 2.74896 3.58753 4.38098 1.85941 1.84632 1.83339 1.82063 1.80802 1.78326 1.75911 1,71252 1.69005 1,66810 1,64666 2.72325 3.54595 4.32948 2.64848 342580 2.53129 3.23972 3.88965 2.36115 2.97447 2.32163 2.91371 3.43308 2.67301 2.62432 3 2.57710 2.44371 2.40183 3.31213 3.99271 4 3.50515 3.46511 3.38721 4 3.10245 3.03735 5 4.45182 4.27028 4.21236 4.15568 4.10020 5 3.60590 3.60478 3.51723 5.24214 4.99553 4.91732 5.58238 6.20979 6.80169 4.84101 4.76654 5.38929 5.97130 6 5.15787 5.07569 4.62288 4.48592 4.35526 4.23054 4.11141 3.99755 3.88867 5.89270 6.59589 7.26879 5.78637 6.46321 7.10782 7.72173 6.00205 5.48452 5.03295 5.53482 5.99525 7 5.68297 7 5.20637 4.86842 4.71220 4.56376 4.42261 4.28830 5.33493 5.75902 6.33457 6.08875 6.65610 6.73274 8 5.74664 5.14612 4.96764 4.79677 4.63886 7.43533 8.11090 6.51523 7.02358 6.95220 6.24689 5.53705 5.32825 5.13166 4.94637 10 7.91272 7.53763 7.36009 7.18883 10 6.71008 6.41766 6.14457 5.88923 5.65022 5.42624 5.21612 8.76048 9.38507 9.98565 8.52892 9.11858 7.88687 8.38384 8.85268 7.49867 7.94269 8.35765 7.13896 7.53608 6.80519 7.16073 6.49506 6.81369 5.45273 5.66029 11 8.30641 8.09254 7.68904 11 6.20652 5.93770 5.68694 8.61852 9.11708 12 8.86325 8.15873 12 6.49236 6.19437 5.91765 7.90378 8.22424 8.55948 7.48690 7.78615 6.12181 6.30249 6.46238 13 9.68285 9.39357 8.59974 13 7.10336 6.74987 6.42355 5.84236 10.22283 10.73955 8.74547 9.10791 6.96187 7.19087 6.62817 6.81086 14 10.56312 9.89864 9.58965 9.29498 9.01384 14 7.36669 6.00207 15 11.11839 10.37966 10.03758 9.71225 9.40267 15 8.06069 7.60608 6.14217 16 11.65230 11.23402 10.83777 10.46216 10.10590 9.76776 9.44665 16 8.85137 8.31256 7.82371 7.37916 6.97399 6.60388 6.26506 11.70719 12.15999 12.59329 10.86461 11.24607 11.60765 7.11963 7.24967 17 12.16567 11.27407 10.47726 10.11058 9.76322 17 9.12164 8.54363 8.02155 7.54879 6.72909 6.37286 11.68959 12.08532 10.82760 11.15812 10.43247 10.73471 18 12.65930 10.05909 18 9.37189 8.75563 8.20141 7.70162 6.83991 6.46742 19 13.13394 10.33560 19 9.60360 8.95011 8.36492 7.83929 7.36578 6.93797 6.55037 20 13.59033 13.00794 12.46221 11.95038 11.46992 11.01851 10.59401 20 9.81815 9.12855 8.51356 7.96333 746944 7.02475 6.62313 11.76408 12.04158 8.64869 8.77154 8.88322 8.98474 21 14.02916 13.40472 12.82115 12.27524 11.28498 10.83553 21 10.01680 9.29224 8.07507 7.56200 7.10155 6.68696 13.16300 13.48857 13.79864 14.09394 11.53520 11.77014 11.99074 12.19788 11.06124 11.27219 11.46033 11.65358 10.20074 10.37106 10.52876 6.74294 6.79206 6.83514 8.17574 7.64465 7.16951 7.22966 7.28288 22 14.45112 13.78442 12.58317 22 9.44243 14.85684 15.24696 15.62208 12.87504 13.15170 13.41393 12.30338 12.55036 12.78336 9.58021 9.70661 7.71843 7.78432 23 14.14777 23 8.26643 14.49548 14.82821 24 24 8.34814 25 25 10.67478 9.82258 9.07704 8.42174 7.84314 7.32998 6.87293 15.98277 16.32959 15.14661 15.45130 13.00317 13.21053 13.40616 13.59072 11.82578 14.37519 14.64303 14.89813 13.66250 12.39237 12.57500 7.37167 7.40856 26 26 10.80998 9.92897 9.16095 8.48806 7.89566 6.90608 13.89810 14.12142 14.33310 11.98671 12.13711 6.93515 6.96066 27 27 10.93516 10.02658 9.23722 8.54780 7.94255 28 16.66306 15.74287 12.74648 28 11.05108 10.11613 9.30657 8.60162 7.98442 7.44120 12.90749 9.36961 7.47009 7.49565 29 16.98371 16.02189 15.14107 12.27767 29 11.15841 10.19828 8.65011 8.02181 6.98304 30 17.29203 16.28889 15.37245 14.53375 13.76483 13.05868 12.40904 30 11.25778 10.27365 9.42691 8.69379 8.05518 7.00266 13.92909 14.08404 13.20063 13.33393 1345909 17.58849 15.59281 15.80268 16.00255 16.19290 14.72393 14.90420 12.53181 12.64656 11.34980 11.43500 8.08499 8.11159 7.51828 7.53830 7.55602 7.57170 7.58557 7.01988 7.03498 31 16.54439 31 10.34280 9.47901 8.73315 10.40624 10.46444 32 17.87355 16.78889 32 9.52638 8.76860 17.02286 9.56043 9.60857 8.80054 8.82932 33 18.14765 15.07507 14.23023 12.75379 33 11.51389 8.13535 7.04823 34 18.41120 17.24676 15.23703 14.36814 13.57661 12.85401 11.58693 11.65457 34 10,51784 815656 7.05985 35 18.66461 17.46101 16.37419 15.39055 14.49825 13.68696 12.94767 35 10.56682 9.64416 8.85524 8.17550 7.07005 40 19.79277 18.40158 17.15909 16.04612 15.04630 14.14553 13.33171 40 11.92461 10.75736 9.77905 8.95105 8.24378 7.63438 7.10504 45 20.72004 19.15635 17.77407 16.54773 15.45583 14.48023 13.60552 45 12.10840 10.88120 9.86281 9.00791 8.28252 7.66086 7.12322 50 21.48218 19.76201 18.25593 16.93152 15.76186 14.72452 13.80075 50 12.23348 10.96168 9.91481 9.04165 8.30450 7.67524 7.13266

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.)

Present Value of Ordinary Annulty of $1 per Perlod
Present Value of Ordinary Annulty of $1 per Period
Periods
4.0%
4.5%
5%
5.5%
6%
6.5%
7%
Periods
8%
9%
10%
11%
12%
13%
14%
0.96154
0.95694
0.94340
0.00090
0.90909
1.73554
2.48685
3.16987
3.79079
1
0.95238
0.94787
0.93897
0.93458
1
0.92593
0,91743
0.89286
0,88496
0.87719
1.88609
2.77509
3.62990
1.87267
2.74896
3.58753
4.38098
1.85941
1.84632
1.83339
1.82063
1.80802
1.78326
1.75911
1,71252
1.69005
1,66810
1,64666
2.72325
3.54595
4.32948
2.64848
342580
2.53129
3.23972
3.88965
2.36115
2.97447
2.32163
2.91371
3.43308
2.67301
2.62432
3
2.57710
2.44371
2.40183
3.31213
3.99271
4
3.50515
3.46511
3.38721
4
3.10245
3.03735
5
4.45182
4.27028
4.21236
4.15568
4.10020
5
3.60590
3.60478
3.51723
5.24214
4.99553
4.91732
5.58238
6.20979
6.80169
4.84101
4.76654
5.38929
5.97130
6
5.15787
5.07569
4.62288
4.48592
4.35526
4.23054
4.11141
3.99755
3.88867
5.89270
6.59589
7.26879
5.78637
6.46321
7.10782
7.72173
6.00205
5.48452
5.03295
5.53482
5.99525
7
5.68297
7
5.20637
4.86842
4.71220
4.56376
4.42261
4.28830
5.33493
5.75902
6.33457
6.08875
6.65610
6.73274
8
5.74664
5.14612
4.96764
4.79677
4.63886
7.43533
8.11090
6.51523
7.02358
6.95220
6.24689
5.53705
5.32825
5.13166
4.94637
10
7.91272
7.53763
7.36009
7.18883
10
6.71008
6.41766
6.14457
5.88923
5.65022
5.42624
5.21612
8.76048
9.38507
9.98565
8.52892
9.11858
7.88687
8.38384
8.85268
7.49867
7.94269
8.35765
7.13896
7.53608
6.80519
7.16073
6.49506
6.81369
5.45273
5.66029
11
8.30641
8.09254
7.68904
11
6.20652
5.93770
5.68694
8.61852
9.11708
12
8.86325
8.15873
12
6.49236
6.19437
5.91765
7.90378
8.22424
8.55948
7.48690
7.78615
6.12181
6.30249
6.46238
13
9.68285
9.39357
8.59974
13
7.10336
6.74987
6.42355
5.84236
10.22283
10.73955
8.74547
9.10791
6.96187
7.19087
6.62817
6.81086
14
10.56312
9.89864
9.58965
9.29498
9.01384
14
7.36669
6.00207
15
11.11839
10.37966
10.03758
9.71225
9.40267
15
8.06069
7.60608
6.14217
16
11.65230
11.23402
10.83777
10.46216
10.10590
9.76776
9.44665
16
8.85137
8.31256
7.82371
7.37916
6.97399
6.60388
6.26506
11.70719
12.15999
12.59329
10.86461
11.24607
11.60765
7.11963
7.24967
17
12.16567
11.27407
10.47726
10.11058
9.76322
17
9.12164
8.54363
8.02155
7.54879
6.72909
6.37286
11.68959
12.08532
10.82760
11.15812
10.43247
10.73471
18
12.65930
10.05909
18
9.37189
8.75563
8.20141
7.70162
6.83991
6.46742
19
13.13394
10.33560
19
9.60360
8.95011
8.36492
7.83929
7.36578
6.93797
6.55037
20
13.59033
13.00794
12.46221
11.95038
11.46992
11.01851
10.59401
20
9.81815
9.12855
8.51356
7.96333
746944
7.02475
6.62313
11.76408
12.04158
8.64869
8.77154
8.88322
8.98474
21
14.02916
13.40472
12.82115
12.27524
11.28498
10.83553
21
10.01680
9.29224
8.07507
7.56200
7.10155
6.68696
13.16300
13.48857
13.79864
14.09394
11.53520
11.77014
11.99074
12.19788
11.06124
11.27219
11.46033
11.65358
10.20074
10.37106
10.52876
6.74294
6.79206
6.83514
8.17574
7.64465
7.16951
7.22966
7.28288
22
14.45112
13.78442
12.58317
22
9.44243
14.85684
15.24696
15.62208
12.87504
13.15170
13.41393
12.30338
12.55036
12.78336
9.58021
9.70661
7.71843
7.78432
23
14.14777
23
8.26643
14.49548
14.82821
24
24
8.34814
25
25
10.67478
9.82258
9.07704
8.42174
7.84314
7.32998
6.87293
15.98277
16.32959
15.14661
15.45130
13.00317
13.21053
13.40616
13.59072
11.82578
14.37519
14.64303
14.89813
13.66250
12.39237
12.57500
7.37167
7.40856
26
26
10.80998
9.92897
9.16095
8.48806
7.89566
6.90608
13.89810
14.12142
14.33310
11.98671
12.13711
6.93515
6.96066
27
27
10.93516
10.02658
9.23722
8.54780
7.94255
28
16.66306
15.74287
12.74648
28
11.05108
10.11613
9.30657
8.60162
7.98442
7.44120
12.90749
9.36961
7.47009
7.49565
29
16.98371
16.02189
15.14107
12.27767
29
11.15841
10.19828
8.65011
8.02181
6.98304
30
17.29203
16.28889
15.37245
14.53375
13.76483
13.05868
12.40904
30
11.25778
10.27365
9.42691
8.69379
8.05518
7.00266
13.92909
14.08404
13.20063
13.33393
1345909
17.58849
15.59281
15.80268
16.00255
16.19290
14.72393
14.90420
12.53181
12.64656
11.34980
11.43500
8.08499
8.11159
7.51828
7.53830
7.55602
7.57170
7.58557
7.01988
7.03498
31
16.54439
31
10.34280
9.47901
8.73315
10.40624
10.46444
32
17.87355
16.78889
32
9.52638
8.76860
17.02286
9.56043
9.60857
8.80054
8.82932
33
18.14765
15.07507
14.23023
12.75379
33
11.51389
8.13535
7.04823
34
18.41120
17.24676
15.23703
14.36814
13.57661
12.85401
11.58693
11.65457
34
10,51784
815656
7.05985
35
18.66461
17.46101
16.37419
15.39055
14.49825
13.68696
12.94767
35
10.56682
9.64416
8.85524
8.17550
7.07005
40
19.79277
18.40158
17.15909
16.04612
15.04630
14.14553
13.33171
40
11.92461
10.75736
9.77905
8.95105
8.24378
7.63438
7.10504
45
20.72004
19.15635
17.77407
16.54773
15.45583
14.48023
13.60552
45
12.10840
10.88120
9.86281
9.00791
8.28252
7.66086
7.12322
50
21.48218
19.76201
18.25593
16.93152
15.76186
14.72452
13.80075
50
12.23348
10.96168
9.91481
9.04165
8.30450
7.67524
7.13266

Accepted Answer

a.
Capital investment for sustainability:
Capital investment for sustainability refers to the…