A university spent $1.8 million to install solar panels atop a parking garage. T

Question

A university spent $1.8 million to install solar panels atop a parking garage. These panels will have a capacity of 500kw, have a life expectancy of 20 years and suppose the discount rate is 10%.

a. If electricity can be purchased for costs of $0.10 per kwh, how many hours per year will the solar panels have to operate to make this project break even?

b. If efficient systems operate for 2400 hours per year, would the project break even?

c. The university is seeking a grants to cover capital cost . How big of a grant would make this   project worthwhile (to the university)?

Explanation / Answer

The present value factor for an annuity for 20 years at 10% is 8.5136. So to be worthwhile the project would have to save 1,800,000/8.5136 =211,426.42 per year. 500*.10= 50.00 so they would need 211,426.42/50 =4,228.53 hours of operation to make the project worthwhile. Only operating 2,400 hours a year wont get the job done; the project wont break even. At 2,400 hours the project saves 2,400*50= 120,000 per year. 120,000 *8.5136= 1,021,632 so the university would need a grant of 1,800,000-1,021,632= 778,368 so make the project worthwhile.

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