The Nizwa Power Company Ltd. has forecasted the electricity demand for a 30 year

Question

The Nizwa Power Company Ltd. has forecasted the electricity demand for a 30 years period. The demand forecast shows a lack of electricity supply in the future. At this stage, there are two altenatives to increase the supply side of the Company. The first altemative is to build a new Gas-Fired Power Station and the second one is to utilizea purchasing contract of power See the details of those two alternatives below: First option: Built a new Gas-fired Power Station The construction time is 3 years and then the unit can be taken into operation. The first payment of $100M is made just when the construction begins. During the construction period, $75M is paid after one year and another $75M after the end of second year of construction and then a payment of $100M when the unit is ready to be taken into operation. The last payment of MUSS 10 is made 5 years after the start of the station. The Gas-fired station has a maximal yearly generation of 1000 GWh. Operating and maintenance cost is 5 % of the historical acquisition cost (5% of$360M) and the annual depreciation is 5 % (lifetime 20 years considered). The gas-fired unit needs of course fuel. Every million dollar spent on fuel gives an output of 100 GWh of electrical energy Assume that the station is 100 % available all the time for generation. Second Option: Utilize a purchase power contract with an initial outlay Electric energy could also be purchased by a special purchasing contract. The contract can be utilized to a particular quantity at a fixed price per year for a given time period with an initial outlay. In our case, we purchase electricity from Muscat Power Company Ltd. They will build a new Coal-fired power station and require an initial outlay of S200M. After that initial outlay, we have to wait 3 years before they will deliver maximum 1000 GWh /year with the cost of 4.0 ¢/kWh for a 15 years period. The price of electricity delivered to the customer is 13.0 /kWh where 3.0 ¢/kWh is related to the cost of transmission and distribution (T&D;) of electricity for both of the altematives. The discount rate is 10 % and assumes no inflation and taxes. a) Calculate the cost of electricity in ¢/kWh, Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period and Discounted Payback period for the altemative to build a Gas-fired power station b) Calculate the cost of electricity in e/kWh, Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period and Discounted Payback period for the altemative to utilize a purchase power contract with an initial outlay c) Compare and explain the results from the two alternatives. d) Suggest a long-term energy-supply plan in the company in order to cover the shortage of electricity you have found out from the electricity demand forecast. (Which energy-supply side alternative will you start with and why? When will you consider the other alternative, explain?

Explanation / Answer

$ 40.00

$ 130.00

from the following excel sheet we are calculating net present values on both options is (+ve)

d)answer:
from the above following long term energy plan to supply energy storage is ppa(power purchase aggrement) plan & it depends on aggrement after 15 years.
here 1st option is best based on pay back period.here less pay back period is gas power station construction.

                           Nizwa company pvt ltd electric demand of 30 YEARS BALANCE SHEET a) First option Total Investment $     360.00 Opertation and Maintenance Cost $       18.00 5% of 360 Running Cost $       10.00 Depreciation 5% Life time 20 years Energy Generated per Year 1000 GWh Per Unit Cost $        0.13 Discount rate 10% Year Investment (MUS$) NPV Maintenance Cost (MUS$) Depreciation Per Year Year end Depreciation(MUS$) Running Cost (MUS$) Per Year Cost (MUS$) Energy Generated Per Year (GWh) Cost of Per Unit Energy Generation Income(MUS$) NPV of Income IRR Pay Back Period with Discount Pay Back Period Without Discount 0 $     100.00 $     100.00 1 $       75.00 $       68.18 36% 2.97048 10.83333 2 $       75.00 $       61.98 3 $     100.00 $       75.13 $           -360.00 4 $        18.00 $        18.00 $      342.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   88.79 5 $        18.00 $        18.00 $      324.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   80.72 6 $        18.00 $        18.00 $      306.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   73.38 7 $        18.00 $        18.00 $      288.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   66.71 8 $       10.00 $        4.67 $        18.00 $        18.00 $      270.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   60.65 9 $        18.00 $        18.00 $      252.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   55.13 10 $        18.00 $        18.00 $      234.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   50.12 11 $        18.00 $        18.00 $      216.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   45.56 12 $        18.00 $        18.00 $      198.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   41.42 13 $        18.00 $        18.00 $      180.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   37.66 14 $        18.00 $        18.00 $      162.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   34.23 15 $        18.00 $        18.00 $      144.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   31.12 16 $        18.00 $        18.00 $      126.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   28.29 17 $        18.00 $        18.00 $      108.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   25.72 18 $        18.00 $        18.00 $       90.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   23.38 19 $        18.00 $        18.00 $       72.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   21.26 20 $        18.00 $        18.00 $       54.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   19.32 21 $        18.00 $        18.00 $       36.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   17.57 22 $        18.00 $        18.00 $       18.00 $   10.00 $     46.00 1000 $         0.05 $             130.00 $   15.97 23 $        18.00 $   10.00 $     28.00 1000 $         0.03 $             130.00 $   14.52 24 $        18.00 $   10.00 $     28.00 1000 $         0.03 $             130.00 $   13.20 25 $        18.00 $   10.00 $     28.00 1000 $         0.03 $             130.00 $   12.00 26 $        18.00 $   10.00 $     28.00 1000 $         0.03 $             130.00 $   10.91 27 $        18.00 $   10.00 $     28.00 1000 $         0.03 $             130.00 $    9.92 28 $        18.00 $   10.00 $     28.00 1000 $         0.03 $             130.00 $    9.01 29 $        18.00 $   10.00 $     28.00 1000 $         0.03 $             130.00 $    8.20 30 $        18.00 $   10.00 $     28.00 1000 $         0.03 $             130.00 $    7.45 31 $        18.00 $   10.00 $     28.00 1000 $         0.03 $             130.00 $    6.77 32 $        18.00 $   10.00 $     28.00 1000 $         0.03 $             130.00 $    6.16 33 $        18.00 $   10.00 $     28.00 1000 $         0.03 $             130.00 $    5.60 Total NPV $     309.96 ####### $          3,900.00 $920.74 b) Second Option Total Investment $     200.00 million Electrical EnergyPer Year 1000 GWh Power Purchage Agreement $        0.04 /kWh No.of Years 15 Year Investment (MUS$) NPV Electrical Energy Supplied (GWh) Purchased Cost (MUS$) Income (MUS$) NPV (MUS$) IRR Pay Back Period with Discount Pay Back Period Without Discount 0 $     200.00 $     200.00 1 65% 3.820744 10.4 2 3 $    -200.00 4 1000 $         40.00 $      130.00 88.79175 5 1000 $         40.00 $      130.00 80.71977 6 1000 $         40.00 $      130.00 73.38161 7 1000 $         40.00 $      130.00 66.71056 8 1000 $         40.00 $      130.00 60.64596 9 1000 $         40.00 $      130.00 55.13269 10 1000 $         40.00 $      130.00 50.12063 11 1000 $         40.00 $      130.00 45.56421 12 1000 $         40.00 $      130.00 41.42201 13 1000 $         40.00 $      130.00 37.65637 14 1000 $         40.00 $      130.00 34.23306 15 1000 $         40.00 $      130.00 31.12097 16 1000 $         40.00 $      130.00 28.29179 17 1000 $         40.00 $      130.00 25.71981 18 1000 $         40.00 $      130.00 23.38164 19 1000

$ 40.00

$ 130.00

21.25604

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