A wind turbine with a capital cost of $3 million delivers 5 million kWh/yr. Assu

Question

A wind turbine with a capital cost of $3 million delivers 5 million kWh/yr. Assuming a 35% corporate tax rate and a 9% corporate discount rate, find the following.

a. The present value of the 5-year MACRS (40%, 25%, 15%, 10%, 5%, and 5%) depreciation assuming it starts at the end of the first year of operation.

b. The present value of the production tax credit (PTC) assuming a 10-year PTC at a fixed 2.3/kWh first paid at the end of the first year of operation.

c. What is the net capital cost if we subtract the present values of its MACRS and PTC payments?

d. Assuming the above net cost is amortized using a 20-year, 9% CRF, what is the levelized cost of electricity for this turbine? Compare it to the LCOE without MACRS and PTC.

Explanation / Answer

Present Value 5 year MACR Depreciation

Present Value 6 year MACR Depreciation

B- 2.30 per kwh hence PAT For 5 million kwh= =2.30*5=11.50 million per year

CALCULATION OF PV OF PTC

Sum of PVF @ 9% for 10 year= 6.4176

PV of PTC= $11.50*6.4176= $ 73.80 Million

C- Tax Saving on Depreciation @ 35%= $836387

Net Capital Cost= 3000000- $836387= $2163613

Note- I have taken 9% Discount Rate assuming it is After tax, otherwise we can take 9%*.65=5.85%

Cost $3,000,000.00 Year Depreciation Dep. Rate PVF @ 9% Dep.*PVF 1 $1,200,000.00 40% 0.917431 $1,100,917.43 2 $750,000.00 25% 0.84168 $631,259.99 3 $450,000.00 15% 0.772183 $347,482.57 4 $300,000.00 10% 0.708425 $212,527.56 5 $150,000.00 5% 0.649931 $97,489.71 PV   $2,389,677.26

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