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

a)

b)

c) net capital cost

= NPV of Depreciation cost - NPV of PTC

= $1611426-$738030

= $873396

d)  Assuming the above net cost is amortized using a 20-year, 9% CRF, what is the levelized cost of electricity for this turbine?

LOCE = present value of total costs ($)/ present value of all energy produced over project lifetime

= 873396/4564273*

= 191.35 MWh

Year Depreciation % Depreciation Tax benefit on depreciation Net Depreciation cost DF@9% PV 0 0 1 40 1200000 420000 780000 0.917431 715596.3 2 25 750000 262500 487500 0.84168 410319 3 15 450000 157500 292500 0.772183 225863.7 4 10 300000 105000 195000 0.708425 138142.9 5 5 150000 52500 97500 0.649931 63368.31 6 5 150000 52500 97500 0.596267 58136.06 Total of present value 1611426

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.