3. [6] A municipality is considering an investment in a small renewable energy p

Question

3. [6] A municipality is considering an investment in a small renewable energy power plant with the following parameters. The cost is $360,000, and the output averages 50 kW year-round. The price paid for electricity at the plant gate is S0.039/kWh. The investment is to be evaluated over a 25-year time horizon, and the expected salvage value at the end of the project is $20,000. The MARR is 6%. (a). Calculate the NPV of this investment. Is it financially attractive? (b). Calculate the operating credit per kWh which the government would need to give the investment in order to make it break even financially. Express your answer to the nearest 1/1000th of dollars.

Explanation / Answer

Initial outlay= 3,60,000$

Output is 50Kw/h

Yearly output= 50*24*365= 438000 kW

Revenue annual= 438000*0.039= 17082$

NPV= 360000 - {17082/(1.06)+ 17082/(1.06)2.....+n

NPV= - 141634.71$

No, the project is not attractive due to negative NPV.

2. To make the project breakdown goverment should provide credit

360000/ 438000= 0.8219 per kWh

Credit = 0.8219- 0.039= 0.7829$ per kwh

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