Determine the annual cost savings from the wind turbine

Reference no: EM132199123

Question - Wind turbine capital investment analysis

Central Plains Power Company is considering an investment in wind farm technology to reduce its use of natural gas. Initial installation costs are expected to be $1,200 per kilowatt-hour of capacity. The wind turbine has a capacity of generating 2 megawatts per hour. A kilowatt-hour is 1,000 watts generated per hour and a megawatt hour is 1,000 kilowatts generated per hour.

Annual operating information related to the wind turbine project was developed as follows:

Wind capacity factor	25%*
Operating cost per wind turbine megawatt hour	$10
Variable operating, fuel, and maintenance costs per natural gas megawatt hour	$95
Days per year	365

*A factor that measures the reduction from full capacity due to the variability of wind.

a. Determine the initial investment cost of the wind turbine.

b. Determine the annual cost savings from the wind turbine in replacing natural gas generation. Round to nearest whole dollar.

c. Determine the net present value of the project assuming a 15-year life and 12% minimum rate of return.

Reference no: EM132199123

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