Develop a simulation model to find the net present value

Reference no: EM131439778

Question: Waring Solar Systems provides solar panels and other energy-efficient technologies for buildings. In response to a customer inquiry, the company is conducting a feasibility study to determine if solar panels will provide enough energy to pay for themselves within the payback period. Capacity is measured in MWh/year (1000 kWh). This figure is determined by the number of panels installed and the amount of sunlight the panels receive each year. Capacity can vary greatly due to weather conditions, especially clouds and snow. Engineers have determined that this client should use an 80MWh/year system. The cost of the system and installation is $80,000. The amount of power the system will produce is normally distributed with a standard deviation of 10 MWh/year. The solar panels become less efficient over time mostly due to clouding of their protective cases. The annual loss in efficiency is normally distributed with a mean of 1% and a standard deviation of 0.2% and will apply after the first year. The client currently obtains electricity from its provider at a rate of $0.109/kWh. Based on analysis of previous years' electric bills, the annual cost of electricity is expected to increase following a triangular distribution with most likely value of 3%, min of 2.5%, and max of 4%, beginning with the first year. The cost of capital is estimated to be 5%. Develop a simulation model to find the net present value of the technology over a 10-year period, including the system and installation cost. What is the probability that the system will be economical?

Reference no: EM131439778

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