Reference no: EM131155602

Economics: Project.

REQUIREMENTS

1. Research three of the six scenarios given below for added capacity to uncover any additional costs/benefits to society these options might pose.Write a two-page summary describing each scenario.
Discuss the pros and cons of each scenario, including such items as renewable sources of fuel, environmental factors, etc. Give examples of each type of project by name and location and indicate the sources of your information.

2. Do an economic analysis of the three options. Use a 20-year period and assume an inflation rate of 4 percent. Include your calculations and any assumptions in the report. Also, answer the following

Questions:

a) Which scenario is the best from an economic standpoint?
B) Are there any other considerations, such as environmental/health/social issues, which have impacted this option and to what extent?
C) What is the estimated timeframe to implement the different options?
3. Make a recommendation regarding the best option for the utility.

OPTIONS

A utility company in one of the western states is considering the addition of 50 megawatts of generating the capacity to meet expected demands for electrical energy by the year 2025. The three options that the utility has are:

1. Add generating capacity. Constructing one of the scenarios below would do this.
2. Purchase power from Canada under terms of a 20-year contract.
3. Do neither of the above. This assumes that brownouts will occur during high demand periods.

The utility presently has 200 megawatts of installed capacity and generates an average of 1.2 billion kilowatt-hours annually. Maximum generation capability is 1.3 billion kW-hours. By the year 2025, this reserve of 100,000,000 kW-hours will be used.

OPTION 1 - ADD GENERATING CAPACITY

For this option there are six possible scenarios:

a) Hydroelectric dam. Initial cost is $ 50 million. Annual operating and maintenance cost is $ 1.7 million. Project life is 30 years before a major rebuild is required.

b) Wind farm. Initial cost is $ 28 million. Annual operating and maintenance cost is $ 2.5 million. Project life is 12 years. At this time new equipment will be required.

c) Solar power. Initial cost is $ 32 million. Annual operating and maintenance cost is $ 1.1 million. Project life is 10 years.

d) Natural gas turbines. Initial cost is $ 14 million. Annual operating and maintenance cost is $2.0 million. Project life is 12 years.

e) Nuclear plant. Initial cost is $ 70 million. Annual operating and maintenance cost is $ 2.0 million. Project life is 25 years.

f) Coal-fired turbines. Initial cost is $ 35 million. Annual operating and maintenance cost is $ 2.7 million. Project life is 28 years.

OPTION 2 - BUY POWER FROM CANADA

The annual additional energy requirement is 350,000,000 kilowatt-hours. The cost of energy from Canada is 1.48 cents per kilowatt-hour for the first year. The price will be escalated at 4 percent annually for the 20-year contract period.

OPTION 3 - DO NOTHING

Local municipalities are very opposed to this option since companies may have to close down for short periods of time. Also, it would be very difficult to attract new businesses. If nothing is done, by the year 2025 it is anticipated that some companies will be without power for short periods of time during the summer months. These are known as brownouts. It is estimated, based on historical data that these outages will occur once a week during July and August for periods of 6 hours.