An electric plant that produces 2 billion kWh/year has an initial capital cost of $500 million and an expected lifetime of 20 years, with no remaining salvage value. The capital cost of the plant is repaid at 7% interest. Total operating cost at the plant is $25 million/year, and annual return to

Question

An electric plant that produces 2 billion kWh/year has an initial capital cost of $500 million and an expected lifetime of 20 years, with no remaining salvage value. The capital cost of the plant is repaid at 7% interest. Total operating cost at the plant is $25 million/year, and annual return to investors is estimated at 10% of the operating cost plus capital repayment cost. What is the levelized cost of electricity, in $/kWh?

Accepted Answer

First, annualize the capital cost using (A/P, 7%, 20) = 0.0944. The annual cost of capital is then (5 × 10[latex]^8[/latex])(0.0944) = $47.2 million. Total annual cost is therefore $72.2 million, and return to investors is $7.22 million. Then levelized cost is

[($72.2 million) + ($7.22 million)] / 2 billion kWh = $0.0397/kWh

For comparison, the average electrical energy price in the United States in 2004 across all types of customers was $0.0762/kWh, including the cost of transmission. Thus depending on the average price paid for transmission, this plant would be reasonably competitive in many parts of the U.S. market.

Question 3.5: An electric plant that produces 2 billion kWh/year has an in...

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