Question

Problem:

An electric company has committed to building a solar power plant. An engineer tasked with the company has been tasked with evaluating three solar power generation technologies. The power company uses an interest rate of 10% and a 20-year planning horizon for choosing the project that best fits its budgetary and financial goals.

Design 1: Flat Solar Panels: A field of flat solar panels angled to best catch the incident solar radiation wis expected to yield a power of 2.6 MW and will cost $87 million initially with first year operating costs of $2 million, growing 250,000 annually. It will produce electricity worth $6.9 million the first year; this revenue stream is expected to increase at a simple interest rate of 12%, every year from there on (that is, 112% of 6.9 Mil in year 2, 124% of 6.9 Mil in Year 3 etc.) .

Design 2: Mechanized solar panels: A field of mechanized solar panels with motors that allow panel frame motion so that the panel themselves will be normal to incident radiation anytime of the day. This design is expected to yield a power of 3.1 MW and will cost $101 million initially with first year operating costs of $2.3 million, growing 300,000 annually. It will produce electricity worth $8.8 million the first year; this revenue stream is expected to increase at a simple interest rate of 8%, every year from there on (that is, 112% of 8.8 Mil in year 2, 124% of 8.8 Mil in Year 3 etc.) .

Design 3: Solar Collector Field: This design uses a series of Fresnel lenses and concave mirrors to concentrate solar radiation onto a boiler mounted on a tower. The boiler then produces steam, which then is used to generate electricity. This system is expected to yield a power of 3.3 MW and will cost $91 million initially with first year operating costs of $3 million, growing 350,000 annually. It will produce electricity worth $9.7 million the first year; this revenue stream is expected to increase at a simple interest rate of 8%, every year from there on (that is, 112% of 9.7 Mil in year 2, 124% of 9.7 Mil in Year 3 etc.).

What would your suggestion be to the Engineer in regard to which Design to choose based on economic considerations only?

You must show the Economic logic equations (F/P, P/F, etc.) and their solutions

Answer 1

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