Question

Develop a pro forma set of income and cash flow statements for a wind energy plant with the following parameters, and calculate the plant’s NPV, IRR and LCOE:

-Overnight capital costs are $1.2 million, all incurred in Year 0. There is no land acquisition cost assumed here.

-The plant has a salvage value of $200,000 at the end of the plant’s life

-Annual revenues from spot market sales are $400,000.

-Annual operating costs are $30,000.

-The plant qualifies for the same 3-Year MACRS schedule that we used in class.

-The plant faces a 34% tax rate

-There are no accounts payable or receivable, but the plant is assumed to have a cash net working capital requirement of $300,000, beginning in Year 0. This working capital can be liquidated at the end of the final year of operation.

-The lifetime of the plant is 5 years

-The discount rate is 20%

-The plant qualifies for a production subsidy of $200,000 per year for all operating years. A hint here is to model this production subsidy as a revenue source.

-The plant produces 10,000 Megawatt-Hours (MWh) of electricity in each year, Years 1 through 5. (You'll need this to calculate LCOE.)

Answer 1

Yearly Income Statement
Revenue 400000
Total Inflow 400000
Less: Cost -30000
Net Revenue Before Tax 430000
Less: Tax @ 34% 146200
Profit After Tax 283800
Add: Subsidy 200000
Total Cash Inflow every year 483800
Cash Flow Statement
Year Particulars $ PVF@20% PV
0 Overnight Capital Cost -1200000 1 -1200000
0 Working Capital -300000 1 -300000
1-5 Cash Inflow every yr 483800 2.991 1447046
5 Slavage Value +WC released 500000 0.402 201000
NPV 148046
The levelized cost of electricity (LCOE), also known as Levelized Energy Cost (LEC), is the net present value of the unit-cost of electricity over the lifetime of a generating asset. = NPV / MWh per year x Life of Project = 148046/10000*5 74.0229
Computation of IRR
Yr Cash Flow
0 -1500000
1 483800
2 483800
3 483800
4 483800
5 983800

• IRR 24% ​​

  Yearly Income Statement
  	Revenue			400000
  	Total Inflow			400000
  Less:	Cost			-30000
  	Net Revenue Before Tax			430000
  Less:	Tax @ 34%			146200
  	Profit After Tax			283800
  Add:	Subsidy			200000
  	Total Cash Inflow every year			483800 Yearly Income Statement Revenue 400000 Total Inflow 400000 Less: Cost -30000 Net Revenue Before Tax 430000 Less: Tax @ 34% 146200 Profit After Tax 283800 Add: Subsidy 200000 Total Cash Inflow every year 483800 Cash Flow Statement Year Particulars $ PVF@20% PV 0 Overnight Capital Cost -1200000 1 -1200000 0 Working Capital -300000 1 -300000 1-5 Cash Inflow every yr 483800 2.991 1447046 5 Slavage Value +WC released 500000 0.402 201000 NPV 148046 The levelized cost of electricity (LCOE), also known as Levelized Energy Cost (LEC), is the net present value of the unit-cost of electricity over the lifetime of a generating asset. = NPV / MWh per year x Life of Project = 148046/10000*5 74.0229 Computation of IRR Yr Cash Flow 0 -1500000 1 483800 2 483800 3 483800 4 483800 5 983800 IRR 24%