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7.2 GENERATION CAPACITY FROM AN INVESTOR’S PERSPECTIVE 211
Incremental Internal Rate of Return (%)
16
14
12
10
8
6
4
2
0
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1
Utilization factor
Figure 7.3 Incremental Internal Rate of Return that Borduria Power would achieve by investing
in a coal plant rather than a CCGT plant
7.2.1.3 Example 7.3
While Borduria Power is considering building a plant that burns fossil fuel, Nick, the
managing director of Syldavian Wind Power Ltd., has identified a promising site for
the development of a 100-MW wind farm. The table below shows the plant parameters
that Nick considers in his preliminary profitability calculation.
Investment cost 919 $/kW
Expected plant life 30 years
Heat rate at nominal output 0
Expected fuel cost 0
Adapted from DOE data cited by S. Stoft (2002).
The initial investment cost is thus: 919 $/kW × 100 MW = $91 900 000
Since the wind is free and the maintenance and operation costs are neglected in
this first approximation, Nick does not need to consider an annual production cost. At
32 $/MWh, his best estimate of the average price of electricity during the lifetime of
the plant happens to be identical to the one used by Borduria Power. Even though the
site that Nick is considering has an excellent wind regime, the utilization factor of a
wind farm is unlikely to exceed 35%.
Annual production:
0.35 × 100 MW × 8760 h/year = 306 600 MWh
Annual revenue:
306 600 MWh × 32 $/MWh = $9 811 200