Nizwa Power Companv Ltd The Nizwa Power Company Ltd. has forecasted the electric
ID: 2249983 • Letter: N
Question
Nizwa Power Companv Ltd The Nizwa Power Company Ltd. has forecasted the electricity demand for a 30 years period. The demand forecast shows a lack of electricity supply in the future. At this stage, there are two alternatives to increase the supply side of the Company. The first alternative is to build a new Gas-Fired Power Station and the second one is to utilize a purchasing contract of power. See the details of those two alternatives below First option: Built a new Gas-fired Power Station The construction time is 3 years and then the unit can be taken into operation. The first payment of $100M is made just when the construction begins. During the construction period, $75M is paid after one year and another $75M after the end of second year of construction and then a payment of S100M when the unit is ready to be taken into operation. The last payment of MUSS 10 is made 5 years after the start of the station The Gas-fired station has a maximal yearly generation of 1000 GWh. Operating and maintenance cost is 5 % of the historical acquisition cost (5% of $360M) and the annual depreciation is 5 % (lifetime 20 years considered). The gas-fired unit needs of course fuel. Every milion dollar spent on fuel gives an output of 100 GWh of electrical energy Assume that the station is 100 % available all the time for generation Second Option: Utilize a purchase power contract with an initial outlay Electric energy could also be purchased by a special purchasing contract. The contract can be utiized to a particular quantity at a fixed price per year for a given time period with an initial outlay. In our case, we purchase electricity from Muscat Power Company Ltd. They will build a new Coal-fired power station and require an initial outlay of S200M. After that initial outlay, we have to wait 3 years before they will deliver maximum 1000 GWh/year with the cost of 4.0 ¢/kWh for a 15 years period. The price of electricity delivered to the customer is 13.0 ¢/kWh where 3.0 e/kWh is related to the cost of transmission and distribution (T&D;) of electricity for both of the alternatives. The discount rate is 10 % and assumes no inflation and taxes a) Calculate the cost of electricity in c/kWh, Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period and Discounted Payback period for the alternative to build a Gas-fired power station b) Calculate the cost of electricity in ¢/kWh, Net Present Value (NPV), Internal Rate of Return (IRR), Payback Period and Discounted Payback period for the alternative to utilize a purchase power contract with an initial outlay. c) Compare and explain the results from the two alternatives d) Suggest a long-term energy-supply plan in the company in order to cover the shortage of electricity you have found out from the electricity demand forecast (Which energy-supply side alternative will you start with and why? When will you consider the other alternative, explain?)Explanation / Answer
Construction of time=3year...Million
First payment=100M
Iyear payment=75M
2nd payment =75M
Ready for operation=100M
Total install cost=350M
Operating cost
Operating and maintance cost=5%*360=18M
Depreciation cost=5%*360=18M
1000Gwh power generation ffuel cost=10M(outflow)
Total price of electricity=13$/kwh*1000Gwh=13000000M$(inflow)
Actual price of electricity=10$/kwh*1000(why because 3 $/kwh for T&D)
At 20 year=13*20=260*10^6M
Total cost investment=396M$
Net present value=inflow-outflow=13*10^6-10M=3M
similary do for option b
B)power contract
Price of Electricity for =1000Gwh*15*4=60*10^9M$
Total cost invesment=200M
3 year electricity=13000*3=39*10^9
my conclusion gas power generation is prefre ...you will get extra 5year and profit also.it better to choose
i dont have sufficient time to complete other wise i will do pay back calculation
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