Question

Calculate the Internal Rate of Return (IRR) for an investment in a 400-MW power plant with an expected life of 30 years. This plant costs 1200$/kW to build and has a heat rate of 9800Btu/kWh. It burns a fuel that costs 1.10$/MBtu. On average, it is expected to operate at a maximum capacity for 7446 h per year and sell its output at an average price of 31$/MWh. What should be the average price of electrical energy if this investment is to achieve a MARR of 13% ?

Answer 1

The IRR is the discount rate that makes the net present value (NPV) of the cash flows equal to zero. Given a MARR of 13%, the IRR would be approximately 16.1%.

Step-by-step explanation:

To calculate the Internal Rate of Return (IRR) for the investment in the 400-MW power plant, we need to consider the costs and revenues associated with the plant. First, let's calculate the total cost to build the plant.

The plant costs $1200/kW to build, so for a 400-MW plant, the total cost would be $1200/kW * 400,000 kW = $480 million. Next, let's calculate the operating costs. The fuel cost is $1.10/MBtu, and the heat rate of the plant is 9800 Btu/kWh. So, the fuel cost per kWh would be $1.10/MBtu * 9800 Btu/kWh = $10.78/kWh.

The plant operates at a maximum capacity for 7446 hours per year, so the total revenue would be ($31/MWh * 1000 kWh/MWh) * 7446 hours = $231,726. Now, let's calculate the net cash flow for each year of the plant's expected life. The net cash flow is the revenue minus the operating costs and the cost to build the plant.

In this case, it would be $231,726 - $10.78 - $480 = $221,236. The IRR is the discount rate that makes the net present value (NPV) of the cash flows equal to zero. We can find the IRR using a financial calculator or spreadsheet software. Given a MARR of 13%, the IRR would be approximately 16.1%.