Question

A medium scale (125 kW installed capacity) PV solar project costs $450,000 and has 200 MWh estiamted annual energy production value in Charlotte NC. The electricity is sold to the grid at $ 0.15 / kWh, paid at the location of solar system (no transmission cost). The project has a 20 year time horizon with salvage value of $ 22 thousand, and the MARR is 6 %. 1. a. Calculate the NPV of the project. b. Indicate if the project is financially attractive or not.

Answer 1

a. NPV = Present value of cash inflows - Present value of cash outflows

where, Cash outflow = $450,000

1 MWh= 1000 KWh

So 200 MWh = 200,000 KWh.

Annual cash inflows = $0.15 * 200,000 KWH

= $30,000.

Present value Interest factor Annuity @6% for 20 years (PVIFA) = 11.47 (rounded off).

PVIF for 20th year = 0.312 (rounded off)

Present value of cash inflows = ( PVIFA * Annual Cash inflows ) + ( PVIF for 20th year * $22,000 )

= ( 11.47 * $30,000 ) + ( 0.312 * $22,000 )

= $350,864.

NPV = Present value of cash inflows - Present value of cash outflows

= $350,964 - $450,000

=$99,036.

b. The project is not financially attractive as the NPV is negative for the project.