A university management decided to invest in renewable energy.
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A university management decided to invest in renewable energy. A solar power plant with a capacity of 500 kW (kilowatts) is to be installed in the campus. Total investment and operating cost of the plant is predicted to be $ 2 million with a useful life of 10 years. Considering weather conditions and the system efficiency, two different scenarios are considered for electricity production. In the first scenario, which is predicted to occur with a chance of 67%, total electricity production for a period of 10 years is expected to be 50 MW (Megawatt); whereas 30 MW in the second scenario, which has a likelihood of 33%. Up to 30 MW of production, the price is fixed at $0.13/kW. However, an average price of $ 0.06/kW is predicted for the sale above 30 MW. University management is looking for a preliminary contract to sell the surplus amount. One of electricity distribution companies has offered them a purchase option for $500 K. In return; the company will buy the production amount over 30 MW of electricity at the price of $ 0.13/kW. Considering the two scenarios, what would you suggest to the university management? Justify your suggestion.
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