# Combined Cycle Gas Turbine

An electric utility is considering building a new combined cycle natural gas turbine unit for power generation. It has the following information:

• The unit's capacity would be 200 megawatts (MW) which is 200,000 kilowatts (kW).
• The cost of building the unit would be $590 per kW of capacity. Be sure to note that the price is per kilowatt, not per megawatt. • The utility expects the unit to last for 20 years and to be used 65% of the time every year (the fraction of time a generating unit runs is known as its capacity factor). • Maintenance on the unit will cost$3.5 million each year.
• A generating unit's heat rate is the amount of energy required per kilowatt hour (kWh) produced. The heat rate for this unit would be 6,800 British Thermal Units (BTU) per kWh.
• Natural gas is traded in units of 1,000 cubic feet (mcf). Each cubic foot of gas has a heat content very close to 1,000 BTU so the heating value of 1 mcf is can be taken to be 1 million BTU.
• The unit's electricity can be sold for $0.07 per kWh. • The utility uses an interest rate of 15% when doing present value calculations. The utility is not sure what the price of gas will be per mcf. It would like to know the net present value of the turbine under three scenarios:$6/mcf, $7/mcf and$8/mcf.

In doing the calculations, you should assume that all construction costs are paid in year 0 and the turbine operates from year 1 to year 20 (that is, maintenance, fuel costs and revenue apply in years 1-20). Also, you may assume that all prices and costs will be constant over the life of the turbine. In the first scenario, for example, take the price of gas to be \$6/mcf in every year.

## Solution

 PDF file Excel file
URL: https://wilcoxen.maxwell.insightworks.com/pages/2721.html
Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 06/01/2008