Contemporary Engineering Economics 6th Edition by Chan Park

Exercise 44

A California utility firm is considering building a 50-megawatt geothermal plant that generates electricity from naturally occurring underground heat. The binary geothermal system will cost $85 million to build and $6 million (including any income-tax effect) to operate per year. (Virtually no fuel costs will accrue compared with fuel costs related to a conventional fossil-fuel plant.) The geothermal plant is to last for 25 years. At that time, its expected salvage value will be about the same as the cost to remove the plant. The plant will be in operation for 70% (plant utilization factor) of the year (or 70% of 8,760 hours per year). If the firm's MARR is 14% per year, determine the cost per kilowatt-hour of generating electricity.