engineering economy

Project Description:

the valley authority (va) wants to construct a 150-mw peaking power plant to meet the demand for additional electricity. two alternatives are under consideration. one is to construct a combustion turbine plant, which is particularly well suited for peaking operation because of its low capital cost. its most serious disadvantage is its poor thermal efficiency, which affects the fuel and operating costs. also under consideration is a fuel-cell plant, which provides better thermal efficiency even though it is relatively more expensive to construct. assume the fuel and operating costs are expected to increase at the rate of 6% per year, even though the amount of energy produced is expected to be the same each year. the fuel cost in any year n is represented by the following expression:

fn=(c)(h)(u)[8,760(hours/year)/106] * pn
where
pn = pn-1 (1+0.06)

the operating cost in any year n is given by:

on =(c)(h)(u)(8,760hrs/year/106)* qn

where
qn=qn-1(1+0.06).

it would be 2 years before either plant would be in full commercial operation. the revenue generated each year is assumed to be the same and to exceed the total ae (i) cost for either plant. the following are the economic and operational data associated with each type of generated plant.(assume all construction costs occur when plant commences full commercial operation).

combustion turbine fuel cell-plant
c=plant size(kw) 150,000 150,000
h=heat rate(btu/kwh) 12,700 9,300
u=plant utilization factor 15% 15%
n=economic service life(years) 25 25
po=starting fuel cost($/106 btu) 2.20 2.20
qo=starting maintenance cost ($/106btu) 0.19 0.19
construction cost($/kw) 175 240
other annual expenses(insurance,tax,depreciation and maintenance) as a fixed % of construction costs 5.5% 5.5%
salvage value as a fixed % of construction cost -1% -1%


a. for an interest rate of 12%, determine which alternative is more attractive to undertake [ae (i) cost comparison over commercial operation period].
b. by using the incremental bc ratio (b-c)/i, what alternative would be chosen?
c. by using the incremental bc ratio b/(i+c),what alternative would be chosen? discuss any difficulty associated with applying the bc ratio to this situation.
d. for a lower plant utilization factor at 5%,repeat a),b) and c).
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