San Diego Community Power (a CCA for SDG&E) offers a voluntary time of use pricing schedule...

    

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San Diego Community Power (a CCA for SDG&E) offers a voluntary "time of use" pricing schedule which charges $0.30/kWh during peak hours and $0.10/kWh in off-peak hours. Consumers who don't choose this plan are charged $0.25/kWh. By looking at consumers who went from the standard pricing to the time of use plan, they estimated that these households reduced their peak hour demand by 25%. but increased off-peak demand by 20%. (a) What is the price elasticity of peak hour demand from the starting point for the households that adopt this pricing plan? (2pts) (b) Remember that households opted in to this program. How is this elasticity estimate likely to compare to the elasticity for households that chose not to adopt the time of use program? (No explanation necessary) (1pt) i. Non-adopters will be more elastic ii. Non-adopters will have the same elasticity iii. Non-adopters will be less elastic iv. Not enough information (c) Based on the above, how will total household electricity usage change as a result of adopting the time of use plan? (No explanation necessary) (lpt) i. Increase ii. No change iii. Decrease iv. Not enough information Risky Investment (2pts) Consider two research and development opportunities with equal cost facing a geothermal engineering company. The expected return on investment and variance for both proposals is thought to follow a normal distribution. The first proposal has an expected return on investment ROI of 1 with a standard deviation of 0.5, while the second proposal has an expected ROI of 1 with an standard deviation of 0.25. Which proposal do you favor and why? Gain - Cost Cost The city of Carlsbad is considering installing several offshore wind turbines, in part to help generate power for its ocean water desalination plant. The wind turbines will last for many years but the city officials want to be able to say that the turbines paid for themselves before the next election in four years. The turbines will cost $1,000,000 this year (t-0), and will come online to produce annual cost savings of $350,000 next year, the following year, and the year after that (t-1.2.3). (6pts) (a) Suppose the interest rate is 5%, compute the net present value (NPV) of the investment with this discount rate. (2pts) (b) Compute the Benefit-Cost Ratio. (2pts) (e) Fearing a recession, suppose that the Federal Reserve lowers interest rates to 2%, so you are able to fund the project with a 2% discount rate. Recompute the benefit-cost ratio with this discount rate. (Assume that recession fears don't otherwise change your decision problem). (2pts) A natural gas peaker plant sells electricity to a local utility at a price of $100 per MWh, with a fixed cost of $100.000 and variable costs 50q+0.0005q². (q is measured in MWh). (a) What is the profit maximizing quantity of power to sell and how much profit will the generator make? (3pts) (b) Burning fossil fuel, the plant produces a lot of carbon dioxide. A new environmental regulation requires that for every Mcf of natural gas burned, an emission permit for 0.5 tons of CO₂ must be purchased. It takes approximately 7.4 Mef of natural gas to generate 1 MWh of electricity. and the cost of a 1ton CO₂ permit is $12. Rewrite the cost function from 5a to include the cost of the permit and solve for the profit maximizing quantity of power and profit. (3pts) San Diego Community Power (a CCA for SDG&E) offers a voluntary "time of use" pricing schedule which charges $0.30/kWh during peak hours and $0.10/kWh in off-peak hours. Consumers who don't choose this plan are charged $0.25/kWh. By looking at consumers who went from the standard pricing to the time of use plan, they estimated that these households reduced their peak hour demand by 25%. but increased off-peak demand by 20%. (a) What is the price elasticity of peak hour demand from the starting point for the households that adopt this pricing plan? (2pts) (b) Remember that households opted in to this program. How is this elasticity estimate likely to compare to the elasticity for households that chose not to adopt the time of use program? (No explanation necessary) (1pt) i. Non-adopters will be more elastic ii. Non-adopters will have the same elasticity iii. Non-adopters will be less elastic iv. Not enough information (c) Based on the above, how will total household electricity usage change as a result of adopting the time of use plan? (No explanation necessary) (lpt) i. Increase ii. No change iii. Decrease iv. Not enough information Risky Investment (2pts) Consider two research and development opportunities with equal cost facing a geothermal engineering company. The expected return on investment and variance for both proposals is thought to follow a normal distribution. The first proposal has an expected return on investment ROI of 1 with a standard deviation of 0.5, while the second proposal has an expected ROI of 1 with an standard deviation of 0.25. Which proposal do you favor and why? Gain - Cost Cost The city of Carlsbad is considering installing several offshore wind turbines, in part to help generate power for its ocean water desalination plant. The wind turbines will last for many years but the city officials want to be able to say that the turbines paid for themselves before the next election in four years. The turbines will cost $1,000,000 this year (t-0), and will come online to produce annual cost savings of $350,000 next year, the following year, and the year after that (t-1.2.3). (6pts) (a) Suppose the interest rate is 5%, compute the net present value (NPV) of the investment with this discount rate. (2pts) (b) Compute the Benefit-Cost Ratio. (2pts) (e) Fearing a recession, suppose that the Federal Reserve lowers interest rates to 2%, so you are able to fund the project with a 2% discount rate. Recompute the benefit-cost ratio with this discount rate. (Assume that recession fears don't otherwise change your decision problem). (2pts) A natural gas peaker plant sells electricity to a local utility at a price of $100 per MWh, with a fixed cost of $100.000 and variable costs 50q+0.0005q². (q is measured in MWh). (a) What is the profit maximizing quantity of power to sell and how much profit will the generator make? (3pts) (b) Burning fossil fuel, the plant produces a lot of carbon dioxide. A new environmental regulation requires that for every Mcf of natural gas burned, an emission permit for 0.5 tons of CO₂ must be purchased. It takes approximately 7.4 Mef of natural gas to generate 1 MWh of electricity. and the cost of a 1ton CO₂ permit is $12. Rewrite the cost function from 5a to include the cost of the permit and solve for the profit maximizing quantity of power and profit. (3pts)

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