Case background 1

Hydrogen will play a key role in the energy transition to greener energy. A green hydrogen power plant facility in South Australia is a step closer to completion with announcement of a generator supplier. Australian hydrogen infrastructure developer H2U confirmed today that it will use Baker Hughes NovaLT gas turbine generators at its South Australian Renewable Hydrogen and Ammonia Supply Chain Demonstrator in Port Lincoln. H2U won the AUD$117.5 million greentech project a year ago in partnership with German-based Thyssenkrupp. Baker Hughes contributes to the hydrogen economy with major technology advances across our entire portfolio: gas turbines capable of burning 100% H2 and blends, as well as centrifugal and reciprocating compressors. If you want to see how hydrogen power machine works

The Company remains committed to reducing its carbon footprint as well as those of its customers. In the second quarter, TPS successfully completed a testing campaign to replace conventional refrigerant gases for compressor testing at its largest global rotating machinery testing facility in Massa, Italy. The new hydrofluoro-olefin gas will enable the Company to save an average of 20,000 tons of CO2 equivalent emissions per year for the Massa and Florence TPS sites combined. On the report of OECD, THE lower-end estimates put the damage from emitting 1 tonne of CO2 at $47.

Assuming an Australian hydrogen infrastructure developer borrowed 90 million/year for 5 years with an interest rate of 9%, and they plan to repay the loan within 5 years.

Question 1. Assuming (not the actual number), producing Baker Hughes generators will cost $80,000 to build a new machine, with annual operating and maintenance costs (O&M) of $5,000 , The machine is expected to reduce 300 tons of CO2 (equivalent cost of CO2 of $14100, and save other handling cost of $10,000 compared with other types of machine. The salvage value after 5 years is $10,000, Calculate the machines present worth using an interest rate of 9%.

Question 2. What is the minimum acceptable rate of return on the new machine?