In this exercise you are asked to calculate the net present value (NPV) of a project to build a new solar farm in agricultural land close to a residential area. Assume, for simplicity that prices will remain constant during the lifetime of the project.

The solar farm will have a capacity of 20 MW.

The space requirements (equipment and space between panel rows) are of 7 acres per MW.

The project will be located on farmland whose rental value is $500 per acre per year.

Assume, however, that the solar farm developers own the land.

Assume that all the necessary approvals and contracts for siting and permitting have already been completed. (When a power plant is proposed on private land, various state and local agencies must grant the necessary approvals prior to construction, and there may be fierce local opposition – a NIMBY response. The siting and permitting process can take more than three to five years to complete.)

Construction of the solar farm will take one year, and the installation cost of the equipment (including labor) is $0.9/watt.

After the farm is completed and online (one year after the start of construction), it requires little maintenance, in the order of $5,000 per year.

Assume that the lifespan of the farm is 40 years.

After its useful life, the farm will be decommissioned (in year 41) at a cost of $300,000/MW.

Given the solar power potential of the area and the going rate for solar generation in the wholesale market you can expect an annual revenue of $45,000/MW per  year.

Electricity generated in the solar farm will replace electricity generated using coal, implying that greenhouse gas emissions are avoided at a factor of 0.00101219 tCO2- eq/kWh. This is a global, social benefit of the project. Use the mean social cost of carbon estimate in the study by Rennert et al. (2022).

Objectors to the solar farm have protested about the visual impact of the farm. This is a local, social cost of the project. The local government has commissioned a non-market valuation study among local residents, and the results suggest that the mean annual compensation demanded by locals is $20/household; (this mean is calculated across both those against the project and those in favor). There are 1,000 households thought to be affected.

a)  Construct a table detailing the social costs, social benefits, and social net benefits from years 0-41. (25 points)

Answer rating: 100% (QA)

Year Social Costs Social Benefits Social Net Benefits 0 NA NA NA 140 20000 900000 880000 41 300000 N... View the full answer