A university spent 18 million to install solar panels atop a

A university spent $1.8 million to install solar panels atop a parking garage. These panels will have a capacity of 500kw, have a life expectancy of 20 years and suppose the discount rate is 10%. a. If electricity can be purchased for costs of $0.10 per kwh, how many hours per year will the solar panels have to operate to make this project break even? b. If efficient systems operate for 2400 hours per year, would the project break even? c. The university is seeking a grants to cover capital cost . How big of a grant would make this project worthwhile (to the university)?

Solution

(a)

Let the breakeven operating hours be H. Then,

1,800,000 = H x 0.1 x 500 x PVIFA (10%, 20)

1,800,000 = H x 50 x 8.5136

H = 1,800,000 / (50 x 8.5136) = 4,228.5

(b)

Since 2,400 < Break-even number of years, at this rate the project will not breakeven.

(c)

Electricity cost based on number of hours is an operating cost and not a capital cost. The only capital cost is the installation cost.

So, size of grant = 1.8 million