Candidate, For the purposes of this case study, we will evaluate a geothermal power station. The project has a rated capacity to produce 10MW per hour-meaning that under optimal conditions, over the course of one hour, it will produce 10 MWh-however actual realized capacity is on average 85% of this. The project will run as base- load (24 hours per day, 7 days per week), except for 500 hours of maintenance per year, and 1500 hours of major maintenance every fourth year, beginning in 2011. Both the project's capacity (MW) and the project's output (MWh) are contracted for the first nine years of the project's life. During this period, the project will receive $150,000 per average MW delivered per year in capacity payments. In this case, we have told you that this would be 10 MW (i.e. $150,000 x 10 MW per year), except that actual delivered capacity is less. It will also receive $75 per MWh of output produced. After the contract term expires, the project will supply merchant power. You can assume it will receive $90 per MWh produced. The expected useful life of the project is 15 years. To operate the plant, the project will have expenses totaling approximately $700,000 per year in insurance premiums and $900,000 per year for operations and maintenance (O&M). Additionally, the project must pay $2,000 per hour of major maintenance (described above) and a royalty to landowners of 0.5% of revenue. First, assuming we would acquire the project on Jan 1, 2009, please propose a purchase price based on the following partnership structure: we will own 80% of the project through 2019 and will own 25% thereafter. Second, please provide a brief memorandum to a C-Level executive on why or why not this project is a worthwhile investment. Ignore tax and depreciation. Candidate, For the purposes of this case study, we will evaluate a geothermal power station. The project has a rated capacity to produce 10MW per hour-meaning that under optimal conditions, over the course of one hour, it will produce 10 MWh-however actual realized capacity is on average 85% of this. The project will run as base- load (24 hours per day, 7 days per week), except for 500 hours of maintenance per year, and 1500 hours of major maintenance every fourth year, beginning in 2011. Both the project's capacity (MW) and the project's output (MWh) are contracted for the first nine years of the project's life. During this period, the project will receive $150,000 per average MW delivered per year in capacity payments. In this case, we have told you that this would be 10 MW (i.e. $150,000 x 10 MW per year), except that actual delivered capacity is less. It will also receive $75 per MWh of output produced. After the contract term expires, the project will supply merchant power. You can assume it will receive $90 per MWh produced. The expected useful life of the project is 15 years. To operate the plant, the project will have expenses totaling approximately $700,000 per year in insurance premiums and $900,000 per year for operations and maintenance (O&M). Additionally, the project must pay $2,000 per hour of major maintenance (described above) and a royalty to landowners of 0.5% of revenue. First, assuming we would acquire the project on Jan 1, 2009, please propose a purchase price based on the following partnership structure: we will own 80% of the project through 2019 and will own 25% thereafter. Second, please provide a brief memorandum to a C-Level executive on why or why not this project is a worthwhile investment. Ignore tax and depreciation
