engineering economy question 2

ASE DONG ENERGY A/S /S CASE: DONG ENERGY A/S /S Economic assessments of an offshore wind farm DONG Energy creates value by giving each customer and society as a whole - the energy they need. We do this by transforming nature's resources into products and solutions that meet customer needs. Our goal is to provide reliable, energy efficient and competitive solutions, so we are the customers' preferred supplier The way we produce energy is undergoing rapid change. In less than a decade, DONG Energy has gone from being one of the most coal intensive supply companies in Europe to being a global leader in renewable energy. Today, we are the world's leader in offshore wind power, helping to reduce CO2 emissions and exploiting Europe's own energy resources. We are also first when it comes to converting coal and gas fired power plants into sustainable biomass plants, so heat and energy sup-ply is becoming increasingly environmentally friendly and flexible Our mission is to develop and offer energy systems that are green, independent and economically viable. Our continued progress depends on our ability to adapt to changes in the energy sector Wind is an important part of Europe's transformation into cleaner energy - and the potentialis great.DONG Energy has built more wind farms then any company in the world. We have built more than a quarter of the total wind capacity from off-shore wind turbines on the market and currently have more than 1,000 turbines in operation. By 2020, our goal is to double our installed capacity compared with 2016 from 3.0 GW to 6.5 GW. The installed capacity in 2020 will be equivalent to the annual electricity consumption of 16 million Europeans. CASE DONG FNERGY AS : . Wind turbines are increasingly being built offshore, as there are three major advantages for offshore wind farms compared to anshore wind farms It is windy more often on the sea, and the wind is , stronger here than on land. This gives more energy per turbine and less time where the mill does not produce. It is possible to build larger wind turbines offshore which have longer wings. The longer the wings a turbine has, the more energy that can be extracted from the wind. A number of turbines can be placed together, and they can thus be managed as a power plant, which is advantageous for DONG Energy as well as for Energinet which owns and operates the Danish electricity transmission network. The following assignment deals with the construction of a 500 MW offshore wind farm. Following the decision to construct the wind farm, it will take 4 years for the design, construction, purchase. production and construction of the turbines until they can go into operation. The time when the turbines begin operation is referred to as time 0, and the costs for the previous 4 years have been: to as time 0, and the costs for the previous 4 years have been: Year 4 Year 3 Year 2 Year 1 200 million DKK 500 million DKK 1.500 million DKK 2.000 million DKK After year 20, it is expected to no longer be profitable to operate the turbines, therefore they must be removed at an expected cost of 500 million DKK. The cost CASE DONG ENERGY AS operating and maintaining the turbines is estimated to be 800 million DKK/year for years 1-20. Energy production from the turbines, of course, depends on the wind speed, which can always vary. Based on detailed measurements of wind velocity in that location, it is estimated that the wind farm should produce 2.300,000 MWh annually. However, the uptime of the turbines is assumed to be only 95%, and it is further assumed that there is a loss of electricity in the cables and substations, so nel production is only 2,000,000 MWh/year Investment amounts are attributable to the beginning of the years, while receipts are attributable to the end of the years. A discount rate of 10 % per year is used QUESTION 1 What is the capital value of the investments in the four years before the turbines are put into operation, calculated at time o? QUESTION 2 If the electricity price is assumed to be constant over the 20 years, what should it be, at a minimum, for the investment in the offshore wind farm to be profitable? For onshore wind turbines, it is most likely - as above - that the life span is 20 years. However, evidence suggests that wind turbines have a longer life span at sea due to lower turbulence in the wind over the Ocean QUESTION 3 If life expectancy increases from 20 to 25 years, what should the minimum electricity price be for the investment in the offshore wind farm to be profitable? CASE DONG ENERGY AS For the following question, life expectancy is assumed to be 20 years, but after 20 years, a major repair and technological upgrading of the turbines will be made, extending the life span by-10 years. The assumptions for question 1 are assumed to be valid, including the expectation of costing 500 million DKK for the turbines to be removed after termination of operation. However, the price of electricity in years 21-30 is expected to MWh annually. However, the uptime of the turbines is assumed to be only 95%, and it is further assumed that there is a loss of electricity in the cables and substations, so nel production is only 2,000,000 MWh/year Investment amounts are attributable to the beginning of the years, while receipts are attributable to the end of the years. A discount rate of 10% per year is used QUESTION 1 What is the capital value of the investments in the four years before the turbines are put into operation, calculated at time o? QUESTION 2 If the electricity price is assumed to be constant over the 20 years, what should it be, at a minimum, for the investment in the offshore wind farm to be profitable? For onshore wind turbines, it is most likely - as above - that the life span is 20 years. However, evidence suggests that wind turbines have a longer life span at sea due to lower turbulence in the wind over the ocean QUESTION 3 If life expectancy increases from 20 to 25 years, what should the minimum electricity price be for the investment in the offshore wind farm to be profitable? CASE: DONG ENERGY AS For the following question, life expectancy is assumed to be 20 years, but after 20 years, a major repair and technological upgrading of the turbines will be made, extending the life span by-10 years. The assumptions for question 1 are assumed to be valid, including the expectation of costing 500 million DKK for the turbines to be removed after termination of operation. However, the price of electricity in years 21-30 is expected to be only 0.50 DKK/kWh. QUESTION 4 If an investment of 1,000 million DKK after 20 years will make it possible to increase the life of the turbines to 30 years, would such an investment be profitable? ASE DONG ENERGY A/S /S CASE: DONG ENERGY A/S /S Economic assessments of an offshore wind farm DONG Energy creates value by giving each customer and society as a whole - the energy they need. We do this by transforming nature's resources into products and solutions that meet customer needs. Our goal is to provide reliable, energy efficient and competitive solutions, so we are the customers' preferred supplier The way we produce energy is undergoing rapid change. In less than a decade, DONG Energy has gone from being one of the most coal intensive supply companies in Europe to being a global leader in renewable energy. Today, we are the world's leader in offshore wind power, helping to reduce CO2 emissions and exploiting Europe's own energy resources. We are also first when it comes to converting coal and gas fired power plants into sustainable biomass plants, so heat and energy sup-ply is becoming increasingly environmentally friendly and flexible Our mission is to develop and offer energy systems that are green, independent and economically viable. Our continued progress depends on our ability to adapt to changes in the energy sector Wind is an important part of Europe's transformation into cleaner energy - and the potentialis great.DONG Energy has built more wind farms then any company in the world. We have built more than a quarter of the total wind capacity from off-shore wind turbines on the market and currently have more than 1,000 turbines in operation. By 2020, our goal is to double our installed capacity compared with 2016 from 3.0 GW to 6.5 GW. The installed capacity in 2020 will be equivalent to the annual electricity consumption of 16 million Europeans. CASE DONG FNERGY AS : . Wind turbines are increasingly being built offshore, as there are three major advantages for offshore wind farms compared to anshore wind farms It is windy more often on the sea, and the wind is , stronger here than on land. This gives more energy per turbine and less time where the mill does not produce. It is possible to build larger wind turbines offshore which have longer wings. The longer the wings a turbine has, the more energy that can be extracted from the wind. A number of turbines can be placed together, and they can thus be managed as a power plant, which is advantageous for DONG Energy as well as for Energinet which owns and operates the Danish electricity transmission network. The following assignment deals with the construction of a 500 MW offshore wind farm. Following the decision to construct the wind farm, it will take 4 years for the design, construction, purchase. production and construction of the turbines until they can go into operation. The time when the turbines begin operation is referred to as time 0, and the costs for the previous 4 years have been: to as time 0, and the costs for the previous 4 years have been: Year 4 Year 3 Year 2 Year 1 200 million DKK 500 million DKK 1.500 million DKK 2.000 million DKK After year 20, it is expected to no longer be profitable to operate the turbines, therefore they must be removed at an expected cost of 500 million DKK. The cost CASE DONG ENERGY AS operating and maintaining the turbines is estimated to be 800 million DKK/year for years 1-20. Energy production from the turbines, of course, depends on the wind speed, which can always vary. Based on detailed measurements of wind velocity in that location, it is estimated that the wind farm should produce 2.300,000 MWh annually. However, the uptime of the turbines is assumed to be only 95%, and it is further assumed that there is a loss of electricity in the cables and substations, so nel production is only 2,000,000 MWh/year Investment amounts are attributable to the beginning of the years, while receipts are attributable to the end of the years. A discount rate of 10 % per year is used QUESTION 1 What is the capital value of the investments in the four years before the turbines are put into operation, calculated at time o? QUESTION 2 If the electricity price is assumed to be constant over the 20 years, what should it be, at a minimum, for the investment in the offshore wind farm to be profitable? For onshore wind turbines, it is most likely - as above - that the life span is 20 years. However, evidence suggests that wind turbines have a longer life span at sea due to lower turbulence in the wind over the Ocean QUESTION 3 If life expectancy increases from 20 to 25 years, what should the minimum electricity price be for the investment in the offshore wind farm to be profitable? CASE DONG ENERGY AS For the following question, life expectancy is assumed to be 20 years, but after 20 years, a major repair and technological upgrading of the turbines will be made, extending the life span by-10 years. The assumptions for question 1 are assumed to be valid, including the expectation of costing 500 million DKK for the turbines to be removed after termination of operation. However, the price of electricity in years 21-30 is expected to MWh annually. However, the uptime of the turbines is assumed to be only 95%, and it is further assumed that there is a loss of electricity in the cables and substations, so nel production is only 2,000,000 MWh/year Investment amounts are attributable to the beginning of the years, while receipts are attributable to the end of the years. A discount rate of 10% per year is used QUESTION 1 What is the capital value of the investments in the four years before the turbines are put into operation, calculated at time o? QUESTION 2 If the electricity price is assumed to be constant over the 20 years, what should it be, at a minimum, for the investment in the offshore wind farm to be profitable? For onshore wind turbines, it is most likely - as above - that the life span is 20 years. However, evidence suggests that wind turbines have a longer life span at sea due to lower turbulence in the wind over the ocean QUESTION 3 If life expectancy increases from 20 to 25 years, what should the minimum electricity price be for the investment in the offshore wind farm to be profitable? CASE: DONG ENERGY AS For the following question, life expectancy is assumed to be 20 years, but after 20 years, a major repair and technological upgrading of the turbines will be made, extending the life span by-10 years. The assumptions for question 1 are assumed to be valid, including the expectation of costing 500 million DKK for the turbines to be removed after termination of operation. However, the price of electricity in years 21-30 is expected to be only 0.50 DKK/kWh. QUESTION 4 If an investment of 1,000 million DKK after 20 years will make it possible to increase the life of the turbines to 30 years, would such an investment be profitable