Renewable energy is increasingly cost competitive with hydrocarbon power generation. The electric utility NIPSCO (Northern Indiana Public Service Company) announced in 2018 that they are committed to retiring 1.8 GW of coal fired power plant production by 2023.

a. NIPSCO estimates a 150 MW wind farm to have a facility life of 20 years. Total capital costs are estimated to be $1,350/kW and fixed O&M is predicted to be $32/kW-yr. Calculate the levelized annual cost to build a 150 MW wind farm, assuming an interest rate of 10%. Draw a cash flow diagram.

b. NIPSCO wants to retire a coal fired power plant in Chesterton Indiana which met a local demand of 450 MW. This plant had an upfront present worth cost of $500 million and a fixed O&M cost of $30 million per year. Compare the simple payback periods if NIPSCO were to replace this plant with either a combined cycle natural gas plant, or multiple wind farms. The natural gas plant is assumed to have a net facility output of 550 MW per year, a total capital cost of $1170/kW, and a fixed O&M cost of $20/kW-yr. Assume the present worth of the coal plant is recovered when it is retired, and that the annual benefit of either gas or wind is the O&M cost relative to that of the coal plant if it had continued operation.

c. Compare the actual payback time for the windfarm and natural gas plant. From the perspective of an investor, which project would you invest in and why?

d. Why are the payback periods different? How does actual payback time often work against investment in sustainable projects? What other metric could be used a complement to payback time when trying to determine whether a sustainable project is financially sound?