Choice and Cost Benefit Analysis > Present Value

Combined Cycle Gas Turbine

An electric utility is considering building a new combined cycle natural gas turbine unit for power generation. It has the following information:

The utility is not sure what the price of gas will be per mcf. It would like to know the net present value of the turbine under three scenarios: $6/mcf, $7/mcf and $8/mcf.

In doing the calculations, you should assume that all construction costs are paid in year 0 and the turbine operates from year 1 to year 20 (that is, maintenance, fuel costs and revenue apply in years 1-20). Also, you may assume that all prices and costs will be constant over the life of the turbine. In the first scenario, for example, take the price of gas to be $6/mcf in every year.


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Peter J Wilcoxen, The Maxwell School, Syracuse University
Revised 06/01/2008