1.

0 Evaluating Options Based Solely on Monetary Value:

The wind and natural gas power plants economic feasibility has been evaluated using
annual worth, internal rate of return (IRR) and payback period. Annual worth was calculated
using a discount rate of 8%[take there reference]. This discount rate was chosen based off of
recommendations from the treasury board of Secretariat. These projects were assumed to be non
repeatable, as it would be difficult to estimate construction, refurbishment and fuel costs, as well
as the selling price of electricity 30-40 years from now. The calculations were conducted
assuming the power plants had no salvage value. The wind power plant was calculated to
depreciate at 30% as it is under canadian class 43.1, the coal plant was calculated to depreciate at
20% [NEED REFERENCE]. [NEED REFERENCE] Deprecation in the first year was taken to
be ½ of full year depreciation as per regulations. The cost of fuel was estimated by taking the
average price of fuel over the last 10 years. This value was calculated to be 0.1414 cents/m^3.
The capital costs are assumed to be distributed evenly throughout the three years of construction
for both projects. Revenues, annual costs, depreciation and taxation, were assumed to begin at
the end of Year 3, as construction time was 3 years for both projects. Construction is assumed to
be completed at the beginning of year 3, (2021).

The annual worth of each project was determined using the NPV and PMT function on excel,
which sums the discounted cash flow, and then converts the present worth to an annuity. The
annual worth method was selected over using just present worth as the projects have different
useful lives. To find the IRR value of each project, the IRR function in excel was used on each
after tax cash flow value. The payback period was determined as being the first year with a
positive cumulative discounted after tax cash flow. A summary of these equations can be found
in table[?]
Annual revenue is calculated by multiplying the total MWh produced by the selling price.
The total cost of the projects is found by multiplying O&M costs per MW by capacity. The
before tax cash flow each year is found from adding the costs and revenue. In order to determine
the after tax cash flow, the UCC, CCA, taxable income, and tax paid need to be determine. These
equations are stated in Table 1. The cumulative ATCF is found by adding each years value
together.
 The present worth for the Wind Turbine Project is found to be $527,443,431.26 with an IRR
of 16.9%. The natural gas plant’s present worth and IRR was calculated to be $1,268,225,975.50
and 33.0% respectively. The projects additionally have a different service life, with the natural
gas power plant having a service life of 40 years, whereas the wind power plant has a service life
of 30 years. The natural gas power plant is therefore recommended as being the best option, as
the natural gas power plant has the higher present worth, IRR and a shorter payback period.

2. Sensitivity:
a) There are four parameters identified that significantly affect the overall present worth,
IRR and payback period of the projects. Those parameters are the O&M costs, initial
construction costs, selling price and discount rate. These parameters are also subject to
variability in reality, as project construction, selling price and O&M costs may be more or
less than expected. Furthermore the selling price and O&M costs may vary over time in
accordance with labour laws, unexpected maintenance costs, or increased electrical
demand. The discount factor was also selected as an important parameter, as the
government company may wish to select a higher or lower MARR for the project. These
parameters may negatively or positively affect PW, IRR and payback period. The effects
of changing these parameters has been assessed by finding the PW, IRR and payback
period by altering these parameters by +- 10%, +-20% and +-40% of the base case
values.

The effects of variability in these parameters in the wind power plant, are graphed and displayed in figure
1 and figure 2. As seen in figure 1, the discount rate has the greatest influence on the present worth value.
With a 40% decrease in discount rate, the present worth increased to around $2,000,000,000, and the
discount rate increases by 40%, the present worth decreases to about $800,000,000. In addition, the
selling price also has a significant impact on present worth. A 40% increase in selling price increases
present worth by 600,000,000. The O&M costs and capital cost produce a much less substantial effect on
present worth. Each normalized value is found for each variable. This is done by finding the difference in
PW of each variable from a decrease of 40% to an increase in 40%. This value is then divided by the
initial PW. The value with the highest value is the one that provides the most substantial impact. It is clear
not only from figure 1 but also table ___, the discount factor influences the PW the most.

The same sensitivity analysis is performed on the natural gas plant. From visual inspection of figure 2, the
discount factor has a similar effect on the present worth. With a decrease in the present worth of about
$400,00,000 when the discount factor is increased at 40%. Similarly, the selling price, oO&M cost, and
discount rate provide similar results on the present worth value as they did for the wind power plant. The
normalized values are also computed, and the discount rate has the highest value, therefore causing the
most impact on present worth. These values are provided in table ___.

The sensitivity analysis for the effects on IRR is conducted for the wind power plant using the same
variable as present worth. From visual inspection of figure 3, the variable that has the greatest influence is
capital cost. With a decrease of 40% of the capital costs, the IRR increases to about 25%. The selling
price has a close amount of impact with an increase of IRR to 23% when the value is increased by 40%.
O&M costs and discount factor have a small influence on the IRR values. The normalized values are
computed in table ___. It is clease the selling price and capital cost have a large influence on the wind
power plant’s IRR.

In order to compare the rankings in the two projects, a normalized summed impact table is created. The
values in the table are found by adding the total impact of the variable. This value is then divided by the
base price of each project. These values are displayed in table __. It is clear from these results that the
selling price is the biggest influence. This is not only clear from it having the highest normalized sum
impact value, but how it had the second highest influence on each sensitivity analysis done. This value is
followed by _________ and _________. The O$M cost had a shallow slope for each sensitivity analysis
and provided the least variability.

The selling price has the biggest influence on each of the project. In both present worth and IRR
sensitivity analysis, they provided a substantial impact on each value. In both cases, it had the second
highest normalized value and caused a major fluctuation when increased and decreased. Even though
discount rate and capital costs had big impacts on Present worth and IRR, they only greatly effected on
the metric, whereas selling price affected both.

b)
The base case PW and IRR were calculated on the basis of both factories having a
capacity of 400MW, and an initial budget that could afford both projects. If this assumption was
changed however, and the project had a fixed initial budget, the wind factory would produce less
electricity for the same capital cost of the coal plant. The IRR and payback period of the wind
and coal power plants would remain unchanged as initial cost, annual costs, and revenues are
all proportional to the capacity of producing electricity. The PW would decrease however, due to
the whole project being scaled down. If the projects were to be compared with equal service
lives, the natural gas power plant would become less appealing. When both projects are taken
to have a service life of 30 years, the wind power plant PW, IRR and payback period are
unchanged. The present worth of the natural gas power plant is reduced to $1,200,240,206.81,
while the IRR and payback period remain unchanged.

c) The break even calculation was conducted on the discounted after tax flow using the “Goal
Seek” excel function. The function guesses a value for the price of electricity, and checks the
resultant PW. The function will iterate guesses until the present worth is 0. The minimum selling
price was calculated as being $57.39 for the wind power plant and $21.53 for the natural gas
power plant.

3.0 Other Considerations

Many ulterior aspects must be considered in a full analysis of this expansion. Beyond financial
considerations there are various aspects inclusive of location, noise considerations,
development of temporary roads or potential environmental concerns. Both the development of
the Wind Turbine and the Natural Gas Plant have underlying complications that may arise.

3.1 Wind Turbine

The development and implementation of the wind power can cause several disruptions to the
surrounding community on multiple levels extending from environmental, social and safety
issues.

3.1.1 Environmental concerns

Wind energy though more conservative as a renewable source of energy has many negative
environmental implications for the duration of development [1].
• Wind turbines are quite noisy systems and though much has been done in terms of
engineering to minimise the noise levels, they still so have an impact and contribute to noise
pollution. Though it is virtually impossible to eradicate the noise, proper construction and the
use of insulating materials can further diminish the severity.

• Loss of wildlife is another concern associated with wind turbines, frequently bats or birds
collide with these turbines and either become damaged or die as a result. Thus, it is very
important that when selecting the location, proper research and consultation is conducted prior
to development.
• Aesthetic Issues arise as well when attempting to locate a wind turbine as wind turbines
are generally very large and unattractive and can visually disturb the natural landscape.
Solutions to this problem include utilization of multiple locations rather than one location base
for turbines or ensuring the area selected is not largely visible to a large population.

3.1.2 Social Considerations

Social concerns are another issue that may arise with wind turbines as generally the residents
or surrounding community dislike the associated vibrations and sound and are frequently
bothered by the negative impacts on the environment and aesthetics [2]. Furthermore, the
political views of the surrounding population may also have an impact on their willingness or
lack thereof in the implementation of wind energy. If the community has a higher population of
liberals chances are higher in getting social approval whereas conservatives may have a
negative mind set toward the idea entirely. There may also be the need to develop temporary
roads or access routes for the population as they would not be pleased given that the project
requires 3 month of disruption to the highway. Though there are numerous social concerns,
there are also positive social impacts as the health of these residents would improve over time
due to the removal of harmful contaminants associated with fossil fuels.

3.1.3 Safety Considerations

Safety is another issue that cannot go unstated in the debate of wind turbine development. The
blades of the turbines are mechanical systems and pose a threat only when a blade is struck by
lightning, experiences mechanical failure or in extremely cold conditions if ice is formed on the
blade and slides off when the rotation of blade resumes [3]. The only other safety concern
associated with the wind turbines is the possibility of causing a disturbance with
telecommunication or radar networks as they produce both magnetic and electric fields. The
possibilities however of any of these situations occurring are extremely small and proven to not
be very significant.

3.2 Natural Gas Plant

Natural gas emissions from a natural gas plant can have many negative repercussions the
largest and most prevalent being the environmental concerns. The social and safety concerns
occur as a result of these emission

3.2.1. Environmental Concerns

• Natural gas is a fossil fuel and as such the combustion of the fossil fuels results in the
release of toxic gases and emissions into the atmosphere [4]. The main contaminant gas is CO2
and it contributes to the global warming emissions. Methane is another gas released in the
process and thus to minimize the harmful effects and leakage of these gases there must also be
further capital spent on technology to do this.
• Air Pollution is another issue that arises with natural gas plants due to the release of
harmful bi-products inclusive of sulphur and mercury and nitrogen oxides. Even though, the
amount released is in relatively low levels, it can however lead to health issues in communities
nearby.
• There can be extensive clearing of land for a natural gas plant as the spacial
requirements for such a development can be extensive and disturb natural habitats and
ecosystems as a result.

3.2.2. Social Concerns

Similar to wind turbines, natural gas plants can be very large and not aesthetically pleasing thus
it is very likely that surrounding communities will not approve of the development. Additionally
residents may be concerned about the release of toxic elements into the atmosphere and
disapprove of the plant.

3.2.3 Health and Safety Concerns

The leakage of harmful gases such as sulphur, mercury, carbon dioxide and nitrogen oxides
into the atmosphere can lead to community health issues. Research has also proven that the
local community within half a mile of the plant are at a higher risk of problems related to the lung
and heart such as asthma, lung cancer, bronchitis and heart disease.

3.3 Wind Turbine vs Natural Gas

Both wind turbines and natural gas plants have several issues on the scale of environmental,
social and safety concerns. However, as an engineer, safety is the main concern and must
always be priority thus considering ulterior aspects other than financial considerations, the
preferred option would be the wind turbine for numerous reasons. The first reason being the
issues associated with natural gas plants have more serious effects and can be more harmful to
the general population as it can lead to respiratory illnesses heart problems and the probability
of occurrence is much higher than that of the wind turbine. The second reason being that wind
turbines are more environmentally friendly than natural gas as all environmental concerns with
wind turbines other than noise pollution are also associated with natural gas plants, however,
natural gas plants also have other more concerning environmental impacts such as release of
toxic contaminants.

Appendix:

Table 1: Equations used to calculate comparison metrics

Table 2: Not completed, Assumptions used

Table 3: Total costs and revenue for Wind Power Plant

Table 4: Total Costs and revenues for Natural Gas Plant

Table 5: Metric summary

Figure 1: Wind Power plant sensitivity analysis: Present Worth

Table 6: Wind Power plant normalized present worth values

Figure 2: Wind Power plant sensitivity analysis: IRR

Table 7: Wind Power plant normalized IRR values

Figure 3: Natural Gas Plant sensitivity analysis: IRR

Table 8: Natural Gas Plant normalized IRR values

Figure 3: Natural Gas Plant sensitivity analysis: Present Worth

Table 9: Natural Gas Plant normalized Present worth values

[1] http://www.windeis.anl.gov/guide/concern/index.cfm
[2] https://sites.google.com/a/cornell.edu/wind-energyjwk84/social-impacts
[3] http://www.portsmouthriedc.com/documents/wt%20safety%20uk.PDF
[4]
https://www.ucsusa.org/clean-energy/coal-and-other-fossil-fuels/environmental-impacts-of-natur
al-gas#.W_MA1-hKjIU
[5] http://www.osemosys.org/uploads/1/8/5/0/18504136/gas.pdf