The purpose of this assignment is to prepare a report in the form of a business plan that capitalises on the understanding of the topic (Economics and Sustainable Resource Management) and the concept of resource economics. The total word count for the report should be between 3000-4000 words (about 3600 words) (including references).
Your consulting team has been commissioned to assist a provincial government to study the cost-effectiveness of undertaking a large-scale rural solar power project.
Fact Sheet
a) The time horizon is 15 years.
b) The initial investment is estimated at US$ 125 million. It will take 5 years to bring the project into operation.
c) The annual benefits of the project will start in year 6 and continue until year 15. There will be no benefits from year 1 to year 5.
d) Recurrent maintenance costs of $2.5 million per year will be incurred from year 1 to year 15.
e) The annual benefit is projected to be US $12.5 million in year 6 and will grow at a rate of 15 per cent per year until year 15.
f) The discount rate is 6
g) The region experiences severe thunderstorms and monsoons for 3/12 months of the year, during which months the efficiency of the solar power plant decreases significantly, reducing the benefits generated by approximately 20%.
h) At the end of the 15 year period, the plant operator can sell the project back to the provincial government or any other private organisation, or continue to operate the plant but charge the consumers a commercial rate per kW/hour. This could potentially increase the annual revenue to $15 million, subject to a 25 per cent annual corporate tax.
Questions
1) Based on the information in points a) to f), carry out a cost-benefit analysis and state whether the project should/could be implemented.
2) At what price should the operator sell the plant at the end of year 15? To whom should it be sold?
3) How will the power plant utilise rainwater during monsoon season for the benefit of the community it serves?