A 500 MW power plant has a total installed cost of $5 billion. It produces 4 million MWh of electric energy per year with a marginal cost of $25 per MWh. It faces an enervy market price of $35 per MWh for the entire life of the plant. Assume that the life of the plant is 20 years and the annual discount rate is 10%. If the only service that the plant provides is to the energy market, will the plant be profitable? If not, calculate the capacity payment (in units of $ per MW per year) that the plant would need to break even. (Hint: Calculate the ARR for the power plant, and calculate whether the plant’s energy payments each year would meet the ARR.)
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