Hi there,
I have a question and would like to hear your thoughts on it. Firstly, let me pose the scenario of the problem;
Given an owner of combined heat and power plant is considering to purchase a back up for an exisiting 500kW turbine with an availability of 90% (not functioning 10% of the time). This turbine generates power and supplies the power to the grid at a cost rate of RM 0.31/kWh and is expected to run for about 15 years.
The only options available for purchase are two units of 250kW turbines (costing a total of RM 760 000). The owner would like to know if buying these two new 250kW turbines is worth covering the possible losses experienced when the 500kW turbine is not available.
My question is, how can I justify or investigate whether the two 250kW back ups is worth buying to avoid the losses or whether it is worth letting the turbine shut down for 10% of the time.
Is it plausible for me to calculate the possible revenue that might be lost in the 10% of time and compare it with the costs of the back up turbines? If the revenue lost if very high then it is justified for the owner to buy those back up turbines. Would appreciate your thoughts on this. Thank you for your time.
Best Regards,
Vik