Calculate the value of the flow that minimizes the total variable cost of production.

Consider the two-bus power system . Given that K = R/V2 = 0.0001 MW−1 for the line connecting buses A and B and that there is no limit on the capacity of this line, calculate the value of the flow that minimizes the total variable cost of production. Assuming that a competitive electricity market operates at both buses, calculate the nodal marginal prices and the merchandising surplus. [Hint: use a spreadsheet].

Calculate the Internal Rate of Return (IRR) for an investment in a 400-MW power plant with an expected life of 30 years. This plant costs 1200 $/kW to build and has a heat rate of 9800 Btu/kWh. It burns a fuel that costs 1.10 $/MBtu. On average, it is expected to operate at a maximum capacity for 7446 h per year and sell its output at an average price of 31 $/MWh. What should be the average price of electrical energy if this investment is to achieve a MARR of 13%?

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