Madison Electric Company uses a fossil fuel (coal) plant for generating electricity. The facility can generate 900 megawatts (million watts) per hour. The plant operates 600 hours during March. Electricity is used as it is generated; thus, there are no inventories at the beginning or end of the period. The March conversion and fuel costs are as follows: Conversion costs $40,500,000 Fuel 10,800,000 Total $51,300,000 Madison also has a wind farm that can generate 100 megawatts per hour. The wind farm receives sufficient wind to run 300 hours for March. The March conversion costs for the wind farm (mostly depreciation) are as follows: Conversion costs $2,700,000 a. Determine the cost per megawatt hour (MWh) for the fossil fuel plant and the wind farm to identify the lowest cost facility in March. Cost Per Mega-watt Hour Fossil plant $ per MWh Wind farm $ per MWh

Explanation:

Fossil fuel plant:

Electricity production per hour = 900 megawatts

Operation hours = 600 hours

Total electricity production = 900 * 600 = 540,000 megawatts

Conversion costs $40,500,000

Fuel cost $10,800,000

Total costs = 51,300,000

Cost per megawatt = Total cost of production/ Total megawatts produced =

51,300,000/540,000  = $95

Wind farm plant:

Electricity production per hour = 100 megawatts

Operation hours = 300 hours

Total electricity production = 100 * 300 = 30,000 megawatts

Conversion costs $2,700,000

Cost per megawatt = Total cost of production/ Total megawatts produced =

2,700,000/30,000= $90

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