Economic Analysis of Two Hybrid Energy Production Systems Project (MAJOR-Project for ENGR-3360U)
Financial modeling of hybrid power systems for clean energy feasibility in Ontario.
Introduction
The project evaluates two hybrid systems: one combining hydropower, wind, and natural gas with carbon capture (Alternative A), and another combining nuclear, biomass, and natural gas with carbon capture and storage (CCS) (Alternative B). The assessment encompasses capital and O&M costs, NPV, MARR sensitivity, tax incentives, and environmental and policy risks.
Plant Costs
Alternative A has a lower capital cost of approximately $1.35B, while Alternative B reaches $2.18B due to nuclear and biomass expenses. Operational costs also favor A at $133.2M/year compared to B’s $239M/year, making A more financially efficient.
MARR & Sensitivity Analysis
MARR (Minimum Attractive Rate of Return) reflects project risk. Alternative A uses a 7% MARR and remains viable up to 17%, while Alternative B, at 10% MARR, quickly becomes unprofitable. This shows A’s greater resilience under varying economic conditions.
Cash Flow & NPV
Cash flow projections strongly favor Alternative A, with an annual surplus of $234.6M and an NPV of +$ 1.56 B. In contrast, Alternative B struggles with debt servicing and results in an NPV of –$778.6M, highlighting its economic inefficiency.
Revenues & Taxes
Alternative A benefits significantly from tax incentives like CTIC, PTC, and ACCA, while also avoiding carbon taxes through CCS. B relies on carbon credits and has a higher lifetime tax liability due to capital intensity, further supporting A’s advantage.
Alternative A:
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Strong tax relief: CTIC (30%), PTC, ITC, ACCA
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Hydro: $55.5M annual revenue
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Wind: Stable PPA + 2% inflation adjustment
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Gas with CCS: Avoids $8.3B in carbon tax over 30 years
Alternative B:
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Biomass relies on carbon credits
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Nuclear uses property tax relief
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Still faces higher lifetime tax liability due to capital intensity
Table 4 – D2 (Hydro tax breakdown), Table 13 – D2 (Gas w/ CCS tax savings)
Uncertainty & Risk
Alternative A stands out for its strong economic return, lower risk profile, and alignment with Ontario’s green energy goals. Its mature technology base and tax-backed stability make it a more dependable choice under uncertainty.
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We recommend implementing Alternative A.
Comparative Summary Table
A side-by-side comparison confirms that Alternative A outperforms B in nearly every category, including cost, NPV, risk, and incentives. The table reinforces A’s superior financial and environmental profile.
Final Recommendation
We recommend Alternative A for implementation, citing its clear economic and environmental advantages, long-term financial viability, and alignment with clean energy policy objectives.