Determine Optimal Energy Project for 10% ROI Target
Overview
This question evaluates financial modeling, ROI calculation, cost and production trade-off analysis, scenario planning, and concise stakeholder communication within an energy investment context, framed for the Analytics & Experimentation category and a Data Scientist role.
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Jul 12, 2025, 6:59 PM
Data Scientist
Onsite
Analytics & Experimentation
68
0
Investment Selection and ROI Sizing for a New Renewable Project
Scenario
An energy company is evaluating investments in new renewable projects and must hit a 10% annual return on investment (ROI). Fixed and variable costs differ between two technologies:
- (a) Solar with zero variable cost
- (b) An alternative technology with a $30/MWh variable cost
To make the questions concrete and internally consistent with the provided “expected” answers, assume the following for calculations:
- Market price for electricity (P): $40/MWh
- Annual fixed O&M (F): $12.5 million
- Corporate capital allocated to a representative project (I): $500 million (for Q-sizing in part 2)
- Annual production cap (Q_max): 5.0 × 10^6 MWh (5 TWh)
- Variable costs: solar v = 30/MWh
Questions
- What qualitative and quantitative factors would you consider when selecting a new energy project?
- If the target is a 10% annual ROI, how many MWh must be produced each year to reach it? (Expected: 6.25 × 10^6 MWh)
- Production is capped at 5.0 × 10^6 MWh per year. What actions could still deliver a 10% annual ROI?
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Two options exist:
- (a) Solar with zero variable cost
- (b) Alternative technology with $30/MWh variable cost For each, calculate years to breakeven; both should be approximately 2.5 years. Show your math.
- Which option would you recommend and why?
- In 30 seconds, summarize your analysis and recommendation to senior management.
Hints
Use ROI = (annual profit) / (initial investment). Factor in price per MWh, capex, opex, subsidies, risk, scalability, and regulatory constraints.
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