Evaluate payback and sensitivity for solar vs ethanol pilots
Company: Capital One
Role: Data Scientist
Category: Statistics & Math
Difficulty: medium
Interview Round: Technical Screen
Energy One considers two 1‑year‑operated test plants to add renewable capacity, selling power at $40/MWh.
Solar pilot: initial investment = $12.5 million; in a typical year, 75% of the time produces 150,000 MWh/year and 25% of the time produces 50,000 MWh/year; variable cost = $0/MWh.
Ethanol pilot: initial investment = $2.5 million; output = 100,000 MWh/year; variable cost = $30/MWh.
Answer:
1) Compute the expected annual MWh and simple payback period (years) for each pilot.
2) Price sensitivity: What electricity price P makes the ethanol pilot achieve a 2.0‑year payback, holding its other parameters constant?
3) Resource sensitivity: What is the minimum sunny‑time fraction s (with output = 150,000 MWh at sunny times and 50,000 MWh at cloudy times) required for the solar pilot to achieve a payback of at most 3.0 years at $40/MWh?
4) Given commodity fuel price volatility and import risk for ethanol, and weather variability for solar, which pilot would you recommend and why? Support your recommendation with the calculations above and at least two quantified risk scenarios.
Quick Answer: This question evaluates quantitative financial modeling and sensitivity analysis skills—specifically expected-value computation, simple payback estimation, and scenario-based risk quantification for renewable-energy pilots.
