Problem: A power company is considering whether to invest in $20,000,000 ($10M) in either of two renewable energy power plants (a) or (b). It wishes to maximize its net profit. Assumptions:
A solar plant would only produce during the day: it will produce U megawatt-hours of energy (MWh), where U is uncertain (between 400,000 and 600,000 MWh over its lifetime). (U is uncertain because the location of the plant is not yet determined.) The price P that the company would receive for producing solar power depends on market conditions and US federal tax policy, and could be between $40 and $80 per MWh. Profit equals revenue (U*P - $20M)
A wind plant would produce at all times, and the utility is confident that it will produce V = 550,000 MWh. Wind power is less valuable than solar power because of when it is produced; so the price it receives is only 0.85P (85% of solar's price).
The power company could also decide not to invest the $20M if the plant is not profitable. Then its profit is zero. Draw a two-way sensitivity plot for the decision problem (considering the two uncertainties U and P). Can you make a conclusion about which power plant the power company should invest in?