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Medium Profitability

Sunshine Power

#Energy
ProHub Comment

This is a classic profitability and breakeven analysis case requiring candidates to evaluate a capital investment decision using payback period analysis. The key challenge is identifying that the recommendation hinges on coal price volatility—the project meets the client's criteria only if coal prices exceed $87.50/ton on average over the 5-year period, which historical data suggests is plausible.

Estimated Time 26 minutes
Difficulty Medium
Source NYU
10 / 100

You are a consultant who has been engaged by Sunshine Power, owner of a coal power station on the Sunshine Coast of Australia. Six year’s ago Sunshine Power commenced a pilot project with SunSteam, a solar tech company. SunSteam technology allows your client to reduce the quantity of coal it consumes by using sunlight as an additional heat source.

The $3.5M AUD pilot, involving one SunSteam array, experienced many technical difficulties at first but has just broken even. Recently, SunSteam proposed to expand the pilot by constructing four additional SunSteam arrays. Your client has very specific project investment criteria and is not sure if they should accept the SunSteam proposal.

Clarifying Information

  1. Cost of expansion? Unknown – make assumption based on case prompt ($3.5M per array)
  2. Output of One SunSteam Array? Steam produced by array equated to 0.2% saving in annual coal quantity consumed on average
  3. Annual Consumption of Thermal Coal? Plant operates 24hours a day at 100% output capacity. Prior to pilot plant consumed 4 million metric tons of Thermal Coal per Annum
  4. Array Operating costs? SunSteam is easy to maintain, and is maintained by existing on-site staff (assume Op Cost = $0)
  5. Client Investment Criteria? Payback must be less than 5 years, based on internal cost savings only
Mock Interview
Interviewer

You are a consultant who has been engaged by Sunshine Power, owner of a coal power station on the Sunshine Coast of Australia. Six year's ago Sunshine Power commenced a pilot project with SunSteam, a solar tech company. SunSteam technology allows your client to reduce the quantity of coal it consumes by using sunlight as an additional heat source. The $3.5M AUD pilot, involving one SunSteam array, experienced many technical difficulties at first but has just broken even. Recently, SunSteam proposed to expand the pilot by constructing four additional SunSteam arrays. Your client has very specific project investment criteria and is not sure if they should accept the SunSteam proposal.

You

Thanks. Before analyzing, I'd like to clarify a few key questions...

Interviewer

Good question. Let me provide some background information...

You

Based on this, I suggest analyzing from these dimensions...

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Sunshine Power must decide whether to invest $14M in expanding SunSteam solar arrays that reduce coal consumption by 0.8% annually. The expansion breaks even at a coal price of $87.50/ton over 5 years, meeting the client’s payback criteria only if prices stay above this threshold. Current prices (~$83/ton) fall short, but historical trends suggest coal prices may recover.

Key Insights:

  1. Breakeven analysis requires calculating fixed investment costs against annual cost savings in coal consumption
  2. Coal price volatility is the fundamental risk—the project’s viability is highly sensitive to fuel cost assumptions
  3. Historical coal price data is critical to assessing whether breakeven criteria will likely be met during the payback period
  4. The pilot project’s 6-year payback despite higher historical coal prices suggests significant technical difficulties that may recur with expansion