Energy Resources, Economics & Environment EN606

Energy Resources, Economics & Environment EN606
End Semester Exam Max Marks 50 (Weightage 40%)

Time 5:30-8:30 p.m. 11th November 2019
A single A4 formula sheet is enclosed.
1. Comment on whether the following goods/ services/ bads are rival / non–rival,
excludable/non-excludable, public/ private. Explain your answer. Marks will be given only
with correct explanation. (a - d)
a) Surbahar (IITB Music event)
b) Biogas plants
c) Eastern Freeway
d) Urban Air Pollution [1.5x4 =6]
e) Using the example of your course project or any of the other course projects, explain
how you would use analysis and concepts learnt in the course to a specific real life
context. [2]
f) An increase in energy intensity of an economy implies a decrease in the energy
efficiency of the economy. State true or false with reasons [1]
2. a) IITs charge ₹ 2 lakhs per year as the annual fees to students for Undergraduate
education while the full cost of IIT education is about ₹ 6 lakhs per year. There is a proposal
to recover the full cost of IIT education from students. Consider a society with 1% families
containing IIT students. Would the proposal pass the Pareto condition? Or based on the
Pareto compensation principle? If the society has to pay (a) an equal tax to bear the cost or
(b) recover the full cost from the students, in the case of voting, which would be preferred?
Provide an economic argument justifying continuing the subsidized fee to IIT students
[3]
b) Consider a decision being taken in your hostel to invest in a flower garden between two
wings.The hostel has 300 residents – 100 residents have individual marginal willingness
to pay p=100-2q (residents who have a direct view of the flower garden) where other
residents (200 residents) have individual marginal willingness to pay p =60 –3q where q is
the number of flowering plants and p the willingness to pay in Rupees. The marginal cost
of supply of a flowering plant is constant at ₹ 150. Sketch the aggregate demand and
supply curve and determine the optimal number of flowering plants. Is this a Lindahl
equilibrium? Is this feasible to implement? What are the difficulties in implementing the
Lindahl equilibrium? [5]
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c) Explain the difference between the static R/P ratio, the exponential growth model and
the Hubbert model for estimating the depletion of a fossil fuel. Are there any other
approaches possible? [2]
3. The inverse demand function for a fossil fuel is:

Pt =5– 0.6 qt , Assume that the costs of extraction are zero. The initial reserves are
R0=50 and d=10%.
a) What is the price elasticity of demand for this function when qt =4?
b) Determine the time path of extraction for a mining industry under pure competition.
c) When does the resource get exhausted?
d) Would the time path of extraction for a monopolistic mining industry be different?
Explain your answer qualitatively.
e) What is the effect of a higher discount rate on the path of extraction? [1+2+2+1+1]
4. a) A developer has bid for a wind farm of 250 MW a tariff of ₹ 2.80/kWh for a period of 25
years. The capital cost is ₹ 1400 crores. If the O&M cost is ₹ 0.2/kWh and the annual
capacity factor is 30% determine the internal rate of return on the investment. Show a few
steps and obtain an approximate answer. The developer is being offered a loan of ₹ 700
crores with an interest rate of 10% and a tenor (term) of 10 years. Calculate the annual loan
repayment amount. Determine the rate of return on the equity (show the cash flows in
different years), form the equation for the IRR and show how you would calculate. Should
the developer opt for the loan? [6]
b) The transactions in a state economy using electricity and industry are shown below (in
Million Rupees)
Electricity Industry Final Demand
Electricity 800 900 1500
Industry 1000 1200 3000
i. Calculate the total sectoral outputs and the direct technical coefficients- A matrix. What
do A(1,2) and A(2,2) signify?
ii. Compute the Leontief inverse matrix L. If the final demand for industry increases by 5%
and the final demand for electricity remains the same, compute the changes in the total
output of both the sectors
iii. If the average price of electricity is 4 ₹/kWh, what is the electricity intensity in industry in
MWh/ Million ₹? What are the limitations of the Input –Output method? [2+2+2]
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5. An Indian software company is considering purchasing a high end vehicle for its senior
management in Mumbai. The options being considered are
(Data provided is indicative and based on typical data available from US/Japanese
companies)
Electric Vehicle Fuel Cell Vehicle Petrol Vehicle

Fuel Electricity Hydrogen Diesel
Rating 100 kW
Fuel economy 5 km/kWh 90 km/kg of Hydrogen 20 km/litre
Capital cost (₹) 24 lakhs 32 lakhs 10 lakhs
Consider a vehicle life of 10 years (assume that the battery life and fuel cell life have been
adjusted in the initial price to take care of a replacement after five years)
Fuel price ₹8/kWh ₹ 1000/kg of Hydrogen ₹ 60/litre
Consider an annual usage of 2500 km and a discount rate of 20%. Assume that the
maintenance cost is similar (to be neglected in the cost calculation)
a) Calculate the Annualised life cycle cost for the three options and the cost per km [2]
b) Draw the energy flow diagram for the three routes. Assume that the electricity is obtained
from coal based power plants, hydrogen from Natural gas. Compare the three options
based on primary energy used per year [3]
c) Compute the carbon dioxide emissions for the three options [2]
d) Are there any other factors that should be considered in the comparison? [1]
e) Is there any carbon dioxide saving in replacing a diesel car by an electric vehicle? If yes,
what is the cost of saved carbon? [2]
f) What is Net Energy Analysis? How would you compute the Net energy required for a bio
fuel? [2]
Diesel Density 0.85 kg/ litre, Carbon by weight 0.84 kg/ kg of diesel 40 MJ/kg
Hydrogen 120 MJ/kg Hydrogen obtained from Steam Methane reforming with Natural Gas (as
per the following equation) Efficiency 85%, Fuel cell efficiency 50%
CH + 2H O → 4H + CO
4 2 2 2
Coal calorific value 20 MJ/kg, Carbon by weight 52%, power plant efficiency 30%
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Energy Resources, Economics & Environment EN606

End Semester Exam Max Marks 50 (Weightage 40%)

A single A4 formula sheet is enclosed.

3. The inverse demand function for a fossil fuel is:

Electric Vehicle Fuel Cell Vehicle Petrol Vehicle

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