# SETTING A BENCHMARK AND FORMULATING PRICING ASSUMPTIONS

We will use conventional energy as a benchmark when analyzing both models’ benefits and costs. According to the Energy Information Adminis­tration (EIA) data from 2009, the average American household consumes 936 kilowatt hours of electricity per month at an average retail price of 10.650 per kilowatt hour. This implies that average household consumes \$99.70 worth of electricity a month. However, given the specific geo­graphic locality of California, the average household spends \$139.56 in electricity a month. Helping to put this into context, the EIA states that the United States produces 4,156,745 (thousand) Megawatt hours (MWh) per year of which 48.5% comes from coal, 21.6% from natural gas, 19.4% from nuclear, 5.8% from hydroelectric sources, 1.6% from oil and 3.1% from others, such as solar and wind energy [16].

Since 1970, as sustained by Black, the retail price of residential elec­tricity in California has risen by an average of 6.7% annually. For our analysis, we assume that this trend will continue for the next 25 years. Un­der this criterion we expect the price of energy to be 22 cents per kWh by 2015, 42 cents per kWh by 2025 and 80 cents per kWh by 2035. Further­more, we assume a discount rate of 7%. This rate represents the opportu­nity cost of investing in a risk free asset plus an extra 2% to accommodate price shocks to electricity. Using these values we estimate the total cost of energy for our model city at a present value of \$3,471,909,155. This value represents the aggregate cost of supplying electricity to our 1,044,000,000 kWh town for 23 years. Performing the same calculations for the Sterling Dish farm and taking into consideration the necessary increase in power supplied due to transmission loss, we calculate/find a net present value of \$3,763,352,167. These results will be used when comparing the costs of the photovoltaic and Stirling engine models.