Energy case interview, the unit math and a worked case

Larkspur Renewables, an invented power developer, can build a 200 MW solar farm. The local utility offers to buy all its output for 25 years at a flat $48 per megawatt hour. Should Larkspur sign and build? This case and every number in it are invented by Soreno for practice. To keep the math short it leaves out taxes, tax credits and the slow loss of panel output, which a real project would price in.

1. Clarify

   A yes or no on one contract

   The goal is a project that earns at least Larkspur's 7% cost of capital over the contract. Confirm the size (200 MW), the term (25 years, the plant's expected life), the price ($48 per MWh, flat) and that the utility takes all the output.

2. Megawatts to megawatt hours

   420,480 MWh a year

   A 200 MW farm running flat out for 8,760 hours would make 1,752,000 MWh. The sun doesn't allow that, so multiply by the capacity factor: 24% in this case, close to EIA's 24.0% U.S. average for utility-scale solar photovoltaic in 2025. That is about 2,102 MWh per MW, 420,480 MWh in all.

3. Revenue and cost

   $20.2 million in, $4 million out, $220 million up front

   Revenue is 420,480 MWh × $48 = $20.2 million a year. Upkeep is $20 per kW a year, $4 million. Building costs $1,100 per kW, $220 million. Cash of $16.2 million a year pays the build back in about 13.6 years, which on its own says little about a 25-year asset, so price the capital properly.

4. Levelized cost

   $54.41 per MWh against $48

   Spread the build cost over 25 years at 7%: a capital recovery factor of 0.0858 turns $220 million into $18.9 million a year. Add upkeep and divide by output: ($18.9 million + $4 million) ÷ 420,480 MWh = $54.41 per MWh. The offer is $6.41 short on every MWh, $2.7 million a year, a net present value of minus $31.4 million.

5. Test the levers

   Trackers help, an escalator closes it

   Trackers that follow the sun lift the capacity factor to 27% for $1,200 per kW: the levelized cost falls to $51.99, still above $48. A price that rises 1.5% a year (a figure we chose for the case), starting at $48 and ending near $68.62, is worth a flat $54.87 at 7%, which just clears the cost, by $0.46.

6. Recommend

   Counter at a 1.5% escalator, or about $55 flat

   Don't sign at a flat $48. Ask for a 1.5% yearly escalator, or a flat price of about $55, and price trackers in as an upside. The risks to name: a capacity factor below 24%, a higher build cost, and the grid connection date. Next step: a site-specific output estimate and a firm build quote.

A regulated utility doesn't price per unit like a generator. Its regulator sets rates so that it recovers its costs and earns a return on its rate base. This short example, invented by us, shows how that changes a load growth question. Taxes are left out to keep the math short.

1. How it earns

   Revenue requirement $730 million

   Bellhaven's rate base is $4 billion and its regulator allows a 7% return on it, debt and equity together: $280 million of return. Add $300 million of operations and $150 million of depreciation and customers must pay $730 million a year.

2. The ask

   A 300 MW data center needs $500 million of grid

   New lines and substations add $35 million of return, $12.5 million of depreciation over 40 years and $5 million of upkeep: $52.5 million a year to recover.

3. Per MWh

   $23.50 if it runs as promised

   At 85% of 300 MW the campus uses 2,233,800 MWh a year, so the new grid costs $23.50 per MWh. If it uses half that, the cost doubles to $47.01, and other customers could end up paying the gap.

4. Answer

   Serve it, with a minimum bill

   Building the grid grows the rate base, which is how a regulated utility grows earnings. The risk is load that never shows up. Recommend serving the campus under a contract with a minimum monthly charge that covers the new grid's cost whatever it uses.

Definitions from the U.S. Energy Information Administration and the Department of Energy. The worked numbers are ours.

1. MW vs MWh

   Capacity vs energy

   A megawatt is a rate, a megawatt hour is an amount. One MW running for a year at full power is 8,760 MWh. Mixing the two is the most common energy case error we hear.

2. Capacity factor

   Actual output ÷ output at full power

   EIA defines it as the ratio of the energy a generating unit produced over a period to what it could have produced at continuous full power over the same period.

3. Heat rate

   Fuel in per kWh out

   EIA's FAQ defines heat rate as the energy a plant uses to generate one kWh, in Btu, and gives efficiency as 3,412 Btu divided by the heat rate. Our example: a gas plant at 7,000 Btu per kWh is about 48.7% efficient, and gas at $3.50 per million Btu means fuel costs about $24.50 per MWh.

4. Levelized cost

   Build and run cost per MWh

   EIA's April 2026 paper on levelized costs in its Annual Energy Outlook 2026 describes levelized cost of electricity (LCOE) as the revenue required to build and operate a generator over a cost recovery period, and levelized avoided cost (LACE) as the revenue available to it. It says the ratio of the two gives a more intuitive way to understand competitiveness than either one alone, while noting that real build decisions also turn on policy and other factors.

5. Rate base

   What a utility earns a return on

   EIA's glossary defines rate base as the value of property on which a regulator lets a utility earn a specified rate of return, and a rate case as a proceeding, usually before a regulatory commission, on the rates to be charged.

6. PPA

   A long contract for power

   The Department of Energy's Better Buildings page describes PPAs for on-site systems: a developer owns and runs the system, the customer buys its output for a set period, generally 10 to 25 years, and the rate usually rises 1% to 5% a year. Its offsite (virtual) PPA settles the gap between a fixed strike price and the market price.

Figures to sanity-check a case, from EIA pages read on October 31, 2026. Use the interviewer's numbers when they differ.

1. Generation mix

   Gas about 41%, renewables about 24%

   EIA puts 2025 U.S. utility-scale generation at about 4.43 trillion kWh: natural gas about 41%, renewables about 24%, nuclear about 18% and coal about 17%.

2. Capacity factors

   Nuclear about 91%, solar about 24%

   EIA's 2025 annual capacity factors: nuclear 91.1%, natural gas combined cycle 58.7%, coal 48.8%, hydroelectric 34.4%, wind 33.8%, solar photovoltaic 24.0%. Gas turbines, which mostly run at peak hours, averaged 13.6%. Use these to check whether a case's output makes sense.

3. Prices

   13.63¢ per kWh on average

   The 2025 U.S. average retail price was about 13.63¢ per kWh: 17.30¢ for homes, 13.41¢ for commercial customers and 8.62¢ for industry. EIA says generation is the largest part of the price, and that industrial customers pay less because supplying them at higher voltage costs less.

4. Regulation

   Depends on the state

   EIA says some states' utility commissions fully regulate prices, while others combine unregulated prices for generators with regulated prices for transmission and distribution. Ask which world the client is in.

5. Gasoline

   Crude oil is the biggest part of the pump price

   EIA lists four parts of the retail gasoline price: crude oil, refining costs and profits, distribution and marketing, and taxes, with crude oil the largest. It puts the 2025 average retail price at $3.10 a gallon and the federal tax at 18.40 cents a gallon.

The openings are ours. Each says which part of the industry you are in before any tree.

1. Build a plant

   Levelized cost against the price

   Output from capacity factor, cost per MWh from build and running costs, then the price under the contract or in the market. Name the risk to output and to price.

2. Utility load growth

   Rate base, cost recovery and who pays

   Size the new load in MWh, the grid it needs and the yearly cost to recover. Then who carries the risk if the load is smaller than promised.

3. Refinery or oil profit

   Price spread before volume

   Separate the commodity price from the refining margin, the gap between product prices and crude cost that the industry calls the crack spread, then throughput and operating cost per barrel, which the client controls more directly.

4. Energy transition entry

   Market, economics, fit

   How big and how fast-growing the new market is, whether the unit economics work at today's prices, and what the client brings: sites, customers, a balance sheet.

5. Cutting a buyer's energy bill

   Use less, pay less, or contract

   Efficiency first, then tariff or supplier, then a PPA. Compare each option's cost per MWh and the emissions it removes.

The firm pages we read on October 31, 2026 offer no utility or power plant practice case. These are the closest.

1. McKinsey

   Talbot Trucks, an electrification case

   One of the five practice cases on McKinsey's interviewing page. A European truck maker asks whether to invest in electric trucks, and one question compares the total cost of ownership of a diesel truck and an eTruck. The case reminds you that calculators are not allowed.

2. BCG

   A climate case simulation

   BCG's climate and sustainability careers page offers OneDay@BCG, free online modules on what it is like to work on a climate consulting case at BCG, and points to its case interview tips.