Get Project Economics Right

It is critical that correct project economic data must be provided for determining justification of improvement options and selecting between alternatives, which 

For tackling this challenge, the method based on marginal analysis can indicate true steam costs at point of use. The reason why the marginal price method (Chapter 17) can provide the true steam cost is that it is based on the last incremental amount of steam saved or generated. Determination of marginal steam prices relies on an overall steam and power balance model, which takes into account the effects from steam balances. 

The common mistake observed is the capital cost estimate for a retrofit project being too low compared with reality. The main reason is that it does not include installation and the outside system battery limit (OSBL) cost, which could be as expensive as the inside system battery limit (ISBL) cost. This topic is discussed in Section 22.6. 

Economic analyses at early stages in a retrofit project are primarily useful as a screening tool. More detailed economic analyses can be completed when the project is more clearly defined. Different economic approaches are used for evaluating investment benefits, which include simple payback, NPV, and IRR (internal rate of return). 

An investment project involves spending an investment (I, in ), and then gaining a return over time. If an energy project is implemented with money spent now, the plant hopes to see a return on investment from a subsequent net energy-saving benefit (B, in /year). The simple payback approach is to calculate the payback time (Pg in years) as 

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