Project economics capital cost estimates

Action Perform a detailed economic analysis of the project including Capital cost estimates (by different methods)... 

Economics (capital costs, estimated construction period, O M costs, fuel costs, final product costs for a prototype and relevant projections for a final version of the nuclear installation with an innovative SMR)... 

The economic evaluation is an important and integral part of the overall feasibility study of the project. First, a capital cost estimate is obtained using two estimation techniques. The ratio method and factorial cost estimation techniques are used to determine separate capital cost estimates for the proposed 280 tonne/day plant. Finally an investigation into the expected return on investment from this project is performed. 

Design a 250,000 Ib/yr Lindane (99 per cent 7 isomer of benzene hexachloride) plant based on process information given in the current literature [e.g., see Chem. Eng. Progr., 52 281 (1956) Chem, Week, 78 54 (1956) Ind. Eng. CAem., 48(10) 41A (1956)], Develop the process flow. sheets, equipment specifications, and plant layout. Examine the economics of producing Lindane including (1) fixed and capital cost estimates by one or more of the methods outlined in Chap. 6, (2) profitability analysis showing return on investment and pay-out time, (3) break-even point analysis of the project, (4) economic estimates for a plant producing 500,000 Ib/yr and 750,000 Ib/yr. 

So far we have explained how to estimate capital and operating costs. In Example 3.3, we formulated an objective function for economic evaluation and discovered that although the revenues and operating costs occur in the future, most capital costs are incurred at the beginning of a project. How can these two classes of costs be evaluated fairly The economic analysis of projects that incur income and expense over time should include the concept of the time value of money. This concept means that a unit of money (dollar, yen, euro, etc.) on hand now is worth more than the same unit of money in the future. Why Because 1000 invested today can earn additional dollars in other words, the value of 1000 received in the future will be less than the present value of 1000. 

In Chapter 3 we discussed the formulation of objective functions without going into much detail about how the terms in an objective function are obtained in practice. The purpose of this appendix is to provide some brief information that can be used to obtain the coefficients in objective functions in economic optimization problems. Various methods and sources of information are outlined that help establish values for the revenues and costs involved in practical problems in design and operations. After we describe ways of estimating capital costs, operating costs, and revenues, we look at the matter of project evaluation and discuss the many contributions that make up the net income from a project, including interest, depreciation, and taxes. Cash flow is distinguished from income. Finally, some examples illustrate the application of the basic principles. 

For ROPE applications to tar sand mining, economic projections were published for capital costs and operating costs. Total capital costs were estimated at 53,336,000 and annual operating costs were estimated at 9,683,000. For the estimation of capital costs, direct field cost was estimated at 35,558,000. Other capital costs were based on percentages of that estimate. These cost estimates were based on mid-1989 dollars (D13089C, pp. 242-243). 

The annual operating costs are also shown in Table 3. The raw materials costs were estimated from the average purchase cost of crude olive oil in Portugal in 1994. Supplies were empirically calculated from the scale-up study and include water, electric power, fiiel, maintenance, assurances, transports and expedient articles. The labour costs were determined for 4 shifts of 2 persons each, plus supervising personal. With a depreciation time of ten years and an interest rate of 10%, the total annual capital costs was estimated to be 212PTE/kg of oil feed. Several other economical indicators, such as the internal rate of return of the plant, showed a promising economical feasibility for this project. 

An additional complication in formulating the objective function is the quantification of uncertainty. Economic objective functions are generally very sensitive to the prices used for feeds, raw materials, and energy, and also to estimates of project capital cost. These costs and prices are forecasts or estimates and are usually subject to substantial error. Cost estimation and price forecasting are discussed in Sections 6.3 and 6.4. There may also be uncertainty in the decision variables, either from variation in the plant inputs, variations introduced by unsteady plant operation, or imprecision in the design data and the constraint equations. Optimization under uncertainty is a specialized subject in its own right and is beyond the scope of this book. See Chapter 5 of Diwekar (2003) for a good introduction to the subject. 

None of the economic measures indicates that this is an attractive project with the projected costs, revenues, and capital expenses. It should perhaps be noted, though, that this analysis was based on a class 5 estimate of the capital cost (+ 50%). If we had any technical improvement in mind that could reduce either the capital investment or the cost of production, then we might want to develop the design further to assess if the economic analysis was sufficiently improved. 

A thorough presentation of fundamentals of an economic analysis for process design can be found in the classical book of Peters and Timmerhaus (1991). In addition this book contains detailed information about the cost of chemical equipment. A concise but useful treatment can be found in Coulson Richardson volume 6 (1993). The part on economics in Douglas (1987) is particularly well written from the viewpoint of a designer. The chapter written by Holland Wilkinson for Perry s Handbook 7 edition (1997) contains an extended description of the modem concepts of profitability, a comprehensive estimation of manufacturing and fixed-capital costs, as well as an introduction in the accounting and cost control concepts. The economic evaluation of projects from the perspective of the Institution of Chemical Engineers-UK may be found in Allen (1991). 

Sometimes the quantities needed are so small that it is not economical for a supplier to manufacture them or the cost to do it would be extremely high and would not be affordable for the new product. This can be very important to the initial introduction of the product. Both you and the supplier have to make money so the price of the product needs to reflect the costs required to produce it. It is very easy to get caught up in the grandiose ideas of a new product, not watch the costs, and end up in trouble. Perhaps existing equipment can be modified to get the small quantities and not require a significant capital investment. A very realistic projection of the demand for the new product has to be developed so that a cost estimate can be made to reflect the market potential for the new product. 

The idea of this project is showm in Hgure 11.11. The integratim is the key to the economic feasibility of such a cement-sulfuric acid type of sulfur recycle process. As shown in Table 11.10 [17], the integrated project saves considerable capital cost compared with the conventional approach of developing the capacities separately. The capital cost of the Pine Level Project was estimated primarily at about US 900 million. Hence the savings in capital costs alone amounted to 25%. 

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