CE404: Chemical Engineering Product Design
Homework 2: Economics
ReneCSP is an electric utility company from solar energy. One of its power plants, ReneCSP has 1MW installed of Concentrating solar power (CSP), with a capital cost of USD 4600/kW installed. CSP plants are capital intensive with low availability and capacity factors of around 0.4 and 0.2 respectively, but have virtually zero fuel costs.
The levelized cost of electricity (LCOE) considering all operational costs from ReneCSP plants is USD 0.30 per kWh produced. They signed a contract with a local operator to sell all the electricity produced at USD 1.0 per kWh produced. Calculate the
eakeven point (USD vs. number of years).
In order to increase the capacity factor and reduce operational costs, ReneCSP is considering 3 options:
1. Replacement of working fluid, which would increase the capacity factor by 20%. The development would take 6 months and its implementation would take 1 month. The cost associated is USD 200k. During the implementation phase, the plant is not producing electricity.
2. Change of location (different i
adiance), which would increase the capacity factor by 40%. The search and analysis for the new location would take 1 month. Moving to a different location would take 10 months. The cost associated is USD 300k. During the implementation phase, the plant is not producing electricity.
3. Lower maintenance cost from 0.06 to 0.04/kWh. The development would take 10 months and its implementation would take 2 month. The cost associated is USD 100k. During the implementation phase, the plant is not producing electricity.
Calculate the Value of Project after 5 years for the 3 options, and make a recommendation to your firm about the best option.
NOTE: you can calculate the energy produced as:
Energy (kWh/year) = power (kW) * availability factor * capacity factor * 24h * 365 days
Specifications for HW Report #2
The report must be submitted online (UBlearns “Assignments”) before 11:59 pm, November 15.
Submit as PDF file named ”SurnameName_HW2_2019” .
The written report must be a SINGLE SELF-CONTAINED .PDF file; no additional attachments of any kind will be accepted. The composition shall follow the following organization:
1. Cover Page
Cover page starts with the title”CE404: Chemical Engineering Product Design, Fall 2019, Homework #2”. Include your name and present a XXXXXXXXXXword abstract summarizing the content of the report.
2. Body of report
Body comprises 1-2 pages of single-spaced text written in 12-point Times New Roman font with 1-inch margins. The text needs to accomplish the following goals:
· Breakeven point (USD vs. years)
· Sensitivity analysis and Value of Project for the 3 options
· Recommendation to your firm – Do we proceed with one of the options?
3. Figures and Tables
There is no limit on figures and tables and they are not included in the page count.
Diapositiva 1
Case study
Parabolic solar concentrato
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Case study
Assumptions
Breakeven point
Value of Project
Sensitivity analysis
Recommendation
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Monica Lupion. Product Design – team project
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Break-even
Point
30
20
10
0
M$ / y
sales
0
200
400
600
profit before tax
cost
k$ / y
electricity sold
Break-even point
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11/08/2004
16 - 3
Profit from sales should rise more rapidly than costs. If all is well, the two become equal at some number of units sold (the
eakeven point). With my figures this is at 200 million matchboxes per year. Above this value the firm will make a profit on matchboxes.
The difference between sales and cost is the profit-before tax*. I must say that my figures look too good: making boxes of matches is a mature industry, where profit margins are probably quite low**.
_______________________________________________________________
*These are corporate taxes, not the VAT mentioned earlier. They depend on the country and other things, but might be 30% of profit-before-tax.
**If I had time, I would begin by improving my estimates of the raw materials cost using data and quotes from manufacturers, Then I would try to get more understanding of the steps and margins in the match trade. Finally, I would analyze the workings of a match factory and try to get a better idea of the cost of equipment.
Development: -5000 / 4 = -1250
Ramping-up: -2000 / 2 = -1000
Marketing: -1000 / 4 = -250
Production: 20 000 (-0.4) / 4 = -2000
Sales: 20 000 (+0.8) / 4 = 4000
Money out
per Quarte
Money in
and so on...
All in k$
Money In / Out, Quarterly
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21/10/2004
17 - 4
We divide the amounts of money over the different periods as shown above. Money-in is positive, money-out negative. All amounts will be rounded to thousands of dollars.
If you do not agree with the choices made: you can change these later. For example: sales will not be constant; they increase at first, then go down gradually as competing products enter the market. If you have an idea of how this will happen, you can put it in your model.
Money Accumulated
Value of Project, VP
quarte
k$
end of sales
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Monica Lupion. Product Design – team project
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21/10/2004
17 - 5
This is the plot of the accumulated amount of money. This first decreases as we spend but have no income. It then starts increasing, and in a good project it will end well above the zero line. The value at the end – after the last sales – is the value of the project or VP *. With our assumptions, we get a value of k$ 12000.
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*Most value calculations use a more refined method (the NPV method) that we will discuss at the end of this lesson. However, this refinement is not recommended for modelling of development projects. Here it is important that the model is simple, so all team members understand it and can use the model for decisions.
Sensitivity analysis
Replacement of working fluid
Change of location (different i
adiance)
Lower maintenance cost
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Monica Lupion. Product Design – team project
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Reporting
Cover page
Including summary
Body of the report: 1-2 pages
Assumptions
Breakeven point
Value of project
Sensitivity analysis
Recommendation
Figures and Tables
References
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Monica Lupion. Product Design – team project
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Year 1Year 2
Q1Q2Q3Q4Q1Q2Q3
Development XXXXXXXXXX
Ramping-up XXXXXXXXXX
Marketing XXXXXXXXXX
Production XXXXXXXXXX
Sales XXXXXXXXXX
Sheet1
Year 1 Year 2 Year 3 Year 4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Development -1250 -1250 -1250 -1250
Ramping-up -1000 -1000
Marketing -250 -250 -250 -250 -250 -250 -250 -250 -250 -250 -250 -250
Production -2000 -2000 -2000 -2000 -2000 -2000 -2000 -2000 -2000 -2000 -2000
Sales 4000 4000 4000 4000 4000 4000 4000 4000 4000 4000 4000
Sheet2
Sheet3
-10000
-5000
0
5000
10000
15000
123 XXXXXXXXXX
Chart2
-1250
-2500
-3750
-6000
-7250
-5500
-3750
-2000
-250
1500
3250
5000
6750
8500
10250
12000
Cash accumulated
Sheet1
Year 1 Year 2 Year 3 Year 4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Development -1250 -1250 -1250 -1250
Ramp-up -1000 -1000
Marketing and support -250 -250 -250 -250 -250 -250 -250 -250 -250 -250 -250 -250
Production and sales window -2000 -2000 -2000 -2000 -2000 -2000 -2000 -2000 -2000 -2000 -2000
Production volume 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000
Unit production cost -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4 -0.4
Sales revenue 4000 4000 4000 4000 4000 4000 4000 4000 4000 4000 4000
Sales volume 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000 5000
Unit price 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8 0.8
Period cash flow -1250 -1250 -1250 -2250 -1250 1750 1750 1750 1750 1750 1750 1750 1750 1750 1750 1750
Cash accumulated -1250 -2500 -3750 -6000 -7250 -5500 -3750 -2000 -250 1500 3250 5000 6750 8500 10250 12000
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
PV year 1 r = 10% -1250 -1220 -1190 -2089 -1132 1547 1509 1472 1436 1401 1367 1334 1301 1269 1239 1208
Project NPV 8203
Sheet1
Cash accumulated
Sheet2
Sheet3