Page 316 - Analysis, Synthesis and Design of Chemical Processes, Third Edition

of the costs and savings associated with the retrofit. When comparing alternative schemes, the focus of
attention is on the profitability of the incremental investment required. We will consider simple discrete
choices in this section. The problem of optimizing a continuous variable is covered in Chapter 14.

The initial step in an incremental analysis of competing alternatives is to identify the potential alternatives
to be considered and to specify the increments over which the analysis is to be performed. Our first step
is to rank the available alternatives by the magnitude of the capital cost. We will identify the alternatives
as A , A , ..., A . There are n possible alternatives. The first alternative, A , which is always available, is
2
n
1
1
the “do nothing” option. It requires no capital cost (and achieves no savings). For each of the available
alternatives, the project cost (capital cost), PC, and the yearly savings generated (yearly cash flow), YS,
must be known.

For larger retrofit projects, discounted profitability criteria should be used. The algorithm to compare
alternatives using discounted cash flows follows the same four-step method outlined in Section 10.3. For
small retrofit projects, nondiscounted criteria may often be sufficiently accurate for comparing
alternatives. Both types of criteria are discussed in the next sections.

10.6.1 Nondiscounted Methods for Incremental Analysis

For nondiscounted analyses, two methods are provided below.
1. Rate of Return on Incremental Investment (ROROII)

2. Incremental Payback Period (IPBP)

Examples 10.10–10.12 illustrate the method of comparison of projects using these two criteria.

Example 10.10

A circulating heating loop for an endothermic reactor has been in operation for several years. Due to an
oversight in the design phase, a certain portion of the heating loop piping was left uninsulated. The
consequence is a significant energy loss. Two types of insulation can be used to reduce the heat loss. They
are both available in two thicknesses. The estimated cost of the insulation and the estimated yearly
savings in energy costs are given below. (The ranking has been added to the alternatives and is based on
increasing project cost).