Page 169 - Sustainable On-Site CHP Systems Design, Construction, and Operations

142 T h e Fe a s i b i l i t y S t u d y

for the required level of accuracy when undertaken. By developing the LCC of each
alternative under consideration (including the conventional or BAU case), one can
determine the comparative advantage of the proposed system in terms of receiving the
best economic return on the money invested (also called rate of return or internal rate
of return). The following sections of this chapter explain in detail the components of
an LCC analysis, and describe the process of performing an LCC analysis, including
examples.
The following sections define the economic terms for components of an LCC analysis,
as well as explain how to estimate energy use and cost, estimate annual maintenance
costs, estimate budget construction costs, and calculate life-cycle costs.

Alternatives
Alternatives are simply all of the options that are to be considered as part of the analysis.
Typical alternatives for a combined heat and power (CHP) LCC consist of the BAU case
(buying power from the local utility and fuel for thermal requirements) and multiple
alternative cases using different types and sizes of equipment.
The BAU case is the minimum that can be done to still satisfactorily meet the
thermal and electric demands of the system. An example of a BAU case might be either
using existing or installing new boilers and chillers to meet the facility thermal loads
and purchasing electricity from the local utility to meet the electric loads of the facility.
If existing equipment is planned to be used in the BAU case, consideration must be
given to the age and condition of the equipment. If the equipment being used in the
BAU case has a remaining useful service life less than that of the alternatives to which
it is being compared, than replacement of the existing equipment must be factored into
the LCC of the BAU case. Similarly, if the existing equipment will need major overhauls
(outside of that to be considered in the annual maintenance costs), then those costs need
to be factored into the LCC of the BAU case as well.
The alternatives to which the BAU case is to be compared can be as few or as many
as is desired. A keen understanding of CHP systems will help to eliminate alternatives
that are not economically feasible prior to determining the LCC of the alternative. For
example, if the project being considered has a relatively large electric load and a rela-
tively small thermal load, then alternatives that provide considerably more thermal
output than electric output should have already been eliminated from consideration
during the conceptual engineering phase as the thermal load will be “dumped” on a
regular basis as electric demand is met. Refer to Chap. 8 for additional information.

Engineering Economics
The concept of engineering economics can be summarized as the process to determine
the best economic decision (e.g., the highest rate of return or the lowest LCC) given a
number of alternatives which require technical knowledge and expertise in order to
assess. While the economic concepts used are not unique to engineering economics, the
ability to determine the “input” to economic formulas and criteria is unique to engi-
neering economics. For example, assume one is focused solely on the economic aspect
of a design decision and wants to estimate the annual cost savings, if any, from employing
a CHP alternative in lieu of purchasing needed natural gas and electricity from local
distributing public utilities. Accordingly engineering economics must be applied to cal-
culate the technical components of the costs savings, such as energy use and cost and
operation and maintenance requirements, for example.