Asset Management - Lifecycle costing: Can you invest in the future and afford not to apply it?

Transcription

1 Asset Management - Lifecycle costing: Can you invest in the future and afford not to apply it? - Asset Management - Andre Jordaan; 3 October 2016, AMEU Conference

2 Examples: Asset Acquisition

3 We all know that it s not just prevalent in Government Private sector gets it wrong. Other countries gets it wrong.

4 Case Study: British Columbia Fast Ferries Requirement: Three customdesigned high speed passenger/vehicle ferries Late 1990s: FastCat Fiasco - ineffective asset creation and acquisition processes Goal was to improve ferry service between mainland terminal of Horseshoe Bay and the Vancouver Island terminal Built locally as part of political drive to rebuild BC shipping industry

5 Case Study: British Columbia Fast Ferries Outcome: # Budget $210m, - final cost $460m # Final delivery 3 years behind schedule # Ferries auctioned off for $19m in 2003, four years after commissioning Poor design: No passenger deck space, high fuel consumption, increased loading time due to balancing issues Political interference: contract not awarded to competent supplier Unreliability: breakdowns Lack of project management discipline: no feasibility study or risk analysis, no project review or re-evaluation

6 Asset Management principles at play # Demand Analysis # Requirement Analysis # Systems Engineering # Life cycle costing # Portfolio Management Lifecycle Costing: Opportunity to influence costs is concentrated at the planning and acquisition stages

7 Case Study: Solar vs. Diesel Power Requirement: 2 bore holes sunk for a municipality, 10km from town, which technology is most appropriate for this remote site: 1 Solar 2 Diesel R 940,000 = R 590,000 Excl. Batteries + R 350,000 Batteries R 88,000 Life expectancy: R 20 years 6 years 20 years, 10 year overhaul

8 Case Study: Solar vs. Diesel Power (EAC Method) 0 a) Interest rate Input Values 10.0% b) CPIX for services, fuel and electricity 5.0% c) Discount rate 5.0% Option 1: Solar Power 1. Acquisition and installation cost of all items excluding batteries R 590,000 1 Equivalent Annual Cost of the Solutions 2. Life of all items excluding batteries 20 years EAC acquisition R 47, Acquisition and installation cost of batteries (deep cycle) R 350,000 EAC batteries R 68, Life of batteries (deep cycle) 6 years Annual maintenance R 3, Operating and maintenance cost per year for solar power system R 3,600 EAC total R 119,899 Solar The diesel is but 1/10 th of the capital outlay, but costs 85% more than solar in the long term Option 2: Diesel Power 1. Acquisition and installation cost R 83,000 PV (Present Value) acquisition R 83, Overhaul cost after 10 years R 20,000 PV Overhaul R 12, Life of diesel system 20 years PV acquisition and overhaul R 95, Operating and maintenance cost per year for diesel system R 213,600 Fuel R 187,800 EAC of acquisition and overhaul R 7,645 Services R 18,000 Annual maintenance R 213,600 Fuel Transport R 7,800 EAC total R 221,245 Diesel Year Solar EAC R 119,899 R 119,899 R 119,899 R 119,899 R 119,899 R 119,899 R 119,899 R 119,899 R 119,899 R 119,899 R 119,899 PV R 114,190 R 108,752 R 103,573 R 98,641 R 93,944 R 89,471 R 85,210 R 81,153 R 77,288 R 73,608 R 70,103 Total NPV R 2,188,872 (Calculated over 50 years) Diesel 2 EAC Method: Nett Present Values of Each of the Solutions EAC R 221,245 R 221,245 R 221,245 R 221,245 R 221,245 R 221,245 R 221,245 R 221,245 R 221,245 R 221,245 R 221,245 PV R 210,710 R 200,676 R 191,120 R 182,019 R 173,352 R 165,097 R 157,235 R 149,748 R 142,617 R 135,825 R 129,358 Total NPV R 4,039,039 (Calculated over 50 years) NPV Diff -R 1,850,167

9 Case Study: Solar vs. Diesel Power (Cash Flow Method) The diesel is but 1/10 th of the capital outlay, but costs 90% more than solar in the long term 0 a) Interest rate Input Values 10.0% b) CPIX for services, fuel and electricity 5.0% 5,000,000 c) Discount rate 5.0% 4,500,000 Solar Cum. Total Option 1: Solar Power 1. Acquisition and installation cost of all items excluding batteries R 590,000 4,000,000 Diesel 1 Cum. Equivalent Total Annual Cost of the Solutions 2. Life of all items excluding batteries 20 years 3,500,000 EAC acquisition R 47, Acquisition and installation cost of batteries (deep cycle) R 350,000 EAC batteries R 68,956 3,000, Life of batteries (deep cycle) 6 years Annual maintenance R 3, Operating and maintenance cost per year for solar power system R 3,600 2,500,000 EAC total R 119,899 Solar 2,000,000 Option 2: Diesel Power 1,500, Acquisition and installation cost R 83,000 PV (Present Value) acquisition R 83, Overhaul cost after 10 years R 20,000 1,000,000 PV Overhaul R 12, Life of diesel system 20 years 500,000 PV acquisition and overhaul R 95, Operating and maintenance cost per year for diesel system R 213,600-3 Cash Flow Method: Breakeven (Incl. NPV and EAC) Year Solar - Acquisition: Pannel 590,000 - Batteries 350, ,033 - Maintenance 3,600 3,780 3,969 4,167 4,376 4,595 4,824 5,066 5,319 5,585 5,864 Total 943,600 3,780 3,969 4,167 4,376 4, ,858 5,066 5,319 5,585 5,864 PV Total 943,600 3,436 3,280 3,131 2,989 2, ,480 2,599 2,481 2,368 2,261 Solar Cum. Total 943, , , , , ,289 1,226,770 1,229,369 1,231,850 1,234,219 1,236,480 NPV 2,306,456 (Calculated over 50 years) EAC 126,340 Diesel - Acquisition: 83, year overhaul 32,578 - Operations & Mainte 213, , , , , , , , , , ,932 Total 296, , , , , , , , , , ,510 PV Total 296, , , , , , , , , , ,703 Diesel Cum. Total 296, , , ,891 1,058,223 1,227,495 1,389,072 1,543,305 1,690,528 1,831,058 1,977,761 NPV 4,386,315 (Calculated over 50 years) EAC 240,268 Total Cost Comparison in PV terms

10 Case Study: Solar vs. Diesel Power - Sensitivity Analysis 1 Solar 2 Diesel The diesel is but 1/10 th of the capital outlay, but costs 85% more than solar in the long term NPV (Cost over 50 years) R 2,2m R 4,0m Diff. 85% 1. Scenario: Primarily used in summer/winter: demand drops to 50% design requirement. NPV (50 years) at 50% load R 2,2m R 2,1m -5% 2. Scenario: Diesel fuel halves throughout the designed life (50 years) NPV (50 years) at 50% load R 2,2m R 2,3m 6%

11 Don t be fooled If Solar PV is so much better than fuel, is it cost effective for households? Financially: Questionable Payback period well over 10.8 years (i.e. without even taking the replacement of the batteries into account). The benefit: No electricity outages during load shedding.

12 She comes with a Coffee Machine

13 Case Study: Coffee 1 Plunger 3 Bean to Cup 2 Nespresso

14 Case Study: Coffee Model: 4 cups/day 1 Plunger 2 Nespresso 3 Bean to Cup Flavours: Freshness: Energy: Medium Easy Hard Poor Excellent Good Poor Excellent Excellent Ease of use: Slow Good Good

15 Case Study: Coffee Model: 4 cups/day 1 Plunger 2 Nespresso 3 Bean to Cup EAC (6 years) R 2,900 R 10,200 R 5,600 NPV (6 years) R 15,800 R 55,200 R 30,400

16 Case Study: Coffee Sensitivity Analysis EAC per options: % % 82% cups/day 4 cups/day 6 cups/day

17 Punchline Management cannot afford making uninformed decisions. Lifecycle costing allows for informed decision-making.

18 Contact Andre Jordaan Pragma Africa Cape Town, South Africa Office: +27 (0) Mobile: +27 (0)

19 The End