Cost-benefit analysis of plasma technologies

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1 Cost-beefit aalysis of plasma techologies Professor Adra Blumberga, Riga Techical uiversity Part-fiaced by the Europea Uio (Europea Regioal Developmet Fud Cost- beefit aalysis Part-fiaced by the Europea Uio (Europea Regioal Developmet Fud

2 What is cost-beefit? Cost-beefit aalysis compares costs ad beefits of ivestmet project. Allbeefits ad costs ofproject are measured i terms of moey. Cost-beefit aalysis helps: to determie if project is ecoomically viable; to compare differet project alteratives (beefits costs ±E) >0, where E evirometal costs ad beefits

3 BENEFITS Avoided costs for air pollutio direct beefits to the compay ad are comparably easy to assess, e.g. avoided tax paymets Avoided exteralities beefits to society but comparably difficult to assess, e.g. health care costs 4 COSTS Fixed costs: Capital costs Operatio ad maiteace costs Admiistrative costs Fixed taxes Varyig costs: Eergy, water, material costs Varyig operatio ad maiteace costs Varyig taxes 5

4 Direct costs Costs, EUR? What are costs ad beefits If all alteratives are compared? A B C Direct costs method Adra Blumberga "Vides politika u ekoomika"

5 Cost-beefit aalysis 1. Fiacal efficiecy assessmet of cash flow: Net preset value (NPV) Iteral rate of retur (IRR) Ratio of discouted beefits/discouted costs 2. Ecoomic efficiecy takes ito accout costs ad beefits of wider area (regio, coutry, EU). Cash flow is adjusted with: Fiscal effects ad future moey trasfers; Ecoomic, social ad evirometal costs ad beefits. Footer 8 Socially effective project EUR Margial abatemet costs Margial damage costs Emissios(t/yea

6 How to evaluate beefits agaist costs? Icome = Pollut Pollut ) ( 1 2 Tax Pollut INV PP x Icome Does PP justifies the ivestmet INV for the give Icome? 10 Simple pay-back period (PP) Example 1 INV = 2000 Icome = 100 /year (avoided paymets for pollutio) Techical life-time of equipmet = 10 years 2000 PP = = 20 years 100 PP clearly does ot justify the ivestmet! 11

7 Simple pay-back period (PP) Example 2 INV = 2000 Icome= 500 /year Techical life-time of equipmet = 10 years 2000 PP = = 4 years 500 Does PP justifies the ivestmet? Istitute of Eviromet ad Eergy Systems 12 Simple pay-back period (PP) Example 3 There are 4 ivestmet project alteratives (A,B,C,D), which oe to choose? Year A B C D PP 4 years 4 years 4 years 4 or 5 years? Istitute of Eviromet ad Eergy Systems 13

8 Time value of moey Why 1 today is worth more tha 1 tomorrow? 14 Time value of moey Reasos why moey has a time value : cosumptio preferece moey which is received today ca be spet today risk advatage risk disappears as soo as moey is received ivestmet advatage moey received today ca be ivested today to ear more moey Discout rate ricludes a risk which ivestors associate with the project 15

9 Cocept of preset value If PV = 2000 are ivested today, the future value after 4 years will be 2928 whe iterest rate is 10% I other words: if we wat 2928 to be o our accout at the ed of 4th year, ad the iterest rate is 10%, we eed to ivest: 2928 PV = 2000 Euro 4 (1+ 0.1) = Usig discoutig we determied that the preset value of 2928 received at the ed of 4th year are 2000 if the discout rate is 10% Discoutig allows to compare future beefits with today s ivestmet o equal basis their preset values Istitute of Eviromet ad Eergy Systems 16 Cocept of preset value If FV 1 is expected after the 1st year: FV PV = r sice FV = PV (1+ ) 1 1 r I geeral, if FV is expected at the ed of -th year: PV FV sice = ( 1+ FV = PV ( 1+ (1+... (1+ = PV (1+ How much do I eed to put o a bak accout (what is PV) i order to receive certai FV at the ed of each year durig years? PV = PV + PV PV FV FV = r (1+ 2 FV (1+ Istitute of Eviromet ad Eergy Systems 17

10 Cocept of preset value Example 5 (cotiuatio of the Example 2) how much do I have to put o a bak accout i order to receive 500 at the ed of each year durig 4 years if r = 10% PV = = = 1586Euro (1+ 0.1) importat coclusios: We did ot eed to ivest 2000 i order to ear 500 each year, 1586 would be eough -INV+ PV= = -414 = NPV(et preset value) NPV 0 project may be acceptable; NPV<0 project is ot acceptable moey received sooer has larger PV values icreasig discout rate r reduces PV values Istitute of Eviromet ad Eergy Systems 18 Net preset value NPV is calculated usig et cash flow CF: NPV = INV CF1 CF r ( CF (1+ If CF 1 = CF 2 =...= CF = CF (auity)the NPV = INV Whe NPV= 0 INV = CF r + PV 1 1 (1+ = INV ad + CF r 1 1 (1+ INV r CF = 1 1 (1+ CRF r = 1 1 (1+ CRF capital recovery factor CF = INV CRF Istitute of Eviromet ad Eergy Systems 19

11 Usig NPV method whe choosig amog alteratives Example 7 (cotiuatio of the Example 3) which alterative is the best if r= 10% NPV A = = = 24. 5Euro (1+ 0.1) NPV B = = 4. 3Euro (1+ 0.1) NPV C = = 11. 8Euro (1+ 0.1) NPV D = = 4. 2Euro (1+ 0.1) A is ot ecoomically justified sice NPV< 0 C is the best alterative Istitute of Eviromet ad Eergy Systems 20 Usig NPV method whe choosig amog alteratives Example 7 (cotiuatio of the Example 3) Year A B C D PP 4 years 4 years 4 years 4 or 5 years? NPV Istitute of Eviromet ad Eergy Systems 21

12 Discouted pay-back period (DPP) time period to recover iitial ivestmet with preset value of cash iflows Year NPV A NPV B NPV C NPV D ,9-90,9-63,6-43,6 2-74,4-74,4-38,8-60,2 3-51,8-51,8-23,8-37,6 4-24,5-24,5-17,0-30,8 5-18,3-10,8-18,4 6 4,3 11,8 4,2 DPP 6 years 6 years 6 years Istitute of Eviromet ad Eergy Systems 22 Iteral rate of retur (IRR) NPV IRR discout rate at which NPV= 0 IRR 0 r Istitute of Eviromet ad Eergy Systems 23

13 Iteral rate of retur (IRR) Example 8 INV=2000 ; CF=500 each year (example 2) what is IRR? = IRR 2 3 (1+ IRR) (1+ IRR) (1+ IRR) Aswer: IRR= 0% If CF= 630 each year, what is IRR? = IRR 2 3 (1+ IRR) (1+ IRR) (1+ IRR) IRR= 0.1 or 10% IRR r- project may be acceptable; IRR< r project is ot justified 4 4 Istitute of Eviromet ad Eergy Systems 24 NPVor IRRmethod? NPV B A Fischer s poit IRR B IRR A 0 NPV A =NPV B r Istitute of Eviromet ad Eergy Systems 25

14 NPVor IRRmethod? The golde rule whe decidig which project to choose amog mutually exclusive projects choose the project with the higher NPV 26 Cost-beefit aalysis of plasma techologies Part-fiaced by the Europea Uio (Europea Regioal Developmet Fud

15 Cost-beefit aalysis has bee prepeared i cooperatio with : The Szewalski Istitute Of Fluid-flow Machiery Zbigiew Barski Footer 28 Cost-beefit aalysis of plasma techologies Part-fiaced by the Europea Uio (Europea Regioal Developmet Fud

16 The mai beefits after implemetigthe plasma techologies Avoided paymets for air pollutio Avoided exteral costs Health beefits Cost- beefit aalysis of plasma techologies 30 Cost calculatio Taxes for pollutio Capital costs Operatio ad maiteace costs Cost- beefit aalysis of plasma techologies 31

17 Methodology to assess exteralities (ExterE project) Source (equipmet ad productio characteristics) emissios (e.g., kg/yea Dispersio (e.g., atmospheric dispersio models) icreasig cocetratio where emissios are disposed (e.g., g/m3 i all regios where emissios are disposed) Dose-respose fuctio Impact (e.g., asthma) Moetary evaluatio Costs Evirometal exteralities for 1 kwh electricity produced (ExterE project) Air pollutio ad other impacts high low Biomass techologies Nuclear Natural gas techologies Wid Exisitig coal power plats (without flue gas treatmet) New coal power plats low high GHG emissios

18 EN35 Exteral costs of electricity productio, Europea Evirometal Agecy Adra Blumberga "Vides politika u ekoomika" 34 EN35 Exteral costs of electricity productio, Europea Evirometal Agecy

19 EN35 Exteral costs of electricity productio, Europea Evirometal Agecy Adra Blumberga "Vides politika u ekoomika" 36 Electro beam flue gas treatmet (EBFGT) Part-fiaced by the Europea Uio (Europea Regioal Developmet Fud

20 Admiistratio ad capital costs Costs EBFGT idustrial plat, Chegdu EBFGT idustrial plat, Hagzhou EBFGT idustrial plat, Beijig EBFGT idustrial plat, Pomorzay Total capital cost Uit capital cost Uit operatio cost MEuro 8,02 8,02 8,37 14,77 Euro/kWe 88,97 88,97 55,91 112,53 Euro/kW 11,6 11,6 2,67 5,17 Euro/to SO 2 84,45 84,45 39,27 746,72 Cost- beefit aalysis of plasma techologies Tax o NO x, EUR/t Swede Polad Lithuaia Latvia Estoia Tax Rates for Air Pollutioi Baltic Sea regio Tax o SO ², EUR/t Swede Demark Lithuaia Latvia Estoia Source: OECD

21 INVESTMENT AND OPERATION COSTS OF COMBINATION OF CONVENTIONAL METHODS Flue gas treatmet method Ivestmet cost EURO/kW Aual operatioal cost EURO/MW Wet SO2 scrubbig: Selective Catalytic Reductio Selective No Catalytic Reductio Combiatio of methods: Wet de-so2 + SCR Wet de-so2 + SNCR Cost- beefit aalysis of plasma techologies 40 Assumptios used for CBA: 1. Fiacial efficiecy CHP "Pomorzay (120MW); Period : 15 years; Discout rate : 5.5%; Ivestor recovers VAT o capital ad operatio ad maiteace costs: Salaries from total capital costs : 10%; Salaries from total O&M costs : 10%; Fiscal effects calculated for Polish fiscal ad social system. Footer 41

22 1. Fiacial efficiecy NPVfi = th.eur NPVfiis egativ because avoided evirometal taxes are ot icluded Footer 42 Assumptios for CBA: 2. Ecoomic efficiecy: adjustmet with fiscal ad fiacial trasfers Fiacial efficiecy is adjusted with: Persoell ad compay s icome tax; Social charges Footer

23 2. Ecoomic efficiecy: adjustmet with fiscal ad fiacial trasfers NPVfi = th.eur NPVfiis egativ because avoided evirometal taxes are ot icluded Footer Assumptios for CBA: 2. Ecoomic efficiecy: adjustmet with fiscal ad fiacial trasfers + evirometal, ecoomic ad social factors Fiacial efficiecy is adjusted with : Exteralities; icome icrease of persoell buildig ad operatig the plat; Icome icrease of compaies buildig ad operatig the plat; Multiplicative effect. Footer

24 2. Ecoomic efficiecy: adjustmet with fiscal ad fiacial trasfers + evirometal, ecoomic ad social factors NPVfi = 47140th.EUR IRR=51,8% Beefit/cost ratio =3,4 Footer

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