Chapter Four

Economical Analysis

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(4-1) Cost analysis

The costs of an enterprise are divided into major groups and they are:

1- Capital cost: incurred once during the life of the system.

They include: purchase, and installation of equipment.

2- Investment charges, (fixed charges): incurred annually.

Investments charges are divided into the major following groups:

B- Investment:

The owner of the building can invest the money used for system equipments in some
other enterprise and earn from it. It follows that this system must show prospects of yielding on
an equivalent return.

C- Depreciation and amortization:

Depreciation is a decrease in the value of a capital asset (a piece of equipment, a building,

a vehicle, etc.) over the time that the asset is being used.

System depreciation is due to:

a- Life of enterprise.
b- Life of equipment.
c- Requirements of public authorities.
d- Inadequacy of equipment
e- Obsolescence of equipment.

D- Taxes:

There are Taxes on the land, upon which the building stands, on equipments, income, etc...

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E- Insurance:

There is insurance against, accidents and persons.

3- Annual operating cost:

A- Fuel: fuel cost varies with the amount of energy (heating) needed.

B- Electrical Energy: cost varies with the amount of energy (cooling) needed.

C- Maintenance: include the cost of necessary material and labors.

D- Supplies: Include of items not falling under fuel and maintenance. Such as (tools, water,
chemicals, etc……).

E- Supervision: consultants, chief engineer, etc…..)

F- Operating Taxes: they depend on the magnitude of output rather than the size of investment.

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(4.2)Total Annual cost method

Cf = Annual fixed costs.

Co = Annual operating costs.

C f  FCR  P (4-1)

Where:

FCR: fixed charge rate

i
FCR  i   t  j (4-2)
1  i n  1

Where:

i: interest rate:

n: life time (years).

t: taxes

j: insurance.

Investment (P) increases with the higher building efficiency, which gives lower energy cost.

 Higher capital cost for more efficient building,

Whereas: insurance and taxes increase too.

Total annual cost (C).

C  C f  Co (4-3)

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(4.3)Assumptions

 Life of enterprise = 20 year

 180 day / year heating seasons
 180 day / year cooling seasons
 16hour / day operation
 Interest rate = 10%
 Insurance = 0.2 %
 Installed costs exceeds original estimation by 20%
 Maintenance contributes 5 %
 Supplies contribute 2%
 Supervision contribute 2%
 Diesel price=1$/liter
 Electricity price=0.6 $/kWh

Maintenance =0.05  P = $ /year

Suppliers= 0.02  P = $ /year

Supervision= 0.02  P = $ /year

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(4-3-1)Analysis for Base Case

A. Fixed cost (Cf)

P=Equipment price x 1.2
P= 266,000 × 1.2 = 319,200 $

i
FCR = i + +t+j
(1 + i)n − 1

0.1
FCR=0.1 + (1+0.1)20 −1 + 0 + 0.002 = 11.9%

Cf = 319,200 x 0.119 = 37,985 $/year

B .Operating cost (Co)

Co = [Fuel + Electricity + Maintenance + Suppliers]

1. Fuel annual cost

 Hot water boiler

290 kW
VDiesel = x16hrx60mint. x60 sec. =449.8 l/day
0.870x45900x0.93

𝑙 𝑑𝑎𝑦 $
Annual fuel cost =449.8 𝑥180 𝑥1 = 80964 $/𝑦𝑒𝑎𝑟
𝑑𝑎𝑦 𝑦𝑒𝑎𝑟 𝑙

 Steam boiler

𝑙 𝑑𝑎𝑦 $
an𝑛𝑢𝑎𝑙 𝑓𝑢𝑒𝑙 𝑐𝑜𝑠𝑡 = 46.8 𝑥360 𝑥1 = 16848$/𝑦𝑒𝑎𝑟
𝑑𝑎𝑦 𝑦𝑒𝑎𝑟 𝑙

Total fuel operating cost = 97812 $/year

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 2. Electricity annual cost
 Chiller

Nominal power input=108kW

hr day $ $
annual electricity cost = 108kWx16 x180 x0.15 = 46656
day year kWh year

 Air handling units

hr day $ $
annual electricity cost = 100kWx16 x360 x0.15 = 86,400
day year kWh year

 Pumps

hr day $ $
annual electricity cost = 3kWx16 x360 x0.15 = 2592
day year kWh year

 Exhaust fans

hr day $ $
annual electricity cost = 6.75kWx16 x360 x0.15 = 5,832
day year kWh year

 Lights

$
Annual electricity cost = 44,308
year

Total Annual Electricity Cost =185,788$/year.

3. Maintenance= 15,960 $/year.

4. Supplies=6,384 $/year

5. Supervision = 6,384 $/year

Co=312,328 $/year

C= 312,328 + 37,985 = 350,313 $/year

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 B. (4-3-1)Analysis for improved Case
C.
D. Fixed cost (Cf)
P = Equipment price × 1.2
P = 318,296 ×1.2 = 381,955 $

i
FCR = i + +t+j
(1 + i)n − 1

0.1
FCR = 0.1 + + 0 + 0.002 = 11.9%
(1+0.1)20 −1

Cf = 381,955 × 0.119 = 45,453 $/year

B .Operating cost (Co)

Co = [Fuel + Electricity + Maintenance + Suppliers]

3. Fuel annual cost

 Hot water boiler

250 kW
VDiesel = × 16ℎ𝑟 × 60𝑚𝑖𝑛𝑡.× 60 𝑠𝑒𝑐. =387.7 l/day
0.870x45900x0.93

l day $
Annual fuel cost =387 x180 x1 = 69795$/year
day year l

 incinerator

𝑙 day $
annual fuel cost = 7 × 360 × 1 = 2520$/year
𝑑𝑎𝑦 year 𝑙

Total fuel operating cost = 72,315 $/year

 Electricity annual cost

 Chiller

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Nominal power input=97kW

hr day $ $
annual electricity cost = 97kW × 16 day × 180 year × 0.15 kWh = 41,904 year

 Air handling units

hr day $ $
annual electricity cost = 80kW × 16 × 360 × 0.15 = 69120
day year kWh year

 Pumps

hr day $ $
annual electricity cost = 3kW × 16 × 360 × 0.15 = 2592
day year kWh year

 Exhaust fans

hr day $ $
annual electricity cost = 6.75kW × 16 × 360 × 0.15 = 5832
day year kWh year

 Lighting
annual electricity cost = 11077$/year

Total Annual Electricity Cost =130,525 $/year

3. Maintenance= 19,098 $/year.

4. Supplies= 7,639 $/year

5. Supervision = 7,639 $/year

Co = 237,216 $/year

C = 45,453 + 237,216 = 282,669 $/year

𝒊𝒏𝒊𝒕𝒊𝒂𝒍 𝒄𝒐𝒔𝒕 𝒅𝒊𝒇𝒇𝒓𝒆𝒏𝒄𝒆 𝟑𝟖𝟏,𝟗𝟓𝟓−𝟑𝟏𝟗,𝟐𝟎𝟎 𝟑𝟖𝟏,𝟗𝟓𝟓

Payback period = = = = 𝟓. 𝟔 𝒚𝒆𝒂𝒓
𝒕𝒐𝒕𝒂𝒍 𝒂𝒏𝒏𝒖𝒂𝒍 𝒔𝒂𝒗𝒊𝒏𝒈 𝟑𝟓𝟎,𝟑𝟏𝟑−𝟐𝟖𝟐,𝟔𝟔𝟗 𝟔𝟕,𝟔𝟒𝟒

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