Transcript Capital costs.. - University of Maryland, College Park

Costing and Economics
Adnan Bashir
Bin Divakaransantha
Prakash Poudel
Semir Kelifa
Department of Chemical and Bio molecular Engineering
University of Maryland
CHBE446
February 12, 2015
Outline
• Overview of process economics
• Methods for costing
• Pricing
• Financing Options
• Methods for Economic Evaluation
Process Economics
Economic Nature Of nature of
Chemical Process
Raw materials to Useful
Products(Higher Value)
Series of material and energy
flow
Each has an economic value cost
or source of income
Process Economics..
Chemical Reaction
Stoichiometry and Thermodynamics
- material flow
-Overall conversion and heat requirements
Unconverted feed
- separated recycled or reused
Process Economics
Additional Unit operations
Utilities including electricity, steam, cooling
water, refrigeration
Generation on site importing from third
parties
Process Economics….


Feed Stock
- Cost of feed stock- quantity and quality
-Quantity from yield/desired product
-Quality defined by purity
Catalyst
- selection based on yield and selectivity
-optimization reduces investment and operating cost
Capital costs
•
•
•
•
•
ISBL
•
Cos t of procuring and installing all process
equipment
Contingency Charges (10% of ISBL+OSBL)
•
Minor changes in project or extra charges
Engineering costs (10% of ISBL+OSBL)
•
Home office/design
Offsite costs (40% ISBL)
•
If you want more infrastructure/ expand
Working capital
•
Money tied up in maintaining feed stock, spare
parts, products etc..
Process Economics
• Energy
• -Major cost: steam for heating, electricity for pumps and motors and water
•
•
•
•
•
for cooling
- heat integration essential
-choice of reaction route
Products/Waste products
-Major source of income that determines the economic performance
-Value of product determined by its quality
Plant Estimates..
•
•
Initially ±50% accuracy for preliminary study
Use cost curves to scale from known plant
•
•
•
Cost per unit of product decreases as S
increases
Use Lang factor method
•
•
•
•
For petrochemical process, n=.7 otherwise it is
.6
Economy of scale means higher profit for
higher production
•
𝑆2 𝑛
𝐶2 = 𝐶1 ( )
𝑆1
Total plant cost and engineering cost
𝐶2
= 𝑎 ∙ 𝑆2 𝑛−1
𝑆2
S is the plants capacities
C is ISBL capital cost
a=2.775 , n=.6 (syngas prod.)
If similar process not available..
𝐵𝑟𝑖𝑑𝑔𝑒𝑤𝑎𝑡𝑒𝑟′𝑠 𝑚𝑒𝑡ℎ𝑜𝑑
•
•
Need an order of magnitude estimate
•
•
𝑄 .675
𝐶 = 4320 ∙ 𝑁( )
𝑆
𝑄 ≤ 60,000
𝑄 .3
𝐶 = 380,000 ∙ 𝑁( )
𝑆
Add contributions of different plant sections
A functional unit includes all major units needed
•
𝑄 ≥ 60,000
Includes reaction, separation, or other major unit
operation
Pump, heaters, are not considered unless they
have substantial cost
𝐶 = Capital cost (dollars)
𝑄 = 𝑝𝑙𝑎𝑛𝑡 𝑐𝑎𝑝𝑎𝑐𝑖𝑡𝑦 (
𝑚𝑒𝑡𝑟𝑖𝑐 𝑡𝑜𝑛𝑠
)
𝑦𝑒𝑎𝑟
𝑆 = 𝑟𝑒𝑎𝑐𝑡𝑜𝑟 𝑐𝑜𝑛𝑣𝑒𝑟𝑠𝑖𝑜𝑛
𝑁 = # 𝑜𝑓 𝑓𝑢𝑛𝑐𝑡𝑖𝑜𝑛𝑎𝑙 𝑢𝑛𝑖𝑡𝑠
Equipment
Ex. Problem
•
•
Equipment costs derived from computer
programs or websites
•
Otherwise, use cost equation
𝐶𝑒 = 𝑎 + 𝑏 ∙ 𝑆 𝑛
𝑎, 𝑏 = 𝑐𝑜𝑠𝑡 𝑐𝑜𝑛𝑠𝑡𝑎𝑛𝑡𝑠
𝑇𝑎𝑏𝑙𝑒 7.2
•
Estimate the purchased equipment cost of
plain carbon steel shell and tube heat
exchanger with area 400 𝑚2
𝐶𝑒 = 28,000 + 54 × 4001.2 = $99,600
Installed costs
•
Use Lang factor method
•
•
•
Total plant cost and engineering cost
𝐶=𝐹∙
Use table 7.4 and 7.5 (based off of carbon steel plant)
If we use other material, then we need a Lang factor for
it
•
•
𝐶𝑒
Not a ratio of metal prices*
Now use new equation with table 7.4 and 7.5 based of
carbon
𝑓𝑚 =
𝐹 = 𝑖𝑛𝑠𝑡𝑎𝑙𝑙𝑎𝑡𝑖𝑜𝑛 𝑓𝑎𝑐𝑡𝑜𝑟
𝐶𝑒 = 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑖𝑛𝑑𝑖𝑣𝑖𝑑𝑢𝑎𝑙
𝑚𝑎𝑗𝑜𝑟 𝑒𝑞𝑢𝑖𝑝𝑚𝑒𝑛𝑡
𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑖𝑡𝑒𝑚 𝑖𝑛 𝑒𝑥𝑜𝑡𝑖𝑐 𝑚𝑎𝑡𝑒𝑟𝑖𝑎𝑙
𝑝𝑢𝑟𝑐ℎ𝑎𝑠𝑒𝑑 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑖𝑡𝑒𝑚 𝑖𝑛 𝑐𝑎𝑟𝑏𝑜𝑛 𝑠𝑡𝑒𝑒𝑙
𝑖=𝑀
𝐶=
𝐶𝑒,𝑖,𝐶𝑆 1 + 𝑓𝑝 ∙ 𝑓𝑚 + (𝑓𝑒𝑟 + 𝑓𝑒𝑙 + 𝑓𝑖 + 𝑓𝑐 + 𝑓𝑠 + 𝑓𝑙 )
𝑖=1
𝑚 = # 𝑜𝑓 𝑒𝑞𝑢𝑖𝑝𝑚𝑒𝑛𝑡𝑠
CS=carbon steel
Piping,equipment erection,electrical work,
instrumentation,civil,structures,lagging
Relating present cost to past costs..
•
•
Based on data for labor, material, and energy
costs published
Indices published in Oil and Gas Journal
𝐶𝑜𝑠𝑡 𝑖𝑛 𝑦𝑒𝑎𝑟 𝐴 = 𝐶𝑜𝑠𝑡 𝑖𝑛 𝑦𝑒𝑎𝑟 𝐵 ×
𝐶𝑜𝑠𝑡 𝑖𝑛𝑑𝑒𝑥 𝑖𝑛 𝑦𝑒𝑎𝑟 𝐴
𝐶𝑜𝑠𝑡 𝑖𝑛𝑑𝑒𝑥 𝑖𝑛 𝑦𝑒𝑎𝑟 𝐵
Location factor
•
Most plant and equipment costs are given in
U.S. gulf coast or Northwest Europe
•
Otherwise it will depend on fabrication, labor,
shipping, import duties etc.
𝐶𝑜𝑠𝑡 𝑜𝑓 𝑝𝑙𝑎𝑛𝑡 𝑖𝑛 𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛 𝐴 = 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑝𝑙𝑎𝑛𝑡 𝑜𝑛 𝑈𝑆𝐺𝐶 × 𝐿𝐹𝐴
𝐿𝐹𝐴 = 𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛 𝑓𝑎𝑐𝑡𝑜𝑟 𝑓𝑜𝑟 𝑙𝑜𝑐𝑎𝑡𝑖𝑜𝑛 𝐴
𝑈𝑠𝑒 𝑡𝑎𝑏𝑙𝑒 7.7 𝑜𝑓 𝑇𝑜𝑤𝑙𝑒𝑟
•
Variable Costs of Production
Variable costs are costs that increase in direct proportion
to production volume
• Raw materials
• Utilities
• Fired heater fuel
• Steam
• Cooling water
• Electricity
• Consumables
• Solvents
• Acids and bases
• Additives (inhibitors, stabilizers, antifoams, nutrients, ….)
• Packaging & delivery costs
Waste Disposal costs
Fixed Costs of Production
Some costs are incurred regardless of the level of production
• Labor
•
wages paid to Operators, supervisors, direct salary overhead
• Maintenance
• Property taxes & Insurance
• Interest Payments
• Corporate Overhead Charges
• Research and development, Marketing, General and administrative
• License Fees and Royalties
Revenues, Margins and Profits
•
•
•
•
•
•
Revenues are the income generated from sales of main product and byproduct
Gross margin
= Revenues – Raw materials costs
Cash cost of production
CCOP = variable costs (VCOP) + fixed costs (FCOP)
Gross profit
= Revenues - CCOP
Net profit
= Gross profit - taxes
Total cost of production
= CCOP + annual charge to allow for capital recovery
Pricing
• Price is determined by demand
and supply.
• The price is the mechanism used
by the market to bring supply and
demand into dynamic equilibrium.
• If the wrong prices are used then
optimization is worthless.
Source of Price Data
• Internal Company Forecast
• Trade Journals
•
ICIS Chemical Business Americas, The Oil and Gas Journal, Chemical Week
• Consultants
•
Purvin and Gertz, Cambridge Energy Research Associates, Chemical Market
Associates Inc.
• Online Brokers and Suppliers
•
•
www.business.com/directory/chemicals.
Good for small quantity order for high quality materials
• Reference books
Time Dependence of Prices
• The prices of raw materials, product, energy and consumables can be
expected to vary over the life of the project
• Price forecast is very important for the project optimization
• Most price forecasts are based on an analysis of historic price data
• Price forecasting method must be chosen with care – if the wrong
prices are used then optimization is worthless
Price Forecasting Methods
• Assume Current Prices
• Linear Regression
• Non-Linear Regression
• Forecast margins instead of prices
• Model statistical distribution of price or margin
Economic Evaluation
• Want to make more
money
• Need to compare
different projects
• Different Methods are
used
Cash Flow
• Debt Financing
Project Financing
- Long-term bonds
- Payment of interest
• Equity Financing
- Capital contributed by stockholders
- Expectation of getting a return on investment
1. Dividends paid annually
2. Increase in price of stock
Project Financing
• Management of a company must deliver the financial
return expected by investors
• Measured by Return on Equity(ROE)
𝑛𝑒𝑡 𝑎𝑛𝑛𝑢𝑎𝑙 𝑃𝑟𝑜𝑓𝑖𝑡
𝑅𝑂𝐸 =
∗ 100%
′
𝑠𝑡𝑜𝑐𝑘ℎ𝑜𝑙𝑑𝑒𝑟 𝑠 𝑒𝑞𝑢𝑖𝑡𝑦
Cost of Capital
•
•
Most Companies use both debt and equity financing
Overall Cost of Capital
𝑖𝑐 = 𝐷𝑅 ∗ 𝑖𝑑 + ( 1 − 𝐷𝑅 ∗ 𝑖𝑒 )
•
Debt
ratio
Interest on
debt
Cost of
equity
Example: Financed 45% with debt, with 9% interest and with equity that carried 25% return
𝑖𝑐 = .45 ∗ 0.09 +
1 − 0.45 ∗ .25 = 0.178
Cost of Capital
• Stockholder's equity=assets-liabilities
• Overall Cost of Capital sets the interest rate used in
economic evaluation of projects
• Must meet or exceed this interest rate to achieve
targeted return on equity
Taxes
•
•
•
•
•
Must pay taxes on profit generated
Significant impact on cash flows
𝑇𝑎𝑥𝑎𝑏𝑙𝑒 𝐼𝑛𝑐𝑜𝑚𝑒 = 𝑔𝑟𝑜𝑠𝑠 𝑝𝑟𝑜𝑓𝑖𝑡 − 𝑡𝑎𝑥 𝑎𝑙𝑙𝑜𝑤𝑎𝑛𝑐𝑒𝑠
Various types of tax allowances in different countries
Depreciation is most common
Cash flow
𝐶𝐹 = 𝑃 1 − 𝑡𝑟 + 𝐷 ∗ 𝑡𝑟
Gross
profit
Rate of
taxation
Sum of tax
allowances
Depreciation
• Straight Line Depreciation
-Book Value
Depreciation
• Declining Balance Depreciation
D1 = C Fd
B1 = C – D1 = C (1 – Fd)
D2 = B1 F = C (1 – Fd) Fd
B2 = B1 – D2 = C (1 – Fd) (1 – Fd) = C (1 – Fd)2
hence:
Dm = C (1 – Fd)m-1 Fd
Bm = C (1 – Fd)m
Modified Accelerated Cost Recovery System(MACRS)
Simple Methods
•
Payback Time
Simple Payback Time =
•
•
𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
𝑎𝑣𝑒𝑟𝑎𝑔𝑒 𝑎𝑛𝑢𝑎𝑙 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤
Return on Investment
𝑐𝑢𝑚𝑢𝑙𝑎𝑡𝑖𝑣𝑒 𝑛𝑒𝑡 𝑝𝑟𝑜𝑓𝑖𝑡
𝑅𝑂𝐼 =
∗ 100
𝑝𝑙𝑎𝑛𝑡 𝑙𝑖𝑓𝑒 ∗ 𝑖𝑛𝑡𝑖𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
Pretax ROI
𝑝𝑟𝑒𝑡𝑎𝑥 𝑅𝑂𝐼 =
𝑝𝑟𝑒𝑡𝑎𝑥 𝑐𝑎𝑠ℎ 𝑓𝑙𝑜𝑤
∗ 100
𝑡𝑜𝑡𝑎𝑙 𝑖𝑛𝑣𝑒𝑠𝑡𝑚𝑒𝑛𝑡
Present Value Methods
•
•
•
Simple Methods can not predict time dependence of cash flow
Money earned in earlier years is more valuable than later years
𝐹𝑢𝑡𝑢𝑟𝑒 𝑤𝑜𝑟𝑡ℎ 𝑖𝑛 𝑦𝑒𝑎𝑟 𝑛
𝑃𝑟𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑓𝑢𝑡𝑢𝑟𝑒 𝑠𝑢𝑚 =
(1 + 𝑖)𝑛
Net Present Value
nt
CFn = cash flow in year n
t = project life
CFn
NPV  
n
n  1 1  i 
Discounted Cash-flow Rate of
Return(DCFROR)
• Interest rate at which NPV is zero at the end of the project
• Good Projects have high DCFROR
nt
CFn
0

n
n  1 1  i 
Company Name
Address
Chelsea-Eric-Semir
Project Name
Project Number
Inc.
REV
Banana Oil Prodution
1
DATE
BY
Sheet
APVD
REV
DATE
BY
1
APVD
ECONOMIC ANALYSIS
Form XXXXX-YY-ZZ
Owner's Name
Plant Location
Case Description
REVENUES AND PRODUCTION COSTS
$MM/yr
23.0
0.0
10.0
0.5
0.0
10.5
0.3
0.1
8.0
0.0
8.4
Main product revenue
Byproduct revenue
Raw materials cost
Utilities cost
Consumables cost
VCOP
Salary and overheads
Maintenance
Interest
Royalties
FCOP
Capital Cost Basis Year 2006
Units
English
On Stream
8,000 hr/yr
CONSTRUCTION SCHEDULE
CAPITAL COSTS
ISBL Capital Cost
OSBL Capital Cost
Engineering Costs
Contingency
Total Fixed Capital Cost
$MM
29.6
0.1
0.9
0.3
31.0
Working Capital
Year
1
2
3
4
5
6
7+
0.2
Metric
333.33 day/yr
% FC
% WC
% FCOP
% VCOP
100.00%
0.00%
0.00%
0.00%
0.00%
100.00%
0.00%
0.00%
0.00%
0.00%
100.00%
100.00%
0.00%
0.00%
100.00%
100.00%
0.00%
0.00%
100.00%
100.00%
0.00%
0.00%
100.00%
100.00%
0.00%
0.00%
100.00%
100.00%
ECONOMIC ASSUMPTIONS
Cost of equity
Cost of debt
Cost of capital
Debt ratio
Tax rate
Depreciation method
Depreciation period
8
30%
Straigt Line
15
years
CASH FLOW ANALYSIS
Project year
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
All figures in $MM unless indicated
Cap Ex
Revenue
CCOP
31.0
0.0
0.0
0.2
0.0
0.0
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
0.0
23.0
18.9
-0.2
23.0
18.9
Gr. Profit
0.0
0.0
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
4.1
Deprcn
0.0
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.7
0.0
0.0
0.0
0.0
Taxbl Inc
0.0
-0.7
3.4
3.4
3.4
3.4
3.4
3.4
3.4
3.4
3.4
3.4
3.4
3.4
3.4
3.4
4.1
4.1
4.1
4.1
Tax Paid
Cash Flow
0.0
-31.0
0.0
-0.2
-0.2
4.3
1.0
3.1
1.0
3.1
1.0
3.1
1.0
3.1
1.0
3.1
1.0
3.1
1.0
3.1
1.0
3.1
1.0
3.1
1.0
3.1
1.0
3.1
1.0
3.1
1.0
3.1
1.0
3.1
1.2
2.9
1.2
2.9
1.2
3.0
PV of CF
-3.4
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
0.0
NPV
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
-3.4
ECONOMIC ANALYSIS
Average cash flow
Simple pay-back period
Return on investment (10 yrs)
Return on investment (15 yrs)
3.1 $MM/yr
10.2017592 yrs
8.62%
9.43%
NPV
NPV to yr
10 years
15 years
20 years
1
-3.4
-3.4
-3.4
-3.4
$MM
$MM
$MM
$MM
IRR
10 years
15 years
20 years
-3.4%
3.8%
6.5%
Annualized Cost Methods
• Coverts current cash flow into a recurring annual
charge
• Annual Capital Charge Ration(ACCR)
ACCR =
𝑖(1+𝑖)𝑛
[ 1+𝑖 𝑛 −1)]
Sensitivity Analysis
•
•
•
•
•
•
•
•
•
Sales price
 20% of base (larger for cyclic commodities)
Production rate
 20% of base
Feed cost
- 10% to + 30% of base
Fuel cost
- 50% to + 100% of base
Fixed costs
- 20% to + 100% of base
ISBL capital investment - 20% to + 50% of base
OSBL capital investment
Construction time
Interest rate
- 20% to + 50% of base
- 6 months to + 2 years
base to base + 2 percentage points
Questions?
Sources
• Chemical Engineering Desgin, Gavin Towler and Ray Sinnott
• CHBE444 Notes
• http://www.eolss.net/Sample-Chapters/C06/E6-34-06-05.pdf