- Title : Plant Engineers & Managers Guide 02 by Albert Thumann, P.E., C.E.M.
- Publish : Marcel Dekker, Inc New York and Basel
- Type Document : pdf
- Release : December 2002
- Total Page : 32 page
- Size : 0.50 Mb
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Decrypted Contents
Energy Economic Decision Making
LIFE CYCLE COSTING
When a plant manager is assigned the role of energy manager, the first question to be asked is: “What is the economic basis for equipment purchases?”
Some companies use a simple payback method of two years or less to justify equipment purchases. Others require a life cycle cost analysis with no fuel price inflation considered. Still other companies allow for a complete life cycle cost analysis, including the impact for the fuel price inflation and the energy tax credit.
The energy manager’s success is directly related to how he or she must justify energy utilization methods.
LIFE CYCLE COSTING
When a plant manager is assigned the role of energy manager, the first question to be asked is: “What is the economic basis for equipment purchases?”
Some companies use a simple payback method of two years or less to justify equipment purchases. Others require a life cycle cost analysis with no fuel price inflation considered. Still other companies allow for a complete life cycle cost analysis, including the impact for the fuel price inflation and the energy tax credit.
The energy manager’s success is directly related to how he or she must justify energy utilization methods.
USING THE PAYBACK PERIOD METHOD
The payback period is the time required to recover the capital investment out of the earnings or savings. This method ignores all savings beyond the payback years, thus penalizing projects that have long life potentials for those that offer high savings for a relatively short period.
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