8.

Economic operation of a power plant

1. Selection of Steam Plant When circumstances determine that a given type of plant is to be selected, such as a steam plant, the comparisons that must be made are reduced in number. The variables existing within one type of plant are generally less than the number of variables among different types of plant. Example No. 1 An industrial factory requires a source of energy to meet a 10,000 kw maximum demand. The annual duration of the load is estimated as in the following tabulation: Load, kw Hr at load 10,000 1,000 7,000 4,000 4,000 2,000 1,000 1,000 0 760 As service interruptions can be tolerated, no spare capacity need be provided. Coal is available at $8 per short ton and has a calorific value of 13,000 Btu per lb. Since oil is available only at prohibitive prices, diesel engines are not considered. After preliminary studies, four different steam plants are being considered as shown in Table 1. The annual operating cost of labor, supervision, supplies, repairs, and operating taxes are expected to be the same for all proposals. If the fixed charge rate is 15 percent, determine the economic plant. Table 1. Comparative Costs and Performance of Steam Stations Input-output characteristics Plant Steam conditions Capacity cost per kw(a) A 600 psi, 750 F $136 I = 106 x (13 + 9L + 0.04L2 + 0.02L3) B 800 psi, 850 F $140 I = 106 x (11 + 8.5L + 0.03L2 + 0.015L3) C 1,200 psi, 900 F $145 I = 106 x (10.2 + 8.2L + 0.025L2 + 0.012L3) D 2,400 psi, 950 F $160 I = 106 x (10 + 8L + 0.02L2 + 0.01L3) I is in Btu per hour and L is in megawatts. (a) Excluding land, structures, and electrical system. Solution:

Unit fuel cost =

($8 short ton)(100 cents $)(1,000,000 Btu million Btu) (2,000 lb short ton)(13,000 Btu lb)

Unit fuel cos t = 30.77 cents per million Btu

The first step is to determine the total energy input requirements for each plant from the given input-output characteristic and the load data as in Table 2. Table 2. Calculation of Comparative Fuel Requirements of Proposed Plants
Load-energy data Load, Hr Mwhr mw Plant A Input rate, 106 Btu per hr 127.00 84.82 50.92 22.06 Total input, 109 Btu 127.00 339.28 101.84 22.06 --------590.18 Plant B Input rate, 106 Btu per hr 114.00 77.12 46.44 19.54 Total input, 109 Btu 114.00 308.48 92.88 19.54 --------534.90 Plant C Input rate, 106 Btu per hr 106.70 72.94 44.17 18.44 Total input, 109 Btu 106.70 291.76 88.34 18.44 --------505.24 Plant D Input rate, 106 Btu per hr 102.00 70.41 42.96 18.03 Total input, 109 Btu 102.00 281.64 85.92 18.03 --------487.59

10 7 4 1 Totals

1,000 4,000 2,000 1,000

10,000 28,000 8,000 1,000 --------47,000

Heat rate, Btu per kwhr

Fuel cost

12,557
$181,598.39

11,381
$164,588.73

10,750
$155,462.35

10,730
$150,031.44

The megawatthours are the product of the load and the number of hours the load persists. The input rate is calculate from the input-output characteristic for the given megawatt load. The total input at each load is the product of the input rate and the number of hours at the given load. Calculation for Table 2. PLANT A Input rate, I = 106 13 + 9L + 0.04L2 + 0.02L3 At 10 mw, 1,000 hr:

)
9

I = 106 13 + 9(10) + 0.04(10)2 + 0.02(10)3 = 127.0 10 6 Btu hr

Total Input = (127.00 x 10 Btu/hr)(1,000 hr) = 127.00 x 10 Btu At 7 mw, 4,000 hr:
6

I = 10 6 13 + 9(7 ) + 0.04(7 )2 + 0.02(7 )3 = 84.82 106 Btu hr

Total Input = (84.82 x 10 Btu/hr)(4,000 hr) = 84.82 x 109 Btu At 4 mw, 2,000 hr:
6

[ [ [

] ]

I = 10 6 13 + 9(4) + 0.04(4)2 + 0.02(4 )3 = 50.92 106 Btu hr

Total Input = (50.92 x 10 Btu/hr)(2,000 hr) = 101.84 x 109 Btu At 1 mw, 1,000 hr:
6

I = 106 13 + 9(1) + 0.04(1)2 + 0.02(1)3 = 22.06 106 Btu hr

Total Input = (22.06 x 10 Btu/hr)(1,000 hr) = 22.06 x 109 Btu From Table 2
6

Heat rate =

590.18 109 Btu = 12,557 Btu kwhr 47,000,000 kwhr

$0.3077 9 Fuel cos t = 6 10 Btu 590.18 10 Btu = $181,598.39

PLANT B Input rate, I = 10 11 + 8.5L + 0.03L + 0.015L At 10 mw, 1,000 hr:

6

I = 106 11 + 8.5(10) + 0.03(10)2 + 0.015(10)3 = 114.00 10 6 Btu hr

Total Input = (114.00 x 10 Btu/hr)(1,000 hr) = 114.00 x 109 Btu At 7 mw, 4,000 hr:
6

[ [ [

I = 106 11 + 8.5(7 ) + 0.03(7 )2 + 0.015(7 )3 = 77.12 106 Btu hr

Total Input = (77.12 x 10 Btu/hr)(4,000 hr) = 308.48 x 109 Btu At 4 mw, 2,000 hr:
6

] ]

I = 106 11 + 8.5(4) + 0.03(4 )2 + 0.015(4)3 = 46.44 106 Btu hr

Total Input = (46.44 x 10 Btu/hr)(2,000 hr) = 92.88 x 10 Btu At 1 mw, 1,000 hr:
6 9

I = 106 11 + 8.5(1) + 0.03(1)2 + 0.015(1)3 = 19.55 106 Btu hr

Total Input = (19.55 x 106 Btu/hr)(1,000 hr) = 19.55 x 109 Btu From Table 2

Heat rate =

534.90 109 Btu = 11,381 Btu kwhr 47,000,000 kwhr

$0.3077 9 Fuel cos t = 6 10 Btu 534.90 10 Btu = $164,588.73

PLANT C Input rate, I = 106 10.2 + 8.2L + 0.025L2 + 0.012L3 At 10 mw, 1,000 hr:

)
9

I = 106 10.2 + 8.2(10 ) + 0.025(10)2 + 0.012(10 )3 = 106.70 10 6 Btu hr

Total Input = (106.70 x 10 Btu/hr)(1,000 hr) = 106.70 x 10 Btu At 7 mw, 4,000 hr:
6

I = 106 10.2 + 8.2(7 ) + 0.025(7 )2 + 0.012(7 )3 = 72.94 10 6 Btu hr

Total Input = (72.94 x 10 Btu/hr)(4,000 hr) = 291.76 x 109 Btu At 4 mw, 2,000 hr:
6

[ [

] ]

I = 106 10.2 + 8.2(4 ) + 0.025(4)2 + 0.012(4)3 = 44.17 106 Btu hr

Total Input = (44.17 x 10 Btu/hr)(2,000 hr) = 88.34 x 109 Btu At 1 mw, 1,000 hr:
6

I = 106 10.2 + 8.2(1) + 0.025(1)2 + 0.012(1)3 = 18.44 10 6 Btu hr

Total Input = (18.44 x 10 Btu/hr)(1,000 hr) = 18.44 x 109 Btu From Table 2
6

Heat rate =

505.24 109 Btu = 10,750 Btu kwhr 47,000,000 kwhr

$0.3077 9 Fuel cos t = 6 10 Btu 505.24 10 Btu = $155,462.35

PLANT D Input rate, I = 10 10 + 8L + 0.02L + 0.01L At 10 mw, 1,000 hr:

6

)
9

I = 106 10 + 8(10 ) + 0.02(10)2 + 0.01(10 )3 = 102.00 10 6 Btu hr

Total Input = (102.00 x 10 Btu/hr)(1,000 hr) = 102.00 x 10 Btu At 7 mw, 4,000 hr:
6

I = 106 10 + 8(7 ) + 0.02(7 )2 + 0.01(7 )3 = 70.41106 Btu hr

Total Input = (70.41 x 10 Btu/hr)(4,000 hr) = 281.64 x 109 Btu At 4 mw, 2,000 hr:
6

I = 10 6 10 + 8(4) + 0.02(4)2 + 0.01(4)3 = 42.96 106 Btu hr

Total Input = (42.96 x 10 Btu/hr)(2,000 hr) = 85.92 x 109 Btu
6

At 1 mw, 1,000 hr:

I = 106 10 + 8(1) + 0.02(1)2 + 0.01(1)3 = 18.03 10 6 Btu hr

Total Input = (18.03 x 10 Btu/hr)(1,000 hr) = 18.03 x 10 Btu From Table 2
6 9

Heat rate =

487.59 109 Btu = 10,374 Btu kwhr 47,000,000 kwhr

$0.3077 9 Fuel cos t = 6 10 Btu 487.59 10 Btu = $150,031.44

Since the fuel requirement is the only factor of the operating cost that varies from plant to plant, it is the only factor of the operating cost that varies from plant to plant, it is the only component that need be considered in the relative annual costs. Then

C o = fuel input 10 6 0.3077 C f = unit capacity cost 10,000 0.15 C = Co + C f

The relative annual costs of the alternate plants are shown in Table 3. Plant Total investment Cf Co A $1,360,000 $204,000 $181,598 B 1,400,000 210,000 164,589 C 1,450,000 217,500 155,462 D 1,600,000 240,000 150,031 C $385,598 374,589 372,962 390,031

Plant C shows the lowest relative cost and, therefore, is the optimum for the given load conditions, fuel cost, and fixed-charge rate. Calculation for Table 3. Plant A

C f = $136 10,000 0.15 = $204,000 C o = 590.18 10 9 10 6 0.3077 = $181,598 C = Co + C f

C = 181,598 + 204 ,000 = $383,598
Plant B

C f = $140 10,000 0.15 = $210,000 C o = 534.90 109 10 6 0.3077 = $164,589 C = Co + C f

C = 164 ,589 + 210 ,000 = $374,535
Plant C

C f = $145 10,000 0.15 = $217 ,500 C o = 505.24 109 10 6 0.3077 = $155,462

C = Co + C f
C = 155,462 + 217 ,500 = $372,962
Plant D

C f = $160 10,000 0.15 = $240,000 C o = 487.59 109 10 6 0.3077 = $150,031 C = Co + C f

C = 150 ,031 + 240,000 = $390 ,031
With the given information the same conclusion can be shown by two other methods: rate of return available for fixed charges on increment investment and justifiable added investment. These methods are illustrated in Table 4 and 5, respectively. In Table 4 the rates R are comparable with the given rate of 15 per cent; hence the rate of return on increment investment from B and C is obviously profitable; for any increment above plan C the available rate of return is considerably below the desired value. Hence plan C is the optimum. Table 4. Rate of Return Available for Fixed Charges on Increment Investment Co Plant Investment P Co A $1,360,000 $181,598 $ 40,000 $ 17,009 B 1,400,000 164,589 50,000 9,127 C 1,450,000 155,462 150,000 5,431 D 1,600,000 150,031

R = Co / P 0.4252 0.1825 0.0362

In Table 5 the columns for Co and actual P are copied from Table 4. A comparison of the justifiable added investments P with the actual added investments shows that C costs only $50,000 additional against a permissible $61,300 and is obviously a good investment; but again any additional investment above C is much greater than the permissible justifiable investment. Hence C is the optimum. This method of comparison is sometimes used by organizations that wish to avoid any possible collusion between engineering groups evaluating the bids for the purchaser and the manufacturers offering bids for furnishing equipment. Table 5. Justifiable Added Investment Plant Co P = Co/R Actual P A $17,009 $113,393 $40,000 B 9,127 60,847 50,000 C 5,431 36,207 150,000 D In this type of arrangement the purchaser furnishes the evaluation engineers all the necessary data received from the manufacturers except the actual purchase price. The engineers then evaluate the justifiable added investment of all bids relative to each other and submit their conclusions to the

purchaser. Arranging the bids in ascending order of investment or purchase price, purchaser then compares the actual differences with relative justifiable added investments submitted by the engineers and makes his own selection. 2. Replacement of Existing Equipment. Obsolescence of existing equipment is rarely apparent. When it is suspected to exist, only a careful analysis of all costs involved those of the existing equipment and those of the new, more efficient equipment can determine the answer. A condition that causes much confusion in obsolescence analysis is the proper interpretation to be placed on the present value of the existing equipment. On the books of the owner there will be a certain book value placed on the equipment. This is found by first entering the cost of equipment when new and subtracting therefrom an arbitrary amount each year to indicate the estimated amount of recovered capital investment; the remainder is the book value and is merely the estimate of the uncovered investment at any particular date. Fundamentally the capital investment in the existing equipment is a past expenditure. In economic-evaluation parlance it is commonly termed a sunk cost. A sunk cost has no bearing on future monetary expenditures. The sole question to be answered in all obsolescence analysis is: Will the future annual expenditures for the life of the proposed new equipment be less than the future annual expenditures incurred by the existing equipment if it is kept in operation? If the existing equipment has been bought on the proceeds of bond sales, it is true that annual payments would have to be met for interest and amortization. However, if the equipment is retired in favor of more efficient equipment before the bonds have matured, these payments will be unaffected and so need not be considered in an obsolescence analysis. This analysis reduces to comparing the total of fixed and operating charges of the proposed new equipment with the operating charges of the existing equipment. Example No. 2 A generating-station consisting of three 1,000-kw oil engines serves an industrial plant which has a yearly energy demand that is expected to remain the same in the future, as in the following tabulation: Hr Kw 4,000 2,000 3,000 1,000 1,000 500 760 300 The loads at 1,000 kw and above must be protected by running a one-engine reserve; loads below 1,000 kw need not be protected since at such times short outages due to failures can be tolerated. These existing engines are 3 years old and cost $90 per kilowatt installed. The installation cost is being amortized on the books of the company on the basis of an 8-year life. The input-output characteristic of these engines is (per engine) 2 3 I = 2,000,000 + 8,000L + 8L 0.003L where I is in Btu per hour and L is in kilowatts. The lubricating-oil consumption of these engines has been 0.001 gal per kwhr. A new oil engine of 1,000-kw capacity has since been developed with the following input-output characteristic: I = 1,300,000 + 7,000L + 4.1L2 0.0014L3 The installed cost of this engine will be $85 per kilowatt and the lubricating-oil consumption 0.0006 gal per kwhr. Operating labor costs are the same for the new and the existing engine, but maintenance of the old engines averages $4,000 per year per engine and the new engine is expected to require only $3,000 per year. The existing engines can be sold for a net price of $40,000 each if it should be decided to replace any of them.

Find the number of engines that should be retired and replaced with new ones, if fuel costs 25 cents per million Btu, lubricating oil costs 70 cents per gallon, money use costs 8 per cent, and the life of new engine is taken as 8 years. Taxes and insurance amount to 4 per cent of the original investment. Salvage value of the new engines will be assumed equal to the cost of removal at the termination of their life. Engine availability is to be taken at 85 per cent. Solution: Table 6. Annual Station Energy Requirements with Present Worth Load, kw Hours Mwhr No. of engines 2,000 1,000 500 300 Total 4,000 3,000 1,000 760 8,760 8,000 3,000 500 228 11,728 3 2 1 1

Input per 6 engine, 10 Btu per hr 10.00 7.625 7.625 5.039

Total input, 106 Btu 120,000 45,750 7,625 3,830 177,205

Calculation for Table 6. At 2,000 kw, 4,000 hrs Mwhr = (2,000)(4,000)/103 = 8,000 mwhr No. of engine = 2000/1000 + 1 = 3 Input per engine

I = 2,000,000 + 8,000L + 8L2 0.003L3

2,000 2,000 2,000 I = 2,000,000 + 8,000 + 8 0.003 3 3 3
2 3

I = 1010 6 Btu hr
Total input = (10 x 106)(4,000)(3) = 120,000 x 106 Btu At 1,000 kw, 3,000 hrs Mwhr = (1,000)(3,000)/103 = 3,000 mwhr No. of engine = 1000/1000 + 1 = 2 Input per engine

I = 2,000,000 + 8,000L + 8L2 0.003L3

1,000 1,000 1,000 I = 2,000,000 + 8,000 + 8 0.003 2 2 2
2 3

I = 7.625 10 6 Btu hr
Total input = (7.625 x 106)(3,000)(2) = 45,750 x 106 Btu At 500 kw, 1,000 hrs 3 Mwhr = (500)(1,000)/10 = 500 mwhr No. of engine = 500 < 1000 = 1 Input per engine

I = 2,000,000 + 8,000L + 8L2 0.003L3 I = 2,000,000 + 8,000(500) + 8(500)2 0.003(500)3 I = 7.625 10 6 Btu hr

Total input = (7.625 x 106)(1,000)(1) = 7,625 x 106 Btu At 300 kw, 760 hrs 3 Mwhr = (300)(760)/10 = 228 mwhr No. of engine = 228 < 1000 = 1 Input per engine

I = 2,000,000 + 8,000L + 8L2 0.003L3 I = 2,000,000 + 8,000(300) + 8(300)2 0.003(300)3 I = 5.039 10 6 Btu hr
Total input = (5.039 x 10 )(1,000)(1) = 3,830 x 10 Btu Table 7. Annual Station Energy Requirements with One New Engine at 100 Per Cent Availability
Load, kw 2,000 1,000 500 300 Total Load division, kw New Old engine engine No. No. 1 2 1,000 500 500 800 200 0 500 0 0 300 0 0 Output, mwhr Hr New engine 4,000 2,402 500 228 7,128 Old engine 4,000 600 0 0 4,600 10 Btu per hr per engine New Old engine engine 11.000 7.625 8.807 3.896 5.650 0 3.731 0
6

Input 6 Total inputs, 10 Btu New engine 44,000 26,421 5,650 2,836 78,907 Old engine 61,000 11,688 0 0 72,688 Total 105,000 38,109 5,650 2,836 151,595

4,000 3,000 1,000 760

Calculation for Table 7. At 2000 kw New engine = 1000 kw Input (Btu per hr per engine)

I = 1,300,000 + 7 ,000L + 4.1L2 0.0014L3 I = 1,300,000 + 7 ,000(1000) + 4.1(1000)2 0.0014(1000)3 I = 11.0 10 6 Btu hr
Total input = (11.0 x 106)(4,000) = 44,000 x 106 Btu Old Engine 1 and 2:

I = 2,000,000 + 8,000L + 8L2 0.003L3 I = 2,000,000 + 8,000(500) + 8(500)2 0.003(500)3 I = 7.625 10 6 Btu hr
Total input = (7.625 x 10 )(4,000)(2) = 61,000 x 10 Btu Total = 44,000 x 106 + 61,000 x 106 = 105,000 x 106 Btu At 1000 kw New engine = 800 kw Input (Btu per hr per engine)
6 6

I = 1,300,000 + 7 ,000L + 4.1L2 0.0014L3 I = 1,300,000 + 7,000(800) + 4.1(800)2 0.0014(800)3 I = 8.807 10 6 Btu hr

Total input = (8.807 x 106)(3,000) = 26,421 x 106 Btu Old Engine 1 :

I = 2,000,000 + 8,000L + 8L2 0.003L3 I = 2,000,000 + 8,000(200) + 8(200)2 0.003(200 )3 I = 3.896 10 6 Btu hr
Total input = (3.896 x 10 )(3,000) = 11,688 x 10 Btu Total = 26,421 x 10 + 11,688 x 10 = 38,109 x 10 Btu At 500 kw New engine = 500 kw Input (Btu per hr per engine)
6 6 6 6 6

I = 1,300,000 + 7 ,000L + 4.1L2 0.0014L3 I = 1,300,000 + 7,000(500 ) + 4.1(500)2 0.0014(500)3 I = 5.65 106 Btu hr
Total input = (5.65 x 106)(1,000) = 5,650 x 106 Btu Total = 5,650 x 106 Btu At 300 kw New engine = 300 kw Input (Btu per hr per engine)

I = 1,300,000 + 7 ,000L + 4.1L2 0.0014L3 I = 1,300,000 + 7,000(300 ) + 4.1(300)2 0.0014(300)3 I = 3.731106 Btu hr
Total input = (3.731 x 106)(760) = 2,836 x 106 Btu Total = 2,836 x 106 Btu Correction of inputs and outputs to 85 per cent availability for new engine: New engine average heat rate =

78,907 ,000,000 = 11,070 Btu kw hr 7 ,128,000

Average increment heat rates of old engines =

(177,205 72,688)106 (11,728 4,600)1,000

= 14,663 Btu kw hr

New engine annual output at 85 per cent availability = 7,128 x 0.85 = 6,059 mwhr Corresponding old engine output = 4,600 + 7,128 6,059 = 5,669 mwhr New engine input at 85 per cent availability = 6,059,000 x 11,070 = 67,073 x 106 Btu Corresponding old engine input = 72,688 x 106 + 14,663 x (7,128 6,059) x 103 = 88,475 x 106 Btu Total station input with new engine at 85 per cent availability = 155,548 x 106 Btu Sinking-fund depreciation rate =

0.08 = 0.094 = 9.4% 1.088 1

Table 8. Comparison of Annual Costs of Existing Station with scheme replacing one engine. Annual cost item Existing station With one engine replaced Fuel oil @ 25/million Btu 177,205 x 106 Btu $44,301 155,548 x 106 Btu $38,887 Lubricating oil @ 70 per gal 11,728,000 x 8,210 5,669,000 x 3,968 0.001 0.001 6,059,000 x 2,545 0.0006 Maintenance 4,000 x 3 12,000 4,000 x 2 8,000 3,000 x 1 3,000 Taxes and insurance @ 4% 1,000 x 3 x 90 10,800 1,000 x 2 x 90 7,200 1,000 x 1 x 85 3,400 Amorization of new net investment, @ 0 (85,000 40,000) 4,230 9.4% Interest on new net investment @ 8% 0 (85,000 40,000) 3,600 ===== ===== Comparative annual rate $75,311 $74,830

Annual savings in total costs = 75,311 74,830 = $481. By replacing one existing engine with a new one the future annual expenditures will be reduced by $481. In effect what has happened is that some of the original operating costs have been reduced and part of this reduction has been replaced by the investment charges on the new money of $45,000. In making the same study for replacing two engines it will be found that no savings result; hence only one unit can justifiably be replaced. Results of the obsolescence study may also be interpreted on the basis of earnings on investment or rate of return i, solved for by trial and error from

A i = P 1 (1 + i ) n
In this case A = (75,311 74,830) + 3,600 + 4,230 = $8,311 and P = 85,000 40,000 = $45,000, n = 8 years

Then

8,311 i = = 0.1847 from which i = 9.9 % compared with the desired 8%. 45,000 1 (1 + i )8

The foregoing example is a case of partial obsolescence of equipment caused by advancement of the art. End -