VI. ANALYSIS OF THE ALTERNATIVES FOR GENERATION OF
6.4. Six Different Configurations of Cogeneration with Gas Engines
The cogeneration is the process that simultaneously produces electricity (or mechanical energy) and thermal energy from fuel. The cogeneration systems vary among each other, and so it is required to compare various types of configuration with gas motors.
Consequently, the best configuration is chosen.
The proposed modifications of the cogeneration with gas engines are as follows:
• 2 x 1 MW = 2 MW (Two motos of 1 MW)
• 2 + 1 MW = 3 MW (1 motor of 2 MW and 1 motor of 1 MW)
• 2 x 2 MW = 4 MW (2 motors of 2 MW)
• 2 x 2 + 1 MW = 5 MW (2 motors of 2MW and 1 of 1 MW)
• 3 x 2 MW = 6 MW (3 motors of 2 MW)
• 5 x 2 MW = 10 MW (5 motors of 2 MW)
For analyzing purposes the cost of the investment for these 6 options were calculated similarly to the calculations conducted for all other alternatives. In the following 6 Tables 6.16 – 6.21 the calculations of the breakdown of investment for every single configuration are depicted.
99 Table 6.16: The Configuration C.5.1 - 2 x 1 MW
*All prices are in SKK (Slovak Crown)
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
Table 6.17: The Configuration C.5.2 – 2 + 1 MW
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
100 Table 6.18.: The Configuration C.5.3 – 2 x 2 MW
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
Table 6.19: The Configuration C.5.4 – 2 x 2 + 1 MW
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
101 Table 6.20: The Configuration C.5.5 – 3 x 2 MW
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
Table 6.21: The Configuration C.5.6 – 5 x 2 MW
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
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Summary of the investment intensity for the configurations 5.1, 5.2, 5.3, 5.4, 5.5, 5.6 of cogeneration with gas engines are presented below.
Investment performance
1. 2 x 1 MW - 93,1 million SSK 2. 2 + 1 MW - 112,7 million SSK 3. 2 x 2 MW - 133,7 million SSK 4. 2 x 2+ 1 MW - 154,9 million SSK 5. 3 x 2 MW - 177,3 million SSK 6. 5 x 2 MW – 269,7 million SSK
From the results obtained in the cost breakdown analysis for each configuration, it can be seen that the lowest investment requirement possesses the cogeneration with 2 motors with 1 MW each. However, the amount of investment does not supply enough information to proceed with the decision about the choice of alternative, which is the main reason to conduct further analysis and develop the cumulative balance of cash flow for all six configuration presented in the Table 6.22 below. It is assumed that the selling price of MWh remains constant of 3100 SKK/ MWh and the electricity price will grow by 3 % in the first year.
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Table 6.22: Comparison of the Cumulative Balance of Discounted Cash Flow for 8-Year Period with the Amount of Investment and the Return on Investment for All Configurations of Alternative N. 5
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
After conducting the calculations and presenting the results, it can be observed that the cogeneration with 2 motors of 2 MW each is the best alternative among the 6 configurations of cogeneration with gas engines. The result is concluded on the basis of comparison of the amount of investment with the long run cumulative balance of cash flow at the 8th year of operations.
Finally, the basic indicators for all the alternatives are analyzed, assuming the same selling price of electric energy (3,100 SKK/MWh) and an increase of electric energy per year by 3%. The parameters will be varied because of the volatility of the electric market. Therefore, the price increase of electric energy varies from 3% to 10%. The analysis takes into consideration further factors: investment cost, amount of natural gas used, price of natural gas, amount of heat from alternative source, share of heat from alternative heat, amount of heat sold, price of the heat sold, amount of produced electric energy, share from total amount, price of produced electric energy, amount of energy, price of purchased electric energy, price of produced and purchased energy, total amount of electric energy, price of
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electric energy sold, depreciation and the calculated cumulative balance of cash flow for 8-year period. All of these indicators are shown in the following Tables 6.23 and 6.24 incorporating all of the alternatives with the variation of electric energy price increase during the first year by 3% and 10%.
Table 6.23.: Overview of Basic Indicators for All Alternatives with 3% of Price Increase
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
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Table 6.24.: Overview of Basic Indicators for All Alternatives with 10% of Price Increase
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
The final results for the cumulative balance of cash flow of 8 years are presented in the next Figures 6.24 and 6.25. This cumulative balance of cash flow will indicate which alternative is more profitable in the long run. The figures graphically summarize the cash flow for 3%
and 10% of electric energy price increase in the first year, respectively.
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Figure 6.24.: Comparison of the Cumulative Cash Flow for 8 Years for All Alternatives with an Electric Energy Price Increase of 3%
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
The above Figure 6.24 shows that in the long run the balance of cash flow is higher under the alternative of cogeneration with gas engines, particularly in the configuration 5.6, which is the cogeneration with 5 motors of gas with 2 MW of capacity each. This scenario assumes of relatively low volatility of the electric price with an increase only of 3% of the energy price per year. The disadvantage 5.6 choice significant investment intensity (269 million SKK) and as the table 6.22 shows the return on investment can be extracted after 8 years. Therefore, under assumption of low price volatility and considering the investment intensity, the most preferable configuration for the generation of the energy is the cogeneration with 2 motors of 2 MW each, or the configuration 5.3. The next Figure 6.25 analyzes the results with a high electric energy price volatility of an increase by 10% per
Cumulative balance of cash flow for
8 years, price increase of 3%
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Figure 6.25: Comparison of the Cumulative Balance of Cash Flow for 8-year Period for all Alternatives with an Energy Price Increase of 10%
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
The previous figure shows that with a high volatility of electric energy price (10% of increase per year), the configuration 5.6 remains in the long run the best, mostly due to the highest cumulative balance of cash flow. The disadvantage of this configuration is again high investment intensity (269 million SKK) and the longest payback period of 8 years.
Consequently, under the assumption of high volatility and considering the investment intensity, the best configuration for the cogeneration of energy is the alternative 5.3, which assumes 2 motors with 2 MW each.
As a conclusion, various methods were used to analyze the investment alternative for cogeneration with gas engines. After comparing the results, the best alternatives to be selected in Chemosvit Energochem a.s. may be the configuration with 2 motors of 2 MW each, which requires the investment of 133.7 million SKK.
0
Cumulative balance of cash flow for 8
years , price increase of 10%
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Sensitivity Analysis
When making decisions about financial analysis, the sensitivity analysis is a tool in which is analyzed the degree of risk posed by that investment. The sensitivity analysis is a form often used in financial management to visualize immediately the economic advantages and disadvantages of a project.
The main customer for heat and electricity is the Chemosvit Group, buying around 95% of the energy and heat, historically the demand and growth has been steady. For the sensitivity analysis is taken into consideration the following scenarios, taking into account the variation of electricity provided to the town Svit.
Pessimistic:
This is the worst picture of investment, bearing in mind that the town Svit reduces energy consumption.
Figure 6.26 Pessimistic scenario of the sensitivity analysis
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data Alternative 1
109 Probable:
This would be the most likely would assume the investment analysis which is based on historical data.
Figure 6.27 Probable scenario of the sensitivity analysis
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
Optimistic:
It is possible to achieve more than what we project, taking into account that you can make selling a little more electricity.
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Figure 6.28 Optimistic scenario of the sensitivity analysis
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data Alternative 1
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CONCLUSIONS
The main purpose of this thesis was to evaluate the selected alternatives of generation of electric energy and heat of Chemosvit Energochem, a.s. The study aims to contribute to the investment decision-making process into the new production capacities. The representatives of the firm are determined to choose the most efficient and cost saving alternative in the winter of the year 2010 with consequent investment and realization of the chosen project in the year 2011. The alternatives were selected in the year 2007 considering objectives of sustainable production, environmental protection and the future reduction of emissions. The selected alternatives are as follows:
1 Only Boilers.
2 Boilers + Boilers for Biomass.
3 Boilers + Geothermal Source.
The applied methodology for the evaluation of these alternatives is incorporating several steps preformed for each of the alternatives, starting with the configuration of nominal value of the plan, considering new machinery, installment and equipment requirements, followed
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by the localization of these facilities inside the area of the enterprise. The information extracted from these outlines enabled calculations of the breakdown of necessary investments. The new establishments, machinery or additional buildings cause a significant variance for the investment intensity of each alternative, which is one of the critical factors for the evaluation. However, to support the analysis of investments required, revenues and expense expected from the projects were further calculated. The initial revenues and expenses were based on the data of Chemosvit Energochem a.s. customers in the year 2007, which is the main reason the calculations were performed in the Slovak Crown currency, not in EUR. The tables of revenues and expense were complemented by the cash flow analysis for the consecutive 8-year period, starting with the initial year of investment 2011.
To perform such an analysis, assumptions stated in the methodology section and selected by the representatives of Chemosvit Energochem a.s. were taken into consideration.
Thereafter, the cumulative balances of cash flows over the period of 8 years were calculated.
To provide more accurate results, further analysis using a payback method was performed and compared with the results from previous cumulative cash flow balances. The initial evaluation of the data revealed apparent results, which were in favor of the alternative incorporating cogeneration with gas engines. This type of cogeneration has, however, variety of configurations and modifications it can be applied to. Consequently, six new configurations were designed incorporating the cogeneration with gas engines. Similarly, the breakdown of investment needs for all six configurations was calculated and compared with the payback period.
To accomplish the final analysis, an overview of the basic indicators for all the alternatives was constructed considering an annual increase of electric energy price by 3% and 10%.
The scenario with 3% growth of energy prices represents a low volatility, whereas the
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scenario with 10% growth represents a high volatility of the energy price. This analysis included various factors influencing the results and an investment decision.
From the cumulative balance of cash flow as stated in the Chapter 6 and shown in the Figures 6.24 and 6.25 it is apparent that in both cases of high and low volatility of the electricity price (3% and 10% of increase per year) the alternative 5.6 was more preferable as the cumulative balance of cash flow allocated the highest amount. Though, there are significant disadvantages of choosing this alternative, such as large investment intensity of 269 million SKK and longest payback period of 4 years evident from payback method analysis. Accordingly, under the conditions of high as well as low volatility considering the investment intensity, the most appropriate alternative to be chosen for the electricity generation is the cogeneration with 2 gas engines with 2 MW each, depicted as alternative 5.3.
As a final conclusion, from 12 alternatives presented in this thesis, the most suitable alternative for Chemosvit Energochem a.s. may be the investment decision of 133.7 million SKK into the cogeneration with gas engines, which requires 2 motors with the capacity of 2MW each. The main limitation of this thesis was mainly the lack of time to conduct and accomplish a deeper analysis in each of the proposals and provide so more detailed and relevant results. Also another limitation was that because of the lack of time the political, environmental were not included in this research, Several other methods for evaluation of the investment decision can be taken into consideration providing more accurate results.
Moreover, the assumptions selected by the company can be subject of further sensitivity analysis. However, the main purpose was to contribute Chemosvit Energochem a.s. with evaluation of selected alternatives and so provide them with more information and data prior their final decision. The resulted alternative of cogeneration has potential to support
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the struggle for the healthier and cleaner environment in the region and sustainability of our planet. The international agreements and environmental treaties are partially effective, however, it is important to develop and implement new greener technologies on the level of individual enterprise and ensure so habitable planet for future generation.
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RECOMMENDATIONS
As it has been revised up along the thesis, the best among all alternatives for Chemosvit Group a.s. would be the cogeneration with the 2 gas engines. However, the system can be even more efficient, when the cogeneration combines absorption system and results in trigeneration. The absorption is a process by which cold can be generated from a heat source.
In summer, the heat demand drops considerably, so the heat generated by the cogeneration equipment can be exploited to generate cold for air conditioning necessary at this time. The most commonly used way of cooling is a machine with a compressor plants working with ammonia vapor or other refrigerant. Such a device is an evaporator, compressor, condenser and regulator valve. Basically, it's equivalent of the classic fridge. The cogeneration system can be changed as shown in the Figures 7.1 and 7.2 below.
Figure 7.1.: Fundamental Compressor Refrigeration Unit
Source: ASHRAE 2009(American Society of Heating Refrigerating and Air-conditioning Engineers)
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Figure 7.2: Fundamental Refrigeration Absorption Unit
Source: ASHRAE 2009 (American Society of Heating Refrigerating and Air-conditioning Engineers)
Following section is providing the information to justify my recommendation of trigeneration. Currently, Chemosvit Group a.s. needs a technology at various subsidiaries to produce cold. The cogeneration is the combined production of electricity and heat, in our case based on gas engines. Efficient production of electric energy depends on the heat, as well as on climatic conditions and is seasonal in nature. The summer in the region is relatively hot; therefore, the full potential of the proposed installed capacity for the 2 cogeneration gas motors will not be used effectively. The Figures 7.3 and 7.4 show that during the summer months the cogeneration is not used at full capacity, which is the reason why the efficiency of the proposed cogeneration can be improved applying a trigeneration system.
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Figure 7.3: Heat Waste Using Cogeneration during the Summer Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
Source:
Figure 7.4: Heat Needed for the Chemosvit Group a.s. During the Year 2009 Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
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The above Figure 7.4 shows that the average needed heat for the Chemosvit Group a.s.
during the year 2009 significantly decreases in the summer months. It is apparent that during these months some of the heat will be wasted as shown in Figure 7.1. Furthermore, the cooling system is required during the hot months to prevent problems with technology and machinery. From the next Figure 7.5 the requirement for cooling system of Chemosvit Group a.s. is evident.
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data Figure 7.5: Cold Need for the Chemosvit Group a.s. During the Year 2009
The previous figures show that the effective production of electricity in the summer is not possible mostly due to the lower requirements on heat. This negative phenomenon can be mitigated with a trigeneration system, which means as explained before the combined production of heat, electricity and cooling. As the need for cooling has the opposite trend as the need for heat, the tri-generation thus becomes much more effective than mere cogeneration. In the Figure 7.6 below it is shown that the unused heat apparent from Figure 7.1 can be use in the way of trigeneration.
119 Figure 7.6: Heat in the Production of Cold
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
The following Figure 7.7 shows the estimated need for heat to produce cooling (green line) as a product of the trigeneration.
Source:
Figure 7.7: Average Monthly Heating and Cooling
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
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The main recommendation is to centralize the production in a cold place and invest in new pipes to convey cooling to individual buildings. The production of cold can be placed in the object 55 (to find the obj. please see the Figure 7.8). The main reason to propose the trigeneration is the location of the object in the center of the Chemosvit Group a.s. area, and so the cold can be distributed with more efficiency. Moreover, this area is sufficiently close in proximity to the existing cooling tower that is indispensable to the process of production of cold. My recommendation is to install the two 3 MW units, which may be interconnected in case of failure of one. The proposed pipes installation for Western and Eastern part is shown in the next two Figures 7.8 and 7.9.
Figure 7.8: Proposed Solution – Western Part
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
121 Figure 7.9: Proposed Solution – Eastern Part
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
The recommendation for the investment intensity is presented in following Table 7.1.
Table 7.1: Investment Cost for Cooling System
Source: Elaborated by Author Based on Chemosvit Energochem a.s. Internal Data
122 Advantages of the Recommended Solution
One advantage of central cooling is the lowest production cost of primary energy for cooling (the price of natural gas is less expensive than the cost of electricity to power compressors and fans). The main benefit of central production of cold is that it avoids the cost of servicing, maintenance and repairing of local cooling resources that had to be financed by subsidiaries.
Calculation of Return of Recommendation
The expected consumption of cooling volume based on historical data of the Chemosvit Group a.s. is of 11 235 MWh per year for all customers (Chemosvit Folie a.s., Terichem as, Chemosvit Fibrochem a.s.) The average number of hours is the value of 2 875 h (these figures are based on historical data). On the basis of this consumption it is only needed 4 MW to produce the necessary amount of cooling.
The sale of the cooling MW hour manufactured assumes a cooling unit price per MWh at the selling price of heat, which as an amount of € 70.417 per MWh. To achieve the required production volume of cooling, it is necessary the heat of 18 290 MWh and electricity of 337 MWh. In addition to direct costs, complementary costs not directly related to the actual production of cold have to be taken into account. They are represented by expenses, depreciation, repairs and maintenance (or services).
Quantification of Benefits of Recommendation
The trigeneration is consequently better than the simple cogeneration, which is mostly because of the zero economic effect, since cold production costs are covered by the returns
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with almost zero profit. In terms of generated cash flow this result is positive, however, this still is not a desired effect.
The final effect from this investment will be reflected after incorporating the overproduction
The final effect from this investment will be reflected after incorporating the overproduction