part 1: overview of cogeneration and its status in asia - Fire

34 Part I: Overview of cogeneration and its status in Asia
0
A1 A2 An = - Io+ + +.....+ +
S
(1+IRR) (1+IRR) 2 (1+IRR) n (1+IRR) n
Manual computation of IRR is generally an iterative process. One starts with an assumption
of the rate first and calculates the net present value of the cash flow stream. If the net present
value is negative, the process is repeated with a lower assumed IRR. The iterative process
would be repeated until the net present value becomes zero (or nearly zero). However, many
personal computer spreadsheet programs and some hand-held financial calculators have the
ability to compute IRR from a stream of cash flows.
To judge the suitability of a cogeneration project, comparison is made between IRR and
discount rate (or required minimum rate). If IRR happens to be less than the discount rate,
the project would be rejected.
3.6 Assessment of Financial Feasibility of Cogeneration Projects
Once a client is satisfied with the rough payback period of a specific cogeneration project, a
common and simple procedure of financial feasibility of that particular alternative may be
pursued, as shown in Figure 3.2.
Cost Data of
the System
Estimate
NPV
Is
NPV > 0
Yes
Estimate
IRR
Is
IRR>Expected
Rate
Yes
Accept the
System
Financial
Parameters
Figure 3.2 Flowchart of cogeneration feasibility analysis
In the estimation of NPV for a cogeneration project, the total investment costs are taken as
cash outflows, and cash inflows are the difference between the annual total cost of
cogeneration system and that of the conventional energy supplies.
Sometimes, the total discounted costs of different cogeneration alternatives are estimated
instead of the NPV of a single alternative, e.g., the case of a grid independent project. All the
cash outflows are considered and discounted to the present value. The option that has the
least discounted costs would be selected as the best system.
No
No
Reject the
System