Wood-Chip Heating Systems - Biomass Energy Resource Center

• initial system equipment/installation costs
(including any building construction);
• costs for system design and project management;
• the life of the basic wood-chip system equipment;
• the life of any required building construction (boiler
room and fuel storage bin);
• future wood-chip system equipment replacement
costs (if selected parts will have to be replaced
before the basic system needs to be replaced);
• resale or salvage value of any existing equipment
that is no longer needed after the biomass system is
installed;
• costs associated with the backup fuel system;
• annual wood-chip system maintenance and repair
costs;
• the projected volume of wood chips required
annually;
• the projected volume of backup fuel required
annually;
• the projected electric use and fi rst-year costs
associated with running the wood-chip system;
• the current price of wood chips, backup fuel, and
electricity (energy and demand);
• annual fuel price infl ation rates for wood chips,
backup fuel, and electricity
• timing and amount of fi nancing costs (principal and
interest);
• amount of grants that will offset the installed cost;
• annual general infl ation rate; and
• the owner’s discount rate for the investment.
The analysis will give the life-cycle cost of installing
the wood-chip system. This needs to be compared to
the life-cycle cost of not installing the wood system,
by characterizing the “do-nothing” option in the same
way that the wood system installation was characterized.
If you are considering the installation of some
alternative fuel system, you should analyze its costs in
the same way that you analyzed the wood-chip system.
The option with the lower life-cycle cost will be the
better fi nancial investment.
It is important to take care in developing
assumptions and collecting useful data in each of these
categories. Some will be easy to develop. For example,
if you are considering installing a wood-chip heating
system to replace an oil heating system, you will already
know the price you are paying for oil and you probably
have a good idea what it is costing to maintain the
system.
Other assumptions will be more diffi cult to
determine. For example, unless you have signifi cant
in-house expertise, determining how much it will
cost to install a complete wood-chip heating system
(including any necessary building construction) will
probably mean getting an estimate from an engineer
or consultant specializing in biomass systems or from
a wood-chip system manufacturer (see “Defi ning the
Biomass Project and Its Costs” on page 45). For the
estimate to be useful, you will need to have a sense of
the level of automation and sophistication you expect
from the system (see “System Sophistication and
System Cost” in Chapter Ten). It may be wise to analyze
the life-cycle costs of two very different approaches to
system sophistication and features.
Each of the assumptions you make will affect the
outcome of your analysis. However, the results will be
more sensitive to some assumptions than to others.
Thus, once you have set up the basic framework for
analysis, it may be worthwhile to determine which
assumptions are most important, and ensure that
you are reasonably comfortable with those particular
numbers.
In addition, if you feel uncertain about one or
more of your assumptions, it may help to look at how
changing those assumptions affects the bottom line
of your analysis. This sensitivity analysis is usually
relatively easy to do (particularly if a computer program
is used), and can give you confi dence in your fi nal
decision.
For example, you may be confi dent about all the
other assumptions you have used but uncertain about
the appropriate oil and natural gas price infl ation rates.
If so, you could do your analysis several different times,
using several different infl ation rates that you believe to
be plausible. If the wood-chip system is cost-effective
under even the lowest of those rates, you can be sure
that the system will save you money. If the wood-chip
system is cost-effective under some plausible oil or gas
price infl ation rates but not under others, then you may
want to spend more time to evaluate the assumptions.
Once your economic analysis is complete, you must
make a decision about whether to install a biomass
system. The economic analysis will be an extremely
important factor in that decision, as will a number of
noneconomic considerations. The decision-making
process is discussed in Chapter Ten.
1 Based on interviews with system operators, owners, and
business managers as a part of the development of this
guide.
WOOD CHIP HEATING SYSTEMS
47