PhD Thesis - Energy Systems Research Unit - University of Strathclyde

As explained, when assessing the IRR a project is only financially profitable if thecalculated IRR is higher than the MARR. In this research, as explained in Chapter 4,an MARR of 6% (similar to the one used by Biezma and San Cristóbal in [8] forassessing a cogeneration project) was used. As can be seen from the 2 figuresshowing the different 3 and 6 household building scenarios, the IRR of the casesmodelled to represent the 6 household building (Scenario 2) exceed the minimumthreshold of 6% throughout the whole range of electricity tariffs and LPG pricesrange. Conversely, at the low end of the electricity tariffs range and at the high endof the LPG prices range, the calculated IRR for the different cases in Scenario 1,representing the 3 household building, are below the minimum threshold of 6%. Forthe 3 household building, this 6% IRR coincides with the same electricity tariff andLPG price thresholds calculated for the PW 8 to become negative. This suggests thatbeyond these electricity tariff and LPG price levels, the micro-trigeneration systemfeeding the 3 household building becomes financially not viable.5.5.2.2 Payback period (PP)The payback period is based on calculating the time required to obtain a return on theinvestment. The shorter the PP the more financially attractive is the system andconsequently the scenario investigated. It is calculated as the inverse of the cash flowmultiplied by the investment as shown in equation (4.19), and therefore contrary tothe other two criteria, the relationship between the payback period and the CF is ofan inversely proportional nature. The higher the cash flow (and eventually the higherthe PW and the IRR) the shorter is the payback period of the system for the differentscenarios.Similarly to the previous sections, Figure 5.22 and Figure 5.23 show the resulting PPfor all cases of the 3 (Scenario 1) and 6 (Scenario 2) household building scenarios(comparing building size and occupancy, building fabric and appliances’ electricalefficiency scenarios), respectively for varying electricity tariffs and LPG prices.8 For the 3 household building scenarios, the PW becomes negative if (for the current average LPGprice) the electricity tariff falls below 0.95 times the current electricity tariff or (at the currentelectricity tariff) the LPG price exceeds the current average LPG price of approx. 1.2 € per kg.225