Guide to COST-BENEFIT ANALYSIS of investment projects - Ramiri

4.3 Case Study: investment in an incinerator with energy recovery4.3.1 Project definition and option analysisA municipality proposes to build a new incineration plant to treat together urban and any special (notrecycled) waste. The plant recovers energy in the form of electricity and heat with the latter used forindustries and houses by means of an existing district heating net. Some recyclable waste components areselected and recovered in the plant before burning. The project takes place in a convergence region in aCountry not eligible for the Cohesion Fund.The service catchment area consists of an urban area of about 600,000 inhabitants. The design capacity ofthe furnace is fixed at 300,000 tons of total waste per year. The plant will take up a total area of 16,200square meters.The Municipality will choose a private partner by means of a BOT (Build-Operate-Transfer) tender. TheBOT horizon is fixed at 30 years, including time for design, erection, start-up, and operating of the plant.The urban solid waste of the town is currently disposed of in a landfill, now at the end of its operationallife and without any possibility of capacity extension. So, the do-nothing scenario was discarded at thebeginning of the project. An alternative to the present project, analysed during the feasibility study, is theconstruction of a new landfill. This infrastructure may be located at different sites, but all of these arerather distant from the collection sites for municipal solid waste. This alternative was deleted foreconomic reasons.Finally, various plant locations were tested and different technological solutions for the incineration ofwaste and the production of energy were analysed, the best solution being the one assessed below.4.3.2 Financial analysisAlthough in this case study the owner of the infrastructure (the Municipality) is different from theoperator (the private partner of BOT assignment), a consolidated financial analysis is conducted from thepoints of view of both owner and operator.The horizon of the analysis is assumed to be 30 years, which also coincides with the horizon of the BOT.The financial discount rate is 5%, expressed in real terms. In the analysis, constant prices are used, andcorrections are entered for changes in the relative prices. Such adjustments are undertaken by assuming anaverage annual inflation rate of 2.0% and also by taking into account factors of growth or marginaldecrease in prices of some services and some operating costs (see below). A separate analysis will checkthe sensitivity of the project to relative price changes.The production of the incinerator, assumed to be constant over the analysis horizon, is 270,000 t/y (tonsper year) of urban waste plus 13,500 t/y of other waste deriving from commercial activities and/orhandicrafts existing in the town. The treatment of the latter wastes is more expensive than that of theurban wastes, but their incineration produces more energy per burnt ton.The cost of the investment, at current prices, is set at €190,809,000 64 , broken-down as shown in table 3.26.The investment realization (design, licensing, erection) lasts 3 years. The start-up phase, lasting 6 months,will begin in the fourth year, when the production is assumed to be half of the regime’s production.The components with a short lifetime (50% of the equipment costs) will be replaced once in the analysishorizon, at the end of life (15 years 65 ). The calculation is carried out by introducing, for simplicity’s sake,the whole replacement cost of the aforementioned components in the nineteenth year 66 (€72,383,000). Theplant site will be cleared and decontaminated at the end of the operational period, set at the project646566All figures are net of VAT.In accordance with the technical data from literature.The nineteenth year has been determined taking into account three years of plant construction plus 15 years of economic life.156