Glass Melting Technology: A Technical and Economic ... - OSTI

When a glass corporation operates a large number of furnaces, capital needed in any given year
just to rebuild furnaces at the end of a campaign can represent a major portion of capital
available to the business. Production lines are refurbished while the furnace undergoes a cold
repair, and the cost of repairing the furnace represents a portion of the business’s reinvestment
capital.
Capital requirements for glass facilities are currently 7 to 10 percent of industry-wide sales. For a
public corporation, cost of capital is a function of financial structure and the balance of debt and
equity on the balance sheet. In general, a higher debt portion of capital yields a lower cost of
capital, but many US companies continue to prefer a capital structure with relatively low debt.
Cost of capital in US glass companies also depends on the volatility of the company’s stock price
relative to the broad US market (the stock’s beta). A discounted cash flow (DCF) analysis may
be conducted to focus on cash generated by the investment for each year of its economic life,
recognizing the time value of money. Cash received in earlier years of operation has greater
value, or rather is discounted less, than cash received in later years. The DCF analysis uses a
discount rate that is the corporation’s cost of capital, or some risk-adjusted higher rate than the
cost of capital, to account for risk. US companies report a cost of capital in the 10 to 12 percent
range and may use a risk-adjusted rate as high as 20 percent.
Since the most serious financial challenge for the industry over the last decade has been the need
to continue to improve capital productivity, companies have adopted some form of shareholder
value-added metric (SVA, EVA, or residual value). This performance metric differs from most
others in that it subtracts the cost of all the capital a company employs from the profit in the form
of an opportunity cost associated with tying up capital that could be earning an acceptable rate of
return at comparable risk elsewhere. This shareholder value-added metric is particularly
challenging to the glass industry because of its need for major capital at the outset and ongoing
infusions for periodic furnace rebuilds. When an expected return on capital investment fails to
exceed a corporation’s cost-of-capital target, it is difficult to attract needed capital to develop or
sustain the business. Therefore, glass businesses must earn the cost of capital as well as meet the
corporation’s tolerance for risk.
II.9. Economics of energy conservation
Although reductions in melting energy have been achieved over the last several decades, actual
energy consumed in melting glass is still considerably greater than the calculated theoretical
energy. Successful advances in energy savings have included higher temperature-resistant
refractories combined with greater insulation of furnaces, improved combustion efficiency,
preheating of combustion air from waste products of combustion, and improvements in process
understanding and control. Some proven energy reduction technologies for melting are not
currently implemented.
The strategic government policy to reduce US dependence on foreign energy sources, and the
desire of the US glass industry to be part of that solution, will affect energy issues. Yet the
economic incentive for adopting proven technologies and developing new concepts may not be
sufficient to justify the required cost and the effort. Minimizing energy cost per ton of glass
produced is more important than reducing the energy content as measured in thermal units. With
future cost and availability of fuel uncertain at present, it is difficult to justify technology
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