LCA Food 2012 in Saint Malo, France! - Manifestations et colloques ...

PARALLEL SESSION 1B: TOWARDS LIFE CYCLE SUSTAINABILITY ASSESSMENT 8 th Int. Conference on LCA in the
Agri-Food Sector, 1-4 Oct 2012
30%, down to $0.07 per kWh, and even to 13% if the life time is equal to 5 years. For ventilation, the IRR is
lower. Three cases have an IRR lower than the long-term interest rate of 6%, and among them, one has a
negative IRR. It is crucial for the farmer to ensure a longer lifetime and a higher price of electricity to avoid
losing money.
The longer the expected lifetime, the higher the IRR. However, this lifetime must be consistent with the
technical characteristics of the project. If one chooses a higher expected lifetime, he has to account for additional
maintenance or repair costs that will be needed. In order to avoid this distortion, we propose to use the
most likely expected lifetime rather than a conservative lifetime often used in financial accounting method.
Sensitivity analysis on this variable can also be carried out.
5. Results and discussion: Digester case study
This section provides a summary of results for a second case study based on a dairy farm of 1100 cows
located in upstate New York. In the scenario, the farm changes from slurry manure storage in a top-loaded
open tank that would be emptied every 4 to 6 months to a 200 MW anaerobic digester, producing electricity
and selling it to the grid.
We study two revenue scenarios: low and high. In the low scenario, the equipment is financed by the
farmer, and the price of electricity is an average market price of 0.11 $/kWh. In the high scenario, we added
an up-front grant, and we model a higher price of electricity of 0.17 $/kWh, which could be anticipated in the
future. The impact reduction from the electricity generated by the digester was accounted for through a system
expansion and the substitution of an average US electricity mix.
Table 4 presents the main assumptions and results of this study. The low revenue scenario does not reach
a profit over the lifetime of the equipment: the NPV of the scenario is equal to $-540,000; this is also reflected
in its IRR, equal to 2% and hence lower than the discount rate of 6%. Conversely, the high revenue
scenario is profitable, and displays a profitable NPV equal to $1,020,000 ; its IRR is equal to 16%, well
above the discount rate. Both scenarios generate a reduction of GHG of 45 million tons CO2e.
Table 4. Main assumptions and results in the anaerobic digester case study
Scenario Low revenue High revenue Units
Initial investment 1,467,000 $
Upfront grant 0 35 % of investment
Estimated lifetime 20 20 year
Discount rate =long term interest rate 6 %
Annual electricity produced 1,090,953 kWh/year
Price of electricity 0.11 0.17 $/kWh
Carbon footprint of US electricity production 0.73 (Rotz et al., 2011) kg CO2e / kWh
Net present value (at long term interest rate) of -540,000 + 1,020,000 $
78
total costs and revenues over lifetime
IRR 2 16 %
total carbon footprint differential over lifetime 45 million tons CO2e
This case study also displays how the economic profitability depends on the background economic condition;
namely the grant amount and the price of electricity. In both cases, the reduction in greenhouse gases is
significant.
6. Conclusion
In LCC, the internal rate of return enables a direct and straightforward metric for the economic performance
of a scenario. Compared to the NPV method, it avoids the arbitrary choice of a discount rate. The higher the
IRR, the more profitable the scenario. The IRR can be directly compared to the long-term interest rate as a
break-even point for profitability. The IRR can also be compared with a higher financial objective of, e.g.,
10% to assess the financial interest of the investment over its lifetime; if the IRR is lower, the scenario is
below the objective, and may not be financially interesting.
Determination of the IRR has to be carefully done: specific care has to be taken in defining the cost data, and
especially the lifetime of the investment and the most important revenue sources.
In the LCC context, the IRR metric can be combined with the cumulated impact assessment, providing decision
makers with a comprehensive performance measurement, both environmental and financial.