chemical process design - economic evaluation

8132019 Chemical Process Design - Economic Evaluation

httpslidepdfcomreaderfullchemical-process-design-economic-evaluation 118



2

ECONOMIC EVALUATION

1- Economic aspects of the preliminary design

2- Cost Estimates

3- Capital Investment

4- Manufacturing cost

5- Simple measures to estimate earnings and return on investment

6- Profitability Measures

7- Further Reading and References



3


MaximumPotential Profit

(MPP)

Maximum Potential Profit

Design using hierarchical levels of decision (Levels of Douglas)

Use of hierarchical levels to estimate the potential profit

Profitabilitycriteria

Processalternatives

analysis

983108983145983142983142983141983154983141983150983156

983141983155983156983145983149983137983156983145983151983150 983148983141983158983141983148983155

983106983137983155983141983140 983151983150 983156983084 991404983084

983145983150983156983141983154983141983155983156 983154983137983156983141

983082 983118983151983150983085983108983145983155983139983151983157983150983156983141983140

983082 983108983145983155983139983151983157983150983156983141983140

983080983156983145983149983141 983158983137983148983157983141 983151983142 983149983151983150983141983161983081



4

1st

Estimation (PP1)[Incomes from productsale]-[Annual cost of raw

materials]

2nd Estimation (PP2)[Incomes from product sale] -

[Annual cost of raw materials] ndash [Manufacturing costs]

3rd Estimation (PP3) [Incomesfrom product sale] - [Annual

cost of raw materials] ndash[Manufacturing costs]ndash

[Capital costs]

bullImportance of the stoichiometrybull Levels 1 and 2 of Douglas decision

bullKnowledge of PFD

bullKnowledge of energetic needs

bullLevels 1-5 of Douglas decision

bullCapital investment andmanufacturing cost estimation

PP1 gt 0

PP2 gt 0




5

2- Cost Estimates Costs related to the process

bullCAPITAL INVESTMENT or CAPITAL COST (Inversion de Capital) [euro]Fixed Capital (Capital Fijo o Inmovilizado)

portion of the total fixed capital that is invested in fixed assets to build thephysical process itself that stay in the business almost permanently or at the

very least for more than one accounting period

land buildings machinery vehicles and equipment patents incidental expenses(estimation adjustments)

Working Capital (Capital Circulante)

represents funds required to operate the plant due to delays in paymentand maintenance of inventories

the money available to fill the tanks (solvents catalysts industrial and configured consumerproducts) and meet the initial payroll and expenses

Startup Cost (Coste de Arranque)

bullMANUFACTURING COSTS (Costes de fabricacion) [eurot]

Direct Costs (Costes de Fabricacioacuten Directos) Vary with the rate of production

Fixed Costs (Costes de Fabricacioacuten Fijos) Not affected by the production levelGeneral Expenses (Gastos Generales) Associated with management level andadministrative activities not directly related with the manufacturing process



6

(CAPITAL INVESTMENT or CAPITAL COST ndash CTCI

-) (Inversion de capital) [euro]

A- Guthrie s modular method based on individual factors to preliminary design Updated Bare Module Cost = BMC = UF BC (MPF + MF -1)

+ Contingencies and Contractoracutes fee = 18 BMC

CTBM (Total bare-module cost) ΣΣΣΣ(BMC) of the process equipment

CTCI = CTPI + CWC = 118 (CTBM + Csite + Cbuildings + Coffsite facilities) + CWC

CTCI = 118 (135 CTBM) + CWC

CTBM Total Bare-module Investment CTCI Total Capital Investment CTPI Total Permanent Investment

CWC Working Capital Csite Cost of site preparation = 10-20 CTBM

Cbuildings Process and non-process buildings = 10 CTBM and 20 CTBM

Coffsite facilities Utility plants and pollution control = 5 CTBM

B- Method of Lang bases on overall factor to study estimate CTCI = 105 fLTCI ΣΣΣΣ (IiIbi) CPi

bull 105 to account for delivery of the equipment to the plant site

bull fLTCI Lang Factors in function of the processing plant (solids solids-fluids fluids)

lowast Σlowast Σlowast Σlowast Σ (IiIbi) CPi Total purchase cost as sum of the updated equipment cost data

C- Method based in estimation of the capital cost components

3- Capital investment



7



Basecost forequip- ment

BC

On-Site Cost - Installation - Supervision - Taxes

BC(MF-1) 4 BC

Indirect Costs-Constructionoverhead -Own Engineering

025 x (on-site + off- site)

Off-site Cost -Equipment to supplyprocess utilities - Site developmentAuxiliary buildings

045 (on-site)

Σ= Fixed Capital =18x(on-site) = 72 BC

Fixed Capital 18 x (on-site) =

72 BC

Plant startup costs - Equipmentperformance andpersonnel01 x Fixed Capital

Working Capital - Early plant

operation Cost ofraw materials and

value of products015 x Capital Costs

Σ= Capital Costs =13 x Fixed Capital =

94 x BC

M a n u f a c t u r i n g C a p i t a l


Equipment life 10 years

Annual Interest

15

Annualized TotalCapital Costs

CT10 (115) 10 =

4 x BC [euroyear]

Capital Costs TCI = 94 x BC

N o n

N o n - - M a n u f a c t u r i n g C a p i t a l




8

4- Manufacturing Cost

bullMANUFACTURING COSTS (Costes de fabricacion) [eurot] (COM)

Direct Manufacturing Costs (DMC) Vary with production rate

Fixed Manufacturing Costs (FMC) Independent of changes in production rate

General Manufacturing Expenses (GE) Business functions and seldom vary

with production level

COM = DMC + FMC + GE

COM can be determined when the following costs can be estimated

1- Base Module Cost BMC2- Operating Labor COL

3- Utilities CUT

4- Waste treatment CWT

5- Raw Materials CRM

COM = 0304 BMC + 273 COL + 123 (CUT+CWT+CRM)

The Service Factor need to be known = Nordm days in operation during the year 365



9

9

Factor Description of Factor Value

1 Direct Costs (DC) Factors that vary with rate of production =

CRM+ CWT + CUT + 133COL + 003COM + 0069BMC

CRM+ CWT + CUT + 133COL

+ 003COM + 0069BMC

Raw materials Costs of chemical feed stocks Flow rates from the PDF CRM

Waste treatment Costs of waste treatment CWT

Utilities Gas oil coal electric power steam water air inert gas refrigeration etc CUT

Operating Labor Cost of personnel for plant operations COL

Direct supervisory Costs of administrativeengineering and support personnel clerical labor (01-025)COL

Maintenance amp Repairs Costs of labor amp materials associated with maintenance (002-01)BMC

Operating Supplies Costs of miscellaneous supplies that support daily operation not consideredraw materials (chart paper lubricants protective clothing etc)

(01-02)BMC

Laboratory charges Costs of laboratory tests of quality control (01-02)COL

Patents and Royalties Costs of using patented or licensed technology (0-006)COM

2 Fixed Costs (FC) Factors not affected by the level of production =0708COL + 0168BMC

0708COL +0168BMC

Depreciation Costs associated with the physical plant (buildings equipments) Legaloperating expenses for tax purposes

01BMC

Local taxes and Insurance Based on plant location and severity of the process (0014-005)BMC

Plant Overhead Costs Catch-all costs associated with operation of auxiliary facilities supportingmanufacturing process (fire protection safety and medical services etc)

(05-07)COL+BMC

3 General Expenses(GE)

Costs associated with management level + administrativeactivities = 0177COL+0009BMC+016COM

0177COL+0009BMC+016COM

Administration Costs Salaries and other administration 0325(COL+(002-01) BMC

Distribution and Selling Sales and marketing required to sell products (002-02)COM

Research amp Development Costs of RampD activities related to the process 005COM




10


Cost of Raw Materials ndash CRM

- Price quotations from prospective suppliers of feedstocks- ICIS Chemical Business Americas (Chemical Market Reporter)

Cost of waste treatment ndash CWT

- Legal framework minimization IPPC BAT Technologies BREF Documents

Utility Cost - CUT

CUT = a x (CE Plant Cost Index) + b x Csf

ab Coefficient cost for different kind of utilities

CE Plant Cost Index as the effective date of the estimate (Basis 1958 = 100)Csf Price of the fuel use to generate the utility

Cost of Operating Labor - COL

- Annual Operator Salary ($) = 41600 x (103)year-2003

-Operator Requirements for process equipment per shift

49 weeksoperatoryear x 5 shiftsweek = 245 shiftsopeartoryear 365 daysyear x 3 shiftsday = 1095 shiftsyear

[1095 shiftsyear] [245 shiftsoperatoryear] = 45 operators COL = (45) operators x (ΣΣΣΣnordm operatorsshift) x euroyear

BMCUpdated Bare Module Cost = BMC = UFBC(MPF + MF -1)



11

5- Simple Estimate Earnings and Returns

bull Earnings

- Pre-tax earnings or Gross earnings or Profit = S - C

S Annual sales revenue C COM Manufacturing Costs

- After-tax earnings or Net earnings or Profit = Gross earnings - Income taxes on

the gross earnings = (1-t) Gross earnings = 06 (S-C)

t Income tax rate = Cte in function of the local law

bull Cash Flow (CF) and Depreciation (D)-Cash flow = Net passage of money into (+) or out of (-) a company due to an

investmentInvestment (-) cash flow After-tax profits+depreciation (+)cash flow

-Annual CF for any year of the project

CF = 06 (S-C) + D ndash fCTDC ndash CWC ndash Cland ndash Cstartup ndash Croyal + Sequip

D Depreciation decrease in value of an asset over time (use obsolescence old age)

f fraction of the total depreciable capital (CTDC)

CWC Working capital Cland Cost of land expended during the year of construction

Cstartup Startup Costs Croyal Cost of royalties

Sequip Salvage value for used equipment

CF plant operation CF plant construction



12


Approximate Profitability Measures Useful in the early stages ofproject evaluation New small projects or revamping

Non-Discounted Techniques (Time value of money is ignored

and straight-line depreciation is used )

- Return of investment (ROI) Payback period (PBP) venture profit

(VP) Annualized cost (AC)

Rigorous Profitability Measures Useful before a final decision is made

on whether to proceed with a new venture

Discounted Techniques (involve the time value of money in

terms of discounted cash flows)

- Net Present Value (NPV) Investoracutes rate of return (IRR) ordiscounted cash flow rate of return (DCFRR)



13


Non-discounted criteria

Based on timePayback Payout Payoff period (PBP) (Periodo de Retorno )

Time required for the annual earnings to equal the original investment

PBP (years) = Total Depreciable Capital (euro) Net earnings + annual

depreciation (euroyear) = CTDC (1-t) (S-C) + D

PBP lt 3-4 y Profitable 4lt PBP lt 10 y Additional assess PBP gt 10 y Non profitable

rdquouseful in early evaluations to compare alternativesrdquo

Based on interest rate

Return of Investment (ROI) (Retorno de la Inversioacuten )

Annual interest rate made by the profits on the original investment

ROI () = Net earnings Total Capital Investment = (1-t) (S-C) CTCIROI gt 15 Profitable

rdquoprovides a snapshot view of the profitability of the plantrdquo



14



Taking into account the size of the project

Venture profit (VP)

Annual net earnings in excess of a minimum acceptable return ofinvestment imin (20)

VP = (1-t) (S-C) ndash iminCTCI = net earnings - iminCTCI

rdquopreliminary estimates when comparing alternative flowsheets during process synthesisrdquo

Based on interest rateAnnualized Costs (CA)

Sum of the production cost and a reasonable return on the originalcapital investment where the reasonable return on investment imin is 02

CA = C + iminCTCI

rdquouseful to comparing alternative items of equipment in a process or alternativereplacements for existing equipmentrdquo



15

Discounted criteria

The ldquotime value of moneyrdquo recognised that an amount of money at the current

time Present amount P that is invested at an interest rate i and the interest is

added to P the amount of money at the future date will be a Future amount F ne P

F= P (1+i)n

The change of the time value of money are due to

- INTEREST annual rate at which money is returned to investors for use of their capital- RETURNS of competitor investments thus the actual inversion must compensate thelost investments opportunities in other business

- INFLATION or change in the value of a currency over time

Net Present Value (NPV) Valor Actual Neto (VAN)

Sum of all the discounted cash flows computed for each year of theprojected lifetime (n) of the plant including construction + startup phases

NPV = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment

rdquoprovides a quantitative measure for comparing the capital required for competingprocesses in current termsrdquo is an indicator of the value or magnitude of an investment




16

Discounted criteria

Investoracutes Rate of Return (IRR) or Discounted Cash Flow Rate of Return(DCFRR)

Interest rate that gives a net present value of zero Interest rate that canbe compared with a competing investment

NPV i = [Gross earnings x (1-(1+i)-n) i ] ndash Capital investment = 0

Used to evaluate the desirability of investments or projects It is an indicator of theefficiency quality or yield of an investment An investment is considered acceptable if

its IRR is greater than an established minimum acceptable rate of return or cost ofcapital The largest IRR is the most desirable

ldquoNPV and IRR are effective measures especially when the alternatives have widelydisparate investmentsrdquo




17

Economic AssessmentEconomic Assessment

DiferentialCash Flow

NPV and IRRNPV and IRR Intangible aspects

Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis

Environmental AssessmentEnvironmental Assessment

Technical AssessmentTechnical Assessment

lt3 years gt10 years

3-10 years

Figure 7 Suitability analysis of the minimization options

Design of wastes minimization

alternatives Application of criteria

(Viguri et al 2000)

Viguri J 2000 ldquo Environmental situation of the SME in Cantabria

Minimization of the environmental impact rdquo Final Inform Project from

the enterprise development initiative Santander Spain Sep 2000


Memo 3 are to size the equipment of the flowsheet perform

heat integration and an economic evaluation



18


bull Biegler L Grossmann I Westerberg A 1997 Systematic Methods of ChemicalProcess Design Prentice Hall

bull Douglas JM 1988 Conceptual Design of Chemical Processes McGraw-Hill

bull Peter M Timmerhaus K West R 2005 Plant Design and Economics for

Chemical Engineers 5ordf Ed McGraw-Hill

bull Seider W Seader J Lewin D Widagdo S 2010 Product and Process DesignPrinciples Synthesis Analysis and Evaluation 3rd Ed John Wiley amp Sons

bull Turton R Bailie R Whiting W Shaeiwitz J 2003 Analysis Synthesis andDesign of Chemical Processes Prentice Hall



2

ECONOMIC EVALUATION


2- Cost Estimates

3- Capital Investment

4- Manufacturing cost

5- Simple measures to estimate earnings and return on investment





3



(MPP)





Processalternatives

analysis

983108983145983142983142983141983154983141983150983156

983141983155983156983145983149983137983156983145983151983150 983148983141983158983141983148983155

983106983137983155983141983140 983151983150 983156983084 991404983084

983145983150983156983141983154983141983155983156 983154983137983156983141

983082 983118983151983150983085983108983145983155983139983151983157983150983156983141983140

983082 983108983145983155983139983151983157983150983156983141983140

983080983156983145983149983141 983158983137983148983157983141 983151983142 983149983151983150983141983161983081



4

1st


materials]





[Capital costs]






PP1 gt 0

PP2 gt 0




5















6




















7




BC


BC(MF-1) 4 BC




045 (on-site)



72 BC






94 x BC




Annual Interest

15


CT10 (115) 10 =

4 x BC [euroyear]


N o n





8










3- Utilities CUT







9

9





+ 003COM + 0069BMC








(01-02)BMC




0708COL +0168BMC


01BMC



(05-07)COL+BMC










10






Utility Cost - CUT












11


bull Earnings


















12














13
















14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










3



(MPP)





Processalternatives

analysis

983108983145983142983142983141983154983141983150983156

983141983155983156983145983149983137983156983145983151983150 983148983141983158983141983148983155

983106983137983155983141983140 983151983150 983156983084 991404983084

983145983150983156983141983154983141983155983156 983154983137983156983141

983082 983118983151983150983085983108983145983155983139983151983157983150983156983141983140

983082 983108983145983155983139983151983157983150983156983141983140

983080983156983145983149983141 983158983137983148983157983141 983151983142 983149983151983150983141983161983081



4

1st


materials]





[Capital costs]






PP1 gt 0

PP2 gt 0




5















6




















7




BC


BC(MF-1) 4 BC




045 (on-site)



72 BC






94 x BC




Annual Interest

15


CT10 (115) 10 =

4 x BC [euroyear]


N o n





8










3- Utilities CUT







9

9





+ 003COM + 0069BMC








(01-02)BMC




0708COL +0168BMC


01BMC



(05-07)COL+BMC










10






Utility Cost - CUT












11


bull Earnings


















12














13
















14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










4

1st


materials]





[Capital costs]






PP1 gt 0

PP2 gt 0




5















6




















7




BC


BC(MF-1) 4 BC




045 (on-site)



72 BC






94 x BC




Annual Interest

15


CT10 (115) 10 =

4 x BC [euroyear]


N o n





8










3- Utilities CUT







9

9





+ 003COM + 0069BMC








(01-02)BMC




0708COL +0168BMC


01BMC



(05-07)COL+BMC










10






Utility Cost - CUT












11


bull Earnings


















12














13
















14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










5















6




















7




BC


BC(MF-1) 4 BC




045 (on-site)



72 BC






94 x BC




Annual Interest

15


CT10 (115) 10 =

4 x BC [euroyear]


N o n





8










3- Utilities CUT







9

9





+ 003COM + 0069BMC








(01-02)BMC




0708COL +0168BMC


01BMC



(05-07)COL+BMC










10






Utility Cost - CUT












11


bull Earnings


















12














13
















14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










6




















7




BC


BC(MF-1) 4 BC




045 (on-site)



72 BC






94 x BC




Annual Interest

15


CT10 (115) 10 =

4 x BC [euroyear]


N o n





8










3- Utilities CUT







9

9





+ 003COM + 0069BMC








(01-02)BMC




0708COL +0168BMC


01BMC



(05-07)COL+BMC










10






Utility Cost - CUT












11


bull Earnings


















12














13
















14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










7




BC


BC(MF-1) 4 BC




045 (on-site)



72 BC






94 x BC




Annual Interest

15


CT10 (115) 10 =

4 x BC [euroyear]


N o n





8










3- Utilities CUT







9

9





+ 003COM + 0069BMC








(01-02)BMC




0708COL +0168BMC


01BMC



(05-07)COL+BMC










10






Utility Cost - CUT












11


bull Earnings


















12














13
















14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










8










3- Utilities CUT







9

9





+ 003COM + 0069BMC








(01-02)BMC




0708COL +0168BMC


01BMC



(05-07)COL+BMC










10






Utility Cost - CUT












11


bull Earnings


















12














13
















14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










9

9





+ 003COM + 0069BMC








(01-02)BMC




0708COL +0168BMC


01BMC



(05-07)COL+BMC










10






Utility Cost - CUT












11


bull Earnings


















12














13
















14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










10






Utility Cost - CUT












11


bull Earnings


















12














13
















14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










11


bull Earnings


















12














13
















14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










12














13
















14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










13
















14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










14




Venture profit (VP)






CA = C + iminCTCI




15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










15

Discounted criteria




F= P (1+i)n











16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










16

Discounted criteria










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










17




Intangible aspects

Payback Period -PBP

Payback Period -PBP

Combined Analysis




3-10 years




(Viguri et al 2000)









18










18






