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Lecture 1C_LifeCycleCost_2012

# Lecture 1C_LifeCycleCost_2012 - ECE 4364/5374G Alternate...

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12/16/11 1 ECE 4364/5374G-1C (c) Saifur Rahman 1 Professor Saifur Rahman Electrical & Computer Engineering Dept. Virginia Tech ECE 4364/5374G: Alternate Energy Systems Lecture 1C: Life Cycle Assessment ECE 4364/5374G-1C (c) Saifur Rahman 2 Life Cycle Cos?ng Characteristics of Renewable and Advanced Energy Technologies High initial cost Low operating cost Unknown popular acceptance

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12/16/11 2 ECE 4364/5374G-1C (c) Saifur Rahman 3 Life-cycle costing (LCC) is the systematic evaluation of total construction, operation and maintenance costs of the project over its economic life. Initial cost and all subsequent expected costs of significance including disposal costs are considered in life-cycle costing. 1. Cost of raising capital 2. Time value of money 3. Service life 4. Taxes and depreciation 5. Inflation Life Cycle Cos?ng ECE 4364/5374G-1C (c) Saifur Rahman 4 1. Opportunity Cost 2. Compounding (future worth) 3. Discounting (present worth) All life-cycle costing must be done in terms of constant dollars, that is dollars dated as of a given year. 2.3 Time Value of Money
12/16/11 3 ECE 4364/5374G-1C (c) Saifur Rahman 5 All expenditures, regardless of when they occur, are referred to a common year known as the baseline year. Single Present Worth Uniform Present Worth Single Present Worth (SPW) F SPW P that so ) i 1 ( 1 SPW n × = + = SPW factor is used to determine the present worth (P) of a future amount (F) discounted at an interest rate i for n periods. 2.3.1 Present Worth Method (PW) ECE 4364/5374G-1C (c) Saifur Rahman 6 I UPW P that so ) i 1 ( i 1 ) i 1 ( UPW n n × = + + = UPW factor is used to determine the present investment (P) necessary at today ` s interest rate of i to receive a certain amount (I) over n periodic future installments. For example, if you want to get \$2,000 at the end of the each of the next five years, what you must invest today? 985 , 7 \$ ) 2000 (\$ x ) 08 . 1 ( 08 . 0 1 ) 08 . 1 ( P 5 5 = + + = Uniform Present Worth (UPW)

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12/16/11 4 ECE 4364/5374G-1C (c) Saifur Rahman 7 A solar photovoltaic system is expected to cost \$30,000 including storage batteries, and has an expected life of 10 years. The storage battery will need to be replaced after 5 years at a cost of \$4,000. The annual operating and maintenance cost of this system is estimated at \$1,000 including land lease. The system has a salvage value of \$5,000. What is the total present worth of the system over 10 years assuming an 8% interest rate? Since the battery and salvage values are one-time future cost items, we will use the single present worth (SPW) calculations for these. For the battery, P B = SPW x F = 1/(1+.08) 5 x 4,000 = \$2,722.33 For salvage value, P S = SPW x F = 1/(1+.08) 10 x 5,000 = (\$2,315.97) Example 2.1 ECE 4364/5374G-1C (c) Saifur Rahman 8 As the operation and maintenance cost is a recurring annual cost, we will use the uniform present worth (UPW) calculations as
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Lecture 1C_LifeCycleCost_2012 - ECE 4364/5374G Alternate...

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