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Amazing Plants (Read It Yourself - Level 2) by Lorraine Horsley

By Lorraine Horsley

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Extra resources for Amazing Plants (Read It Yourself - Level 2)

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SIM 2-6 It is desired to have an after-tax savings of 15 percent. Comment on the investment that can be justified if it is assumed that the fuel rate escalation should not be considered and the annual energy savings is $2,000 with an equipment economic life of 15 years. Comment on the above, assuming a 14 percent fuel escalation. ANSWER From Figure 2-9, for each $1,000 energy savings, an investment of $4,400 is justified or $8,800 for a $2,000 savings when no fuel increase is accounted for. With a 14 percent fuel escalation rate an investment of $10,600 is justified for each $1,000 energy savings, thus $21,200 can be justified for $2,000 savings.

MAKING DECISIONS FOR ALTERNATE INVESTMENTS There are several methods for determining which energy conservation alternative is the most economical. Probably the most familiar and trusted method is the annual cost method. When evaluating replacement of processes or equipment do not consider what was previously spent. The decision will be based on whether the new process or equipment proves to save substantially enough in operating costs to justify the expenditure. Equation 2-16 is used to convert the lump sum investment P into the annual cost.

The payback period is simply computed as: Payback period = initial investment after tax savings Copyright © 2002 by The Fairmont Press. (2-1) 26 Plant Engineers and Managers Guide to Energy Conservation The energy manager who must justify energy equipment expenditures based on a payback period of one year or less has little chance for long-range success. Some companies have set higher payback periods for energy utilization methods. These longer payback periods are justified on the basis that: • Fuel pricing will increase at a higher rate than the general inflation rate.

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