LAUTECH Journal of Engineering and Technology 6(2) 2011: 91 – 96

ANNUAL AND COMPOUNDED LIFE CYCLE COST ANALYSIS OF A

STEAM BOILER

I. O. Ohijeagbona,*, M. A. Waheedb, S. O. Jekayinfac

a
Mechanical Engineering Department, University of Ilorin,
P. M. B. 1515, Ilorin, Nigeria.
b
Mechanical Engineering Department,
University of Agriculture, Abeokuta, Nigeria.
c
Agricultural Engineering Department,
Ladoke Akintola University of Technology, Ogbomoso, Nigeria.
*
Corresponding Author. Tel: 07030092411
E-mail: idehaiohi@yahoo.com, ohijeagbon.io@unilorin.edu.ng (I. O. Ohijeagbon)

ABSTRACT
The generic total economic cost of an industrial steam boiler over the service life of the boiler in relation to initial
cost and discounted future expenditures was investigated. The present value method of life cycle cost analysis
(LCCA) was used to analyse the yearly and compounded cycle cost; annually and compounded future fuel cost of
an industrial steam boiler from the initial investment cost, generating cost per annum and disposal cost. For a
steam boiler utilizing 754 kg/hr of low pour fuel oil (LPFO) in an estimated operating period of 4,186 hr/yr, the
generating and operating costs per annum were obtained as 13,019,355.00 /yr (85,344.84 S/ / yr ) and
15,623.226.00 /yr (102,413.81 S/ / yr ) respectively. Inflation rate of fuel cost was responsible for the break-even
period in the life cycle cost of steam boiler operation.
The LCCA methodology presented in this study is a veritable tool for economic and managerial planning and
implementation for sustainable use of industrial boilers.

Keywords: life cycle, cost analysis, steam boiler, fuel cost, break-even, inflation rate.

1 Introduction initial and long-term operating costs (Lutz et al.,

Most financial people in any organization
will say that the best way to evaluate the actual cost
for a long term asset is through the life cycle costing
(LCC) discipline (CleaverBrooks, 2010). It can
incorporate fuel cost escalation into the economic
model and it considers the cost over the life of the
system rather than just the first cost (Thumann and
Mehta, 2001).
LCC is based on an understanding that the
value of money changes with time and as a result,
expenditures made at different times are not equal.
This concept, referred to as the ‘time value of
money’, is the basis for life cycle cost analysis
(LCCA) (Rahman and Vanier, 2004). Life-cycle
costing is a standard engineering economic approach
for choosing between alternative products or designs
that provide roughly equal service to the user. It
allows comparison between products having different
2006). LCC analysis should be performed early in the
design process while there is still a chance to refine
the design to ensure a reduction in life-cycle costs.
The option identified with the lowest total present
value is the most economical or least cost
option/approach (Oeveren and Wilks, 2009).
LCCA had been used in many studies, such
as bridge for use by transportation agencies (NCHRP,
2003). It was used in ensuring delivery of adequate,
equitable and sustainable water, sanitation, and
hygiene services to a specific population (Fonseca et
al., 2010). Growing interest in “green” building
technologies that rely in part on the durability and
sustainability of building materials to minimize
environmental impacts had also led to LCCA
applications (Hoff, 2006).
Applying LCC to roofing investments uses
the simple payback period to identify projects that
I. O. Ohijeagbon et al./LAUTECH Journal of Engineering and Technology 6(2) 2011: 91 – 96
will be unusually profitable or unprofitable early in
their life. Suggested that the simple payback period
should not be used as the primary indicator to
evaluate a project, it is useful as a secondary measure
to indicate the level of risk of an investment – a
quicker payback period is usually an indicator of less
risk (ATHENA Institute, 2007).
The present study investigates the
relationships in the yearly and compounded cycle
costs; and the yearly and future fuel cost of an
industrial steam boiler over the service life of the
boiler.
2 Method
The first step, which has several components
to calculate the cost of generating steam from a
boiler, comprises of the fuel cost (CF); raw water
supply cost (CW); boiler feed water treatment cost-
including clarification, softening, demineralization
(CBFW); feed water pumping power cost (CP);
combustion air fan power cost (CA); sewer charges
for boiler blowdown cost (CB); ash disposal cost
(CD); environmental emissions control cost (CE) and
maintenance materials and labour cost (CM) (U.S.
DOE, 2003).
The total variable cost of raising steam, CG,
is the sum of all these individual contributions,
expressed as naira per kilogram ( /Kg) of steam
generated:
CG = C F + CW + CBFW + CP + C A + CB + C D + C E + CM (1)
If the operating cost of a boiler is CO per
hour and the process requires Qf kg/hr of steam. To
deliver this quantity of steam, it is necessary to
actually generate (1+X) Qf kg/hr of steam, where X is
a factor typically ranging from 5 to 20%. Hence, two
distinct equations to determine the cost of steam are
as follows:
CO (2)
Generating cost, C ( N / kg ) =
G
(1 + X ) × Q f
CO
Consumptio n cost, C C ( N / kg ) =
Qf
Equation (2) is used when we are interested in
making the generation system more efficient.
Equation (3) is used when we are interested in
determining the true cost of process operation and
when we are evaluating energy conservation projects.
Fuel cost is usually the dominant
component, accounting for as much as 90% of the
total. It is given by:
C F = C F / E × ( hs − hw ) × η B (4)
1 1
C F / E = C Naira / litre × ×
d fuel LHV
where,
CF = fuel cost, /kg
CF/E = fuel cost in naira per energy value, /kJ
hs = enthalpy of steam, kJ/kg
hw = enthalpy of boiler feed water, kJ/kg
ηB = overall boiler efficiency, fractional
CNaira/litre = cost of fuel in naira/litre, /litre
dfuel = relative density of fuel
LHV = Calorific value of fuel, kJ/kg
Qf = Fuel use, kg/hr
It was assumed that extra steam generated, X = 20%
In principle, one should calculate the
individual cost components for the site-specific
conditions. In practice, it is usually sufficient to use
an approximation:
CG = C F (1 + 0.3) (6)
The number 0.3 represents a typical value for the sum
of all the cost components that may be incurred in
oil- and gas-fired facilities.
The operating cost per annum is given by:
CO / annim = (1 + X ) × Q f × CG × Op Hrs (7)
The generating cost per annum is given by:
CO / annum
CG / annum = = CG × Q f × OpHrs (8)
(1 + X )
It can be deduced from equation (6) that the cost of
fuel per annum is given by:
C
C F / annum = G / annum (9)
(1 + 0.3)
Life cycle cost analysis (LCCA) is a process
for evaluating the total economic cost of an asset by
analyzing initial costs and discounted future
expenditures, such as maintenance, repair and
renewal costs, and user and social costs over the
service life of the asset (Rahman and Vanier, 2004).
The LCCA of a facility can be represented
by the following expression (Jekayinfa et al., 2005):
LCC = Cic + Ce + Co + C m + Cd (10)
where,
LCC = life cycle cost
Cic = initial investment cost
(3)
Ce = energy cost
Co = operational (labour) cost
Cm = maintenance and repair cost
Cd = disposal cost
A comparison of equation (1) and (10)
shows that energy (Ce) cost, operational (labour) cost
(Co) and maintenance and repair cost (Cm) in the life
cycle cost (LCC) are included in the cost of raising
steam (CG). Hence, equation (10) of the LCC may be
re-written as;
C L = C I + CG / a + C D (11)
(5) where,
CL = CLCC
CI = Cic = initial investment cost
CG/a = CG/annum = generating cost per annum
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I. O. Ohijeagbon et al./LAUTECH Journal of Engineering and Technology 6(2) 2011: 91 – 96

CD = Cd = disposal cost RUSD/NGN = exchange rate of 1 USD to NGN = 152.55

The future value of the steam boiler at any (@ 24 January 2011)
particular year t can be determined by a cash flow Specific gravity, SGLPFO = 0.943
model which illustrates the effect of compounding of Calorific value of fuel, LHVLPFO = 40,515.15 kJ/kg
discount payments which is given by the expression Fuel use, Qf = 754 kg/hr
below (Thumann and Mehta, 2001; Rahman and It was assumed that X = 20%
Vanier, 2004): Estimated operating hours OpHrs = 4,186 hr/yr
n Hence,
C f = CT × ∑ (1 + id ) t (12)
80 1 1
t =0 CF / E = × × = 1.3726 × 10 − 5 S/ / kJ
where, 152.55 0.943 40,515.15
Cf = future value of LCC C F = 1.3726×10−5 × (2,778.07 − 431.90) × 0.6456 = S/ 0.0208 (3.172N / kg )
CT = present value of LCC CG = 0.0208 × (1 + 0.3) = 0.02704 S/ kg (4.125 N kg )
t = the reference year in which the CL was occurring
The operating cost per annum is given by:
id = annual depreciation rate
n = length of analysed period CO / annim = (1 + X ) × Q f × CG × Op Hrs
The value of CT can be expressed by (Rahman and ∴ CO / annim = (1 + 0.2) × 754 × 0.02704 × 4,186
Vanier, 2004): = 102,413.81 S/ / yr (15,623,226.00 N / yr )
CT = C L − SV (13)
The generating cost per annum is given by:
where, SV = salvage value, that is, the estimated value CO / annum
of the boiler at the end of its useful life. CG / annum = = CG × Q f × OpHrs
The annual depreciation of a fixed asset (1 + X )
without a salvage value can be determined by ∴ CG / annum = 0.02704 × 754 × 4,186
straight-lined depreciation method (Thumann and = 85,344.84 S/ / yr (13,019,355.00 N / yr )
Mehta, 2001; SLDM, 2011): The consumption cost per annum is given by:
Cost C I (14) CC / annum = CO / annum = 102,413.81 S/ / yr (15,623,226.00 N / yr )
A =
d =
Life n
It can be deduced from equation (6) that the cost of
where, Ad = annual depreciation, by implication, the
fuel per annum is given by:
book value of the asset would be zero at the end of n
years. Hence, the annual depreciation rate can be CG / annum
C F / annum = (17)
estimated by the following expression, (1 + 0.3)
A 1 (15) 85,344.84
id = d = C F / annum =
CI n (1 + 0.3)
Assuming disposal cost, CD = SV, then, from equation
= 65,649.88 S/ / yr (10,014,888.46 N / yr )
(11) and (13),
(16) The average life expectancy of a fire tube
CT = C I + CG / a
boiler is 30 years (CleaverBrooks, 2010; Bryan
0<t ≤n Boilers, 2008; VHA Directive, 2008; ETSAP, 2010).
The annual depreciation rate was estimated at n = 30 The initial investment cost (unit and installation cost)
years was estimated as $30,000.00 ( 4,576,500.00)
1 1 (Devotion, 2011; ETSAP, 2010).
∴ id = = = 0.0333 or 3.33% With:
n 30
CI = $ 30,000.00 ( 4,576,500.00)
3 Analysis CG/a = 85,344.84 $/yr (13,019,355.00 /yr)
The following data outlined below were ∴ CT = C I + CG / a = S/ 115,344.84 ( N 17,595,855.34)
used in the analytical computations of the simulation 0<t ≤n
process (Ohijeagbon, 2011). The annual depreciation rate was estimated at n = 30
CF = fuel cost, $ years
CF/E = fuel cost in dollars per energy value, $/kJ
1 1
hs = enthalpy of steam = 2,778.07 kJ/kg ∴ id = = = 0.0333 or 3.33%
hw = enthalpy of boiler feed water = 431.90 kJ/kg n 30
ηB = overall boiler efficiency, fractional = 0.6456 Assuming cost of fuel per annum is at an
CNGN/litre = cost of fuel in naira/litre = 80/litre (In inflation rate of 1%, and 3% respectively, hence, the
Nigeria @ 11 January 2011) future value of fuel can be estimated as follows:

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 I. O. Ohijeagbon et al./LAUTECH Journal of Engineering and Technology 6(2) 2011: 91 – 96

n
Cf /F = C F / annum × ∑ (1 + i f ) t (18) Table 1: Yearly and compounded cycle costs at
t =0 specific intervals
Yearly cycle cost Compounded LCC
where, Year
USD NGN USD NGN
Cf/F = future value of fuel 1 111,503.86 17,009,913.36 226,848.70 34,605,768.70
if = inflation rate = 1%, and 3% 5 97,377.08 14,854,874.12 636,949.35 97,166,622.58
10 82,208.24 12,540,867.20 1,077,301.30 164,342,312.98
15 69,402.31 10,587,322.97 1,449,057.75 221,053,760.38
4 Results and discussions 20 58,591.22 8,938,090.65 1,762,904.13 268,931,024.42
The yearly and compounded cycle and 25 49,464.22 7,545,766.25 2,027,861.31 309,350,243.41
30 41,758.97 6,370,330.15 2,251,544.99 343,473,188.75
future fuel costs of an LPFO utilized steam boiler at
specific time intervals of 5 years are presented in
Figure 1 shows the yearly and compounded cycle
Table 1and Table 2 respectively. The detail-yearly
costs of LPFO utilized steam boiler in Nigerian naira
values of the yearly and compounded cycle and
(NGN), the equivalent values in US dollars (USD)
future fuel costs throughout the entire life of the
are presented in Table 1. From Table 1 and Figure 1,
steam boiler are shown in Figure 1, while the
the yearly cycle cost decreased steadily from about
graphical representations of the yearly and
17 million to 6.37 million ($ 111,503.86 to $
compounded cycle and future fuel costs at specific
41,758.97) in the first year to its expiration time of 30
time intervals are shown in Figure 2 and Figure 3
years. This accounted for a decrease of 62.53% at a
respectively.
depreciation rate of 3.33% throughout the lifespan of
the boiler.

Table 2: Yearly and compounded future fuel costs at specific intervals

Yearly future fuel cost Compounded future fuel cost
Year Inflation rate = 1% Inflation rate = 3% Inflation rate = 1% Inflation rate = 3%
USD NGN USD NGN USD NGN USD NGN
1 66,306.38 10,115,037.34 67,619.38 10,315,335.11 131,956.00 20,129,926.00 133,269.00 20,330,224.00
5 68,998.68 10,525,748.42 76,106.20 11,610,000.55 403,879.00 61,611,745.00 424,650.00 64,780,404.00
10 72518.31 11,062,667.38 88,227.95 13,459,172.64 759,361.00 115,840,559.00 840,830.00 128,268,645.00
15 76,217.47 11,626,974.59 102,280.40 15,602,869.90 1,132,977.00 172,835,588.00 1,323,297.00 201,868,918.00
20 80,105.33 12,220,067.15 118,571.00 18,088,002.56 1,525,650.00 232,737,936.00 1,882,608.00 287,191,806.00
25 84,191.51 12,843,413.39 137,456.30 20,968,952.43 1,938,354.00 295,695,906.00 2,531,003.00 386,104,418.00
30 88,486.12 13,498,556.55 159,349.50 24,308,762.91 2,372,110.00 361,865,365.00 3,282,670.00 500,771,245.00

The compounded life cycle cost (LCC) increased
from 34.6 million 343.47 million ($
226,848.70 to $ 2.25 million). The increase in the
The yearly future fuel cost and compounded
future fuel cost respectively investigated at 1% and
3% inflation rate are shown in Table 2, Figure 2 and
Figure 3. The yearly future fuel cost at 1% and 3%
intersects the yearly cycle cost at about the 13th and
9th year as shown in Figure 1 and Figure 2
respectively. That is, the yearly future fuel cost will
quickly attain and surpass the yearly cycle cost at 3%
inflation rate compared with the yearly future fuel
cost of 1% inflation rate. Similarly, the compounded
future fuel cost will attain and surpass the
compounded LCC faster at 3% inflation rate
compared with the compounded future fuel cost of
compounded LCC was 89.93% at a depreciation rate
of 3.33% from the first year throughout the lifespan
of the boiler.
1% inflation rate at the 18th and 27th year as shown in
Figure 1 and Figure 3 respectively.
Since the average life expectancy of a fire
tube boiler is 30 years (CleaverBrooks, 2010; Bryan
Boilers, 2008; VHA Directive, 2008; ETSAP, 2010),
it would make for good economic and technical
judgement to replace the boiler once the future fuel
cost exceeds the compounded LCC of the boiler due
to reduced boiler performance with age.

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5 Conclusion
The LCCA of an LPFO operated steam
boiler reveals that the yearly cycle cost decreased
steadily from about 17 million to 6.37 million ($
111,503.86 to $ 41,758.97) in the first year to its
expiration time of 30 years. This accounted for a
decrease of 62.53% at a depreciation rate of 3.33%
throughout the lifespan of the boiler. The
compounded life cycle cost (LCC) increased from
34.6 million to 343.47 million ($ 226,848.70 to $
2.25 million). The increase in the compounded LCC
was 89.93% at a depreciation rate of 3.33% from the
first year throughout the lifespan of the boiler.
95
The yearly future fuel cost attains and
surpass the yearly cycle cost at 3% inflation rate
compared with the yearly future fuel cost of 1%
inflation rate. Similarly, the compounded future fuel
cost attains and surpass the compounded LCC faster
at 3% inflation rate compared with the compounded
future fuel cost of 1% inflation rate. Therefore, the
rate of inflation of fuel cost was responsible for the
break-even period in the life cycle cost of steam
boiler operation.
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