Port Said University ‫ﺟﺎﻣﻌـــﺔ ﺑـﻮرﺳــﻌﯿـﺪ‬

Faculty of Engineering ‫ﻛﻠــﯿﺔ اﻟﮭــــﻨﺪﺳﺔ‬

Mechanical Power Eng. Dept. ‫ﻗﺴﻢ ھﻨﺪﺳﺔ اﻟﻘﻮى اﻟﻤﯿﻜﺎﻧﯿﻜﯿﺔ‬

4th Year Mechanical Power

Dr. Mohamed Hammam

2020
 Lecture 4

Methods of Economic Selection

 Annual Costs
• For power plants of the same capacity and type increasing the efficiency of the plant increase the Annual Fixed
charge and reduces the Annual operating costs

• Annual Fixed charge 𝐶𝐶𝑓𝑓 :

𝐶𝐶𝑓𝑓 = 𝑅𝑅𝑅𝑅

𝑅𝑅: Fixed charge rate = ( interest ratio + depreciation ration+ tax and insurance ratios)

P: Capital investment $

• Annual total cost C:

𝐶𝐶 = 𝐶𝐶𝑓𝑓 + 𝐶𝐶𝑜𝑜

𝐶𝐶𝑜𝑜 : total operating costs

• Point of minimum total annual costs occurs at optimum investment costs P* at which

𝑑𝑑𝑑𝑑 𝑑𝑑𝐶𝐶𝑜𝑜 𝑑𝑑𝐶𝐶𝑓𝑓

• =0 = - = -R
𝑑𝑑𝑑𝑑 𝑑𝑑𝑑𝑑 𝑑𝑑𝑑𝑑
 Total Annual Cost Method
Example :

An industrial plant needs 50,000,000 kwh of electrical energy a year with a maximum demand of 10,000 kW. These can be
purchased from the local utility for $ 480,000 annually. As an alternate scheme the industry consider installing a 10,000 kW
steam-turbine plant. The three plants in table 1 has been proposed:

The station will run 24 hr a day with operators working 8 hr per day and 5 days a week. The average annual salary for
operators is $ 5,200 . Repair costs are estimated to be 90 cents per ton of coal burned for all schemes. The installed costs
exceed original estimates by 20 %. General operating supplies are estimated at $10,000 annually for all plans. Money earns at
least 6 % in this business, which is expected to continue indefinitely, but the life of the plant is to be taken as 15 years.

Taxes on real estate and property amount to 4% and the various operating taxes add to 1 % of annual operating costs.
Annual insurance premiums equal 0.2 % of all equipment costs. Fuel will be coal at $ 6.5 a ton having a high heat value of
14,200 Btu per lb. Determine which scheme is the economic one.
 Table 1 Alternate plant schemes.
Plant A Plant B Plant C

Throttle steam condition

-Pressure, psig 200 400 900

-Temperature, ºF 550 700 850

Station steam rate (full load), lb per kwh 11.8 10.5 8.5
Average station heat rate, Btu per kwh 16,000 13,500 12,000
Unit Installation Costs:

-Steam generators and auxiliary $ per lb/hr capacity 4.08 4.73 6.45

-Steam turbine and auxiliary, $ per kw capacity 38,0 42,0 51,0

-Electrical equipment, $ 200,000 200,000 200,000

-Structures and miscellaneous, $ 200,000 200,000 200,000

Plant operators per shift 4 4 4

 Final Results

Table 2 Final answer for R = 14.5%, Fuel Costs $6.5 per ton.

Total Annual costs Plant A Plant B Plant C Utility service

$ $ $ $

Annual fixed charge 221,000 233,000 260,000 -

at R = 14.5 %
Operating Costs 309,000 277,000 258,000
Total Annual Costs 530,000 510,000 518,000 480,000
 Influence of Fixed-Charge Rate
• Assume the fixed charge rate reduces to 7% instead of 14.51 %

• The reduction in fixed-charge rate would be brought about by smaller

cost of money use, or longer life span, or both.

• The plant with highest investment will have the largest impact on the
total cost.
Table 3 Final answer for R = 7%, Fuel Costs $6.5 per ton.
Total Annual costs Plant A Plant B Plant C
$ $ $

Annual fixed charge at R = 7 % 106,000 113,000 125,000

Operating Costs 309,000 277,000 258,000
Total Annual Costs 415,000 390,000 383,000
 Influence of Annual Operating Costs

• IF the purchase price of fuel is increased to $13 per ton at the same fixed charge rate, the plant of the highest investment
will have the largest impact on the total annual costs.

Table 4 Final answer for R = 14.5%, Fuel Costs $13 per ton.

Total Annual costs Plant A Plant B Plant C

$ $ $

Annual fixed charge at R = 7 % 221,000 233,000 260,000

Fuel Costs $13 per ton 492,000 432,000 396,000
Total Annual Costs 713,000 665,000 656,000