HUYNH Thi Minh Thu, Ph.

D
thuhtm@hcmute.edu.vn
093 5060 700
 Content

1. Technical assessment

2. Economical feasibility

2.1 Payback Period

2.2 Net Present Value_NPV

2.3 Internal Rate of Return_IRR

2.4 Life Cycle Cost

13 Comparisons Between Front Load and Top Load Washing Machine in India (homezene.com)
 Energy project/Energy Efficiency project
To reduce risk and ensure success, it is important to consider the overall
feasibility of any energy efficiency measures prior to execution.
• What are the key technical, environmental, and planning issues and
risks associated with the project?
• What is the projected return on investment?
• What is the most appropriate solution for your project?
• What types of funding or rebates are available to offset upfront costs?

Technical

Economical

…
 1.

Technical assessment
 Improve Power
1. Technical feasibility
Supply system

Awareness Energy Select “Right”

Management Equipment

Build Action Plan and

indicators

For an Energy project:

• Replace Power Supply resources

• Replace existing equipment by the higher energy-efficiency one.
• Replace the whole existing production line by a more effective one.
• ….
 1. Technical feasibility

Criteria in the technical assessment:

• Energy savings
• Impact of machinery’s durability
• Compatibility of equipment throughout the entire production line
• Requirements for Operational skills of the operators
• Impact on Maintenance costs
• Impact on the Operation cost of the business
• Available of the equipment installation: space…
• Modernity…
 1. Technical feasibility

Weighted average is an average in which each quantity to be averaged is assigned a weight. These weightings
determine the relative importance of each quantity on average. Weightings are the equivalent of having that many

x1 w1  x 2 w2  ...  x n wn
like items with the same value involved in the average.

x
w1  w2  ...  wn
Criteria 1 (x1) Criteria 2 (x2) Criteria… (x…) Criteria n (xn) Total points

Weight (w1) Weight (w2) Weight (w…) Weight (wn)

Plan A
Plan B
Plan C

 Based on experts’ opinions & existing conditions gives weighting.

 Determining the minimum score to be achieved
 1. Technical feasibility
wi xi wi*xi

Total
 2.

Economical/Financial feasibility
 2. Economical/financial feasibility

Technique for evaluating capital investment:

2.1 Payback Period

2.2 Net Present Value_NPV

2.3 Internal Rate of Return_IRR

2.4 Life Cycle Cost

 2.1 Payback Period 2. Economical/financial feasibility

… refers to the length of time required for an investment to recover its initial outlay in terms of profits or
savings.

Payback Period = Cost of Investment ÷ Average Annual Cash Flow

2.1 Payback Period 2. Economical/financial feasibility

Task 3.1_Simple payback period

Realizing the hot-water demand of the hotel only for service activities with the required
temperature <60C, the consulting team has come up with a solution to invest in Solar Water
heater System as in the Table.

Investment cost (VND)

500,000,000

Annual saving (kWh/yr)

60,000

Electricity price (VND/kWh)

2,000
Annual savings (VND/yr)
Payback period (yr) Typical electrical water heater
Typical solar water heater
 Task 3.2_Payback period
Corporate Income Tax (CIT)

• All taxes are imposed at the national level. The standard corporate
income tax (CIT) rate is 20%.
 Task 3.2_Payback period
Depreciation
• Depreciation is any method of allocating such net cost to those
periods in which the organization is expected to benefit from the use
of the asset.
• Depreciation is a process of deducting the cost of an asset over its
useful life. Assets are sorted into different classes and each has its
own useful life.
• Depreciation of an asset begins when it is available for use, meaning,
when the asset is in the location and condition necessary for it to be
capable of operating in the manner intended by management.
Depreciation ceases when the asset is derecognized.
Depreciation
Depreciation method: straight line

Annual depreciation=(Cost–Residual Value) / Life in years

Task 3.2_Payback period

2.1 Payback period’s Notes 2. Economical/financial feasibility

 The payback period is the length of time it takes to recover the cost of an investment or
the length of time an investor needs to reach a breakeven point.
 Shorter paybacks mean more attractive investments, while longer payback periods are
less desirable.
 One of the downsides of the Simple payback period is that it disregards the time value
of money.
 2. Economical/financial feasibility
The time value of Money

Example: assuming a 10% annual interest rate, 500,000,000VND in a savings account will be worth?

Task 3.2_Payback period

2.2 Net Present Value_NPV 2. Economical/financial feasibility

… Net present value (NPV) is the difference between the present value of cash inflows and the
present value of cash outflows over a period of time.
2.2 Net Present Value’s Notes 2. Economical/financial feasibility

 Net present value, or NPV, is used to calculate the current total value of a future stream
of payments.
 If the NPV of a project or investment is positive, it means that the discounted present
value of all future cash flows related to that project or investment will be positive, and
therefore attractive.
 To calculate NPV, you need to estimate future cash flows for each period and
determine the correct discount rate.
 One important drawback of NPV analysis is that it makes assumptions about future
events that may not be reliable.
2.3 Internal Rate of Return_IRR 2. Economical/financial feasibility

Net Present Value

𝑖 = Discount rate

Internal Rate of Return (IRR) Definition (investopedia.com)

2.3 Internal Rate of Return_IRR 2. Economical/financial feasibility

Internal Rate of Return (IRR) Definition (investopedia.com)

2.4 Life Cost Cycle Analysis_LCCA 2. Economical/financial feasibility

Source: Life Cycle Cost Analysis - Overview, How It Works, Applications (corporatefinanceinstitute.com)
2.4 Life Cost Cycle Analysis_LCCA
a data center server, for example, one might tally
purchase price, repairs, maintenance,
upgrades, service or support contracts,
network integration, security, software
licenses and end-user training
2. Economical/financial feasibility
•Purchase: The price is $2000.
•Installation: Pend an additional $50 for setting up
and delivery purposes.
•Operating: Spend $900 for ink cartridges and paper
for it. The total cost of electricity will be expected at
$300.
•Maintenance: Repairs will cost $500.
•Financing: Credit card interest rate of 4% per
month. (2000*4%)
•Depreciation: Value will be reduced by $100 each
year.
•Disposal: Estimation of hiring a contractor to remove
the printer is $ 150.
2.4 Life Cycle Cost Analysis_LCCA 2. Economical/financial feasibility

Example: Replacement of a 100-W incandescent lamp by a 15-W LED?

Incandescent Lamp LED

Rated power (kW) 0.1 0.015
Rated lifetime (h) 1,000 20,000
Initial cost (VND/pcs) 9,000 90,000
Required lighting hours per year (h/yr) 4,000 4,000
Electricity price (VND/kWh) 2,000 2,000
 2.4 Life Cycle Cost Analysis_LCCA 2. Economical/financial feasibility

Life Cycle Analysis of Vehicles

Internal Combustion Engine Vehicle (Ford Focus): 4.2MJ/km

Electric Vehicle (Mitsubishi i-MiEV): 2.0MJ/km

Source: Life Cycle Analysis of Electric Vehicles_Quantifying the Impact (Balpreet Kukreja, 2018)
2.4 Life Cycle Cost Analysis_LCCA 2. Economical/financial feasibility

Source: http://evtc.fsec.ucf.edu/research/project6.html?msclkid=18bd7deccf4711ec87173f548c49c483
2.4 Life Cycle Cost Analysis_LCCA 2. Economical/financial feasibility

Source: http://evtc.fsec.ucf.edu/research/project6.html?msclkid=18bd7deccf4711ec87173f548c49c483
2.4 Life Cycle Cost Analysis_LCCA 2. Economical/financial feasibility

Source: http://evtc.fsec.ucf.edu/research/project6.html?msclkid=18bd7deccf4711ec87173f548c49c483
Photovoltaics Provide Zero-Energy Transportation