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

2023
 Lecture 3

Methods of Economic Selection

• First the total energy needed per year and peak demand are determined.

• Selecting power supply such as hydraulic power plant, steam power plant, gas power plant, I.C power plants, nuclear power
plants.

• Eliminate some choices based on other controlling factors: nonavailability of water power sites, unit capacities are too
small for the size of demand, inability to obtain certain fuels at economic prices in certain areas, lack of large water supply.

• When the type of plant is decided there are wide variety of designs to choose from.

• In case of steam-turbine plant the choice may be basic Rankine cycle, reheat, regenerative, also the throttle pressure and
temperature of the power cycle.

• Also, the choice of the basic equipment of certain power plant will affect the cost.
 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= (fuel+ supplies+ labors+ supervision+ maintenance+ taxes)

• 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 38.00 42.00 51.00

-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 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 221,000 233,000 260,000

Annual operating charge 492,000 432,000 396,000
Total Annual Costs 713,000 665,000 656,000