Investment Economics of Industrial Gas Turbines

The application of industrial gas turbines generally requires more than a detailed energy system analysis. Usually the engineer must “prove-in” his project design to assure that it meets management’s criteria for profitability Several different economic evaluation methods have evolved and there is no one universally accepted practice. This paper illustrates a method of reducing a detailed engineering system design, such as an industrial energy system, to an economic evaluation. This includes developing the minimum investment base case and one or more alternatives which trade off higher first costs for lower operating costs, and then reducing all cases to cold cash — investment and operating costs. Next, three economic evaluation yardsticks are discussed: payout, discounted cash flow, and total owning and operating costs using fixed charges on investment. Advantages and disadvantages of each are pointed out. This includes a discussion of taxes, depreciation, investment tax credit, cash flow, and the time value of money. Finally, computer methods of discounted cash flow are illustrated including a problem with variable annual operating costs. This sets the stage for a “hands on” workshop session using a computer terminal following the presentation.