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Justifying Back Up Equipment Purchase


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#1 kebx3vau

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Posted 23 April 2014 - 08:54 PM

Hi there,

 

I have a question and would like to hear your thoughts on it. Firstly, let me pose the scenario of the problem;

 

Given an owner of combined heat and power plant is considering to purchase a back up for an exisiting 500kW turbine with an availability of 90% (not functioning 10% of the time). This turbine generates power and supplies the power to the grid at a cost rate of RM 0.31/kWh and is expected to run for about 15 years.

 

The only options available for purchase are two units of 250kW turbines (costing a total of RM 760 000). The owner would like to know if buying these two new 250kW turbines is worth covering the possible losses experienced when the 500kW turbine is not available.

 

My question is, how can I justify or investigate whether the two 250kW back ups is worth buying to avoid the losses or whether it is worth letting the turbine shut down for 10% of the time.

 

Is it plausible for me to calculate the possible revenue that might be lost in the 10% of time and compare it with the costs of the back up turbines? If the revenue lost if very high then it is justified for the owner to buy those back up turbines. Would appreciate your thoughts on this. Thank you for your time.

 

Best Regards,

 

Vik 



#2 breizh

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Posted 23 April 2014 - 10:38 PM

What is happening during the 10% shut down of the turbine?  All activity is down ?  How do they operate ? Need to purchase electricity ?

 

Hope this helps

Breizh



#3 kebx3vau

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Posted 24 April 2014 - 07:14 AM

Thank you Breizh for your reply.

 

10% of the time, the turbine will be down for maintenance and other equipment will still be running but the total profit will not be the same, in fact it will decrease. So in order to maintain the profit, back up turbines should be made available.

 

But is it worth doing so? Or is it better to just suffer the loss? At present, purchasing electricity will not be considered. . 



#4 breizh

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Posted 24 April 2014 - 08:14 AM

You need to do a pay back analysis . Investment versus keeping the operation running . In other words how many year to get the return on investment ?

 

Hope this helps you .

Breizh



#5 kebx3vau

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Posted 24 April 2014 - 08:30 PM

Thank you for your response

 

I've done a quick calculation and would like to share it here with you to see if it makes sense;

 

I've calculated that if the turbine is shut down, the possible revenue lost is about RM 1.2 Million for the 15 years of plant operation. This was determined by taking 10% of 15 years = 1.5 years = 7500 hours (1 year = 5000 hrs of operation) and the 500kW x 7500 hrs x 0.30 RM/kWhr = RM 1.2 Million.

 

From here, If I were to keep the plant running, I would invest in the back up turbines, which costs RM 760 000. This means I will retain the revenue of RM 1.2 Million.

 

So the payback analysis is as such;

 

1.2 Million/ 760 000 = 1.6 years.

 

Am I doing this right? Or should I be considering the total revenue of the plant (when this turbine is shut down) instead of the possible revenue lost?



#6 thorium90

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Posted 24 April 2014 - 09:41 PM

1 year has 5000hrs? Not from planet Earth eh?

Edited by thorium90, 24 April 2014 - 09:43 PM.


#7 breizh

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Posted 25 April 2014 - 01:40 AM

Should be : [ Cost / (revenue /year)] to get year , the shorter the better .

 

Good luck

 

Breizh



#8 thorium90

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Posted 25 April 2014 - 03:04 AM

Anyway, 500kW is not big at all. A diesel generator can easily meet that power for much less with much less maintenance cost. Also, what turbine are we talking about here?
In my view, if you could afford to buy another 500kW of generating equipment, then why let it sit idle for 90% of the time? I think it would be more sense to run all 1MW of unit and stagger the downtime for each of them to maximise total grid time.

Edited by thorium90, 25 April 2014 - 03:07 AM.


#9 Bobby Strain

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Posted 25 April 2014 - 08:06 PM

The whole story seems strange to me. And the payout calculation is nowhere near correct. Run through a few years and you can clearly demonstrate the logic error.

 

Bobby






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