Cost-Benefit Analysis
The main economic principle for assessing the economic value of any assets is that their value to investors be equal to the net present value of the expected future cash flows generated by those assets.
Decision makers in utilities face numerous choices in the day-to-day business, e.g. options in optimizing design, in scheduling maintenance, in planning revamping, et cetera. The long term cost effectiveness of a project is much more important than the initial investment or the operating costs in the short-run.
Fair, straightforward and transparent methods to support investment decisions, such as cost benefit and life cycle cost analyses, are of vital importance in the different fields of the energy supply chain of today. Cost benefit analysis and Life Cycle Costing (LCC) support managers and engineers and can be applied to:
- affordability studies - to measure the impact of a system or project on long-term budgets and operating results; assessment of economic viability or products and projects; and identification of cost effective improvements
- design trade-offs - to influence design criteria of installations and equipment that directly impact the total cost of ownership - selection, evaluation and comparison of alternative designs
- source selection studies - compare the estimated cost over the life time of the asset against competing systems or suppliers of products and services - selection, evaluation and comparison of replacement options, life extension or disposal of aging parts of entire infrastructures or equipment
- repair level analysis - quantify maintenance demands and costs
- strategy evaluation - evaluation and comparison of alternative strategies, such as intensified maintenance versus replacement of equipment.
KEMA has developed tools which are well suited to support the decision making process. For instance, our Life Cycle Costing tool can be used in the earliest stage of a project or feasibility study, as well as in the design phase of a project.
Our recent cost-benefit and LCC projects include:
- financial comparison, based on the Life Cycle Cost of six design options for the replacement of a 380 kV GIS installation
- the ranking of pre-selected locations for a Dutch 380 kV substation to connect a HVDC cable to the Dutch grid
- design trade-offs in order to lower the cost of a 150 kV transmission line
- comparison of future scenarios to optimize between replacement, refurbishment and intensified maintenance on 132 kV and 400 kV overhead lines in Asia.