Chap 37 PDF

The Babcock & Wilcox Company
Chapter 37
Equipment Specification, Economics
and Evaluation
Accurate and complete technical specifications are 5. combustion technology,

critical to the successful development of any new project. 6. site location and arrangement logistics, includ-
Steam generating and environmental emissions control ing construction feasibility,
systems are complex and typically require the evalua- 7. stack emissions and air quality control system
tion of many competing factors to select the equipment technology,
and potential options that best meet project needs. 8. reagent type(s),
Each application of new or upgraded equipment has 9. solid waste disposal logistics, and
a number of unique factors and requirements that 10. water quality and treatment.
need to be identified and communicated to the equip-
For a utility power plant, the need for new gener-
ment or system designer/supplier. Specifications
ating capacity is identified from the forecast of both
should be developed to document these needs. How-
peak and average long-term electrical demand (load).
ever, the developer of those specifications should also
The overall power and steam generation plan must
allow the equipment designers flexibility to adapt their
also recognize unit retirements within the system,
products to best meet the true requirements of the
spinning reserve, reserve for scheduled and unsched-
project. There are often multiple options or alterna-
uled outages, and current generating equipment mix.
tive solutions that can be considered. The solution
The specific power plant type selected is based upon
should be selected after evaluating the initial capital
an evaluation of the amount and type of demand, as-
investment in conjunction with several variables in-
sessment of current boiler types and sizes within the
cluding the relative longer-term operating and main-
system, long-term fuel availability and cost, condens-
tenance cost benefits, feasibility of obtaining required
ing water supply, new equipment types available,
regulatory construction and environmental permits,
environmental impact and, in many cases, public opin-
ability to meet varying operating conditions during the
ion. Extensive feasibility studies are typically con-
life of the equipment, and costs associated with the dis-
ducted to provide such data.1,2
ruption or outage of existing equipment during con-
For an industrial installation, the needs are usu-
struction or tie-in.
ally tied to process steam or heating requirements. The
The following discusses some of the primary factors
timing of equipment addition, the steam flow rate, and
that should be considered when developing and plan-
the frequency of operation are governed by the ap-
ning a project requiring new or upgraded steam gener-
plication. In addition, with the growth of cogenera-
ating or environmental control systems. It describes key
tion and independent power production, steam sup-
technical and commercial criteria that should be devel-
ply needs have been increasingly influenced by the
oped and communicated to the equipment suppliers.
demands of electrical power production. In all cases,
the steam flow requirements will determine the type,
Project feasibility studies and size and number of steam generating units. Particu-
technology selection lar attention should be given to the variety, cost and
availability of fuel sources. Process byproducts, waste
Before detailed equipment specifications can be
materials and waste heat offer potential low-cost
developed, groundwork is required to establish the
sources of energy that can be used to displace the use
basic project needs and evaluate major alternatives.
of higher-cost traditional fuels to meet industrial
Some aspects that should be evaluated during the
steam generation needs.
early feasibility stages include:
For projects involving addition of emissions control
1. steam capacity requirements, systems to existing boilers, many of the design condi-
2. range of plant operating conditions, tions for the system are typically established by the
3. steam cycle conditions (pressure/temperature), current boiler operations. However, issues such as
4. fuel type(s), technology selection, reagent type(s), solid waste dis-
Steam 41 / Equipment Specification, Economics and Evaluation 37-1

posal, and water treatment requirements should be The specification should also define how the equip-
considered and evaluated during early stages of project ment or system design will be integrated into the
development. It may also be important to evaluate po- overall project. The following is a list of typical project
tential future changes in environmental permitting definition information that needs to be included in a
requirements and operating conditions, such as the use specification to an equipment supplier:
of an alternate fuel type, that could affect equipment 1. complete scope of work, including the definition
sizing or even technology selection. and location of all terminal and interface points
For repair and retrofit projects, the evaluation is fo- within the overall plant or existing facilities;
cused on the scope being considered. However, appro- 2. site-specific requirements, design conditions, lay-
priate additional consideration should be given to other out/arrangement limitations, delivery logistics,
factors potentially being affected by the repair or retro- and access restrictions, among others;
fit. Examples include delivery schedule to meet outage 3. plant standardization requirements (if applicable);
requirements, changes in emissions rates, and effects on 4. project schedule, including equipment delivery,
auxiliaries such as fans and downstream equipment. construction and startup/commissioning, consis-
During these early stages, it is often helpful to ob- tent with the scope of work definition;
tain input from the equipment suppliers. On large, 5. commercial contract terms and conditions; and
complex projects, some plant owners and project de- 6. evaluation criteria/factors to be used in assessing
velopers have found it valuable to form a strategic design and operating tradeoffs.
alliance or partnership with a qualified equipment
supplier. As the project develops, such a business Beyond these items, it is usually appropriate to only
model can help to evolve the design of a unique or specify material and workmanship quality require-
customized new system. This alternative business ments, allowing potential suppliers to apply their ex-
structure will be discussed later in this chapter. perience and knowledge to propose the most depend-
able and cost-effective design.
Specifications Performance – steam generating equipment
Once the major feasibility issues and alternatives Performance specifications, defining the functional
have been evaluated and established, specifications requirements for utility, industrial and environmen-
need to be developed. These specifications provide a tal equipment, are summarized in the following sec-
definition from which the primary equipment or sys- tion. For steam generating equipment, this generally
tem will be designed and by which that equipment will consists of steam flow, steam temperature and pres-
be integrated into the overall project. sure, feedwater temperature and quality, fuel, boiler
Specifications can vary in detail but as a minimum, system efficiency, emissions requirements, and perfor-
performance and functional requirements need to be mance guarantees.
defined. The basic design is derived from the functional Steam flow Primary performance specifications in-
requirements of the application. The equipment de- clude the steam flow requirements. For utility and
signer needs to know the key characteristics of all ma- other units that produce steam for electric power gen-
jor system inputs and all performance output require- eration, these usually include:
ments. This information is essential for setting vital 1. maximum continuous rating (MCR),
system design parameters such as size, capacity, ma- 2. performance load steam flow rate (to match opti-
terials, equipment redundancy level, etc. mal turbine heat rate load),
The design specification for new or replacement 3. minimum steam flow rate,
steam generating equipment should include at least 4. type of service (base load, cycling or peaking), and
the following information: 5. expected cycle of operation.
1. steam flow characteristics
2. steam temperature and pressure conditions In power station practice, typically one boiler is
3. feedwater supply matched to an individual turbine-generator set rang-
4. fuel type(s) and characteristics, including ash ing from 25 to 1300 MW. Depending on the load re-
properties quirements, one or more steam generating units are
5. boiler efficiency requirements purchased. In general, economies of scale dictate the
6. emissions requirements purchase of the fewest number of units possible to
7. performance guarantees and test conditions meet overall load and system requirements.
For some industrial units, specified steam flow re-
The design specification for new or replacement quirements include:
environmental control systems should include at least
the following information: 1. maximum steam flow capacity,
2. turndown (ratio of maximum to minimum load), and
1. conditions and composition of flue gas and flyash
3. expected steam load pattern variations (daily,
entering the system
weekly or seasonal).
2. emissions performance requirements
3. reagent type(s) and characteristics However, in some industrial applications the pri-
4. solid byproduct quality requirements mary function of the steam generator is to consume
5. wastewater quality limitations or process a quantity of fuel. In such cases, the fuel
6. makeup water composition input is specified and steam capacity is determined
7. performance guarantees and test conditions indirectly from the maximum fuel input rating.
37-2 Steam 41 / Equipment Specification, Economics and Evaluation

Industrial unit operators frequently prefer multiple flexibility in the selection of steam pressure and tem-
smaller boilers rather than a single large unit, giving perature, interaction with the steam system supplier
them more operating flexibility while maximizing may permit selection of a more economical set of oper-
steam system availability. It is normally critical that ating conditions.
the industrial process be available at all times and not Feedwater The temperature and chemical analysis
be limited by the steam generating system. Typically, of the feedwater must be specified. The minimum re-
the number of steam generating units is established quired feedwater temperature is one of the components
by assessing the load pattern, load duration, availabil- that establishes boiler output (firing rate) and the
ity requirements, maintenance periods, types of boil- water chemistry will affect water treatment needs.
ers in the system, sources of backup steam or auxil- Recommended water chemistry specifications are pro-
iary power, and possible future expansion plans. Mini- vided in Chapter 42. For small units, a deaerator
mum standby requirements are set by the minimum treats the feedwater before it enters the boiler. The
required steam flow plus an allowance for routine resulting feedwater temperature is typically 220 to
maintenance and forced outages. Where the load is 240F (104 to 116C). Oxygen in the feedwater must
seasonal and steam is not a critical process require- be minimized to prevent internal boiler corrosion.
ment, standby may not be required. Where steam is In larger high temperature, high pressure boilers,
required throughout the year, some level of economi- feedwater heaters are used to improve cycle efficiency
cal excess capacity will be needed (see Table 1). as discussed in Chapter 2. If increased output (MWs)
The number of units to be installed needs to be is desired when feedwater heaters are out of service,
evaluated on the basis of total cost, including initial then this design requirement needs to be conveyed
capital cost, when compared with tradeoffs in thermal along with the applicable feedwater temperature and
efficiency and the true value of availability or cost steam flow conditions. If turbine heat balances are
penalty for unavailability. The cost for more, smaller provided for all operating conditions as part of the
units will be greater than the cost for fewer, larger specification, feedwater temperature requirements will
units. However, if the larger units will be operated for inherently be included. In any case, the feedwater
a significant amount of time at reduced load, the ef- temperature needs to be specified for all boiler condi-
fective thermal efficiency will be lower and operating tions over the load range.
fuel-related costs will be higher. In addition, install- Fuel The selected fuel has a major impact on steam
ing a number of smaller units over time can defer generating equipment design and capital cost due to
capital costs until the additional capacity is required. the type of combustion equipment, fuel delivery/pro-
Steam temperature and pressure For utility applica-
cessing equipment, fouling and erosion characteris-
tions, a turbine-generator set is generally specified, tics of the flyash, and heat transfer properties of the
and therefore the turbine cycle selected will determine flue gas (including moisture content). Refuse fuel, bio-
the pressure and temperature relationships. As part mass and most byproduct or waste fuels require sig-
of the specifications, the complete turbine heat balance nificantly different combustion systems than pulver-
at various operating conditions such as minimum load, ized coal, oil or natural gas and can also result in dif-
control load, and full load should be provided to give ferent boiler corrosion characteristics. Boilers designed
the designers more insight into system requirements. to fire multiple fuel types require a compromise be-
The turbine specifications will typically establish ac- tween the various fuels, particularly for steam tem-
ceptable deviation limits in outlet steam temperature perature control. They therefore may be more expen-
as well as the maximum rate of change. Constant sive than boilers designed to burn a single fuel type.
pressure operation or variable pressure operation, each Furthermore, boilers designed to accommodate mul-
with advantages and disadvantages, may be selected tiple classifications of a fuel type, such as bituminous
to meet operator needs. (See Chapter 26.) Constant and subbituminous coals, will require the application
pressure versus variable pressure operation also has of some tradeoffs in the design of the boiler, fuel prepa-
a significant impact on supercritical pressure boilers ration equipment, and combustion system. Designing
as referenced in other chapters. When the application for multiple fuel types and classifications is especially
calls for superheat and reheat steam conditions, the challenging for supercritical boilers by further com-
load range and load pattern will help determine the plicating the design requirements for the circulation
steam temperature control ranges. The benefits of system to accommodate a wider variation in heat
higher steam temperatures at lower loads must be transfer rates through the critical furnace steam/wa-
compared to the higher costs of providing an extended ter circuits. Environmental equipment design require-
range. The evaluation penalties and allowable varia-
tions in steam temperature will also affect the type of
Table 1
temperature control system included. Allowance must Boiler Capacity with Standby Units
also be made for pressure and heat loss from piping
between the boiler outlet and the steam use location. Total Number Number of Per Unit Total
Typically, the heat loss is negligible with today’s insula- of Units Standby Units Capacity, % Capacity, %
tion products and application techniques. It is normally 2 1 100 200
left to the supplier to determine the appropriate design 3 1 50 150
margin necessary to achieve the specified steam pres- 4 1 33 133
sure and temperature conditions at the terminals. 5 1 25 125
In industrial applications where there may be some

ments can also be significantly different when de- organic compounds (VOC). These emissions have a sig-
signed for multiple fuel types and classifications. nificant impact on design requirements of the combus-
Complete analyses should be provided for all fuels tion system, boiler and NOx control systems and there-
being considered. For each fuel, ultimate analysis, fore need to be defined. Further, test methods such as
proximate analysis, heating value and ash analysis applicable Environmental Protection Agency (EPA) test
should be provided in accordance with applicable methods, test duration, e.g., three-hour test period, and
American Society for Testing and Materials (ASTM) test conditions, e.g., boiler load range, should be docu-
or equivalent international standard requirements. mented to ensure each party has a common under-
The buyer normally provides a range analysis that in- standing of all requirements and conditions. Other
dicates the extreme values (low and high) for each con- emissions, captured by downstream environmental
stituent. However, a fuel analysis derived statistically equipment, are discussed later in this section.
from such constituents may represent an erroneous Performance guarantees Specific guarantees are
and unrealistic combination. It is best to provide a set normally a function of the scope structure discussed
of actual fuel analyses, which comprise the range, to later in this chapter. They normally include items that
enable suppliers to appropriately design and size the can be controlled by a specific piece of equipment and
equipment. The analyses should be provided as mois- items that support the overall plant performance. Ul-
ture and ash free, moisture free and/or as-fired. Addi- timately these are capacity, net plant heat rate (NPHR),
tional information needed includes as-received solid fuel stack emissions, reagent use, and other operating fac-
sizing, liquid fuel viscosities, and liquid/gaseous fuel tors such as water usage and waste disposal. Specific
pressures. The effect of the fuel and ash on unit de- guarantees relating to the steam generator scope that
sign is discussed in Chapter 21. impact NPHR and stack emissions usually include
Boiler system efficiency Maximizing boiler operat- MCR capacity, boiler efficiency, auxiliary power con-
ing efficiency minimizes fuel usage and reduces costs. sumption, water and steam side pressure drop, super-
To achieve the highest efficiency, heat traps are used heater and reheater steam temperature control range,
to extract the last heat from the flue gas. Heat traps spray water quantities, and NOx, CO, and VOC emis-
include air heaters and economizers. (See Chapter 20.) sions. If the spray water source is downstream of the
The temperature of the flue gas exiting the final trap feedwater heaters, then heat rate is not impacted by
should be low to maximize boiler efficiency. However, superheater spray and is therefore not considered. For
it should normally exceed the acid dew point of the subcritical drum type boilers, steam purity is commonly
gas to avoid corrosion and other operating problems included.
in the last heat trap and in any downstream equip-
Performance – environmental control systems
ment. In addition, some environmental control equip-
ment such as dry flue gas desulfurization (DFGD) Flue gas conditions and design heat input Environ-
systems requires the entering gas temperature to be mental control systems are designed to reduce the level
somewhat higher for proper operation. of regulated pollutants such as NOx, sulfur dioxide
Utility applications commonly use both an econo- (SO2) and particulate matter present in the combus-
mizer and an air heater. On other steam generating tion product gases (flue gas) that leave the steam gen-
applications when a single heat trap is required, an erator. The size, function and design of these systems
air heater is usually chosen to aid in combustion of are dependent on the chemical composition, tempera-
pulverized coal, wood or biomass. For other fuels, an ture and volume of the entering flue gas. If the envi-
economizer is frequently selected because of lower cost, ronmental control system is to be supplied with the
possible increased efficiency, and reduced nitrogen boiler as an integrated system, the boiler design condi-
oxides (NOx) levels compared to an air heater instal- tions for steam requirements, feedwater, fuel (includ-
lation (increased air temperatures can promote NOx ing the range of the chemical composition of the fuel
formation in the furnace). and ash) plus the ambient conditions will provide the
If the boiler supplier is to design the heat traps ef- input required to define the range of flue gas operat-
fectively, the specification should include evaluation ing conditions relevant to integrated system design.
factors such as fuel cost and capitalization period. For If the environmental control system is to be supplied
competitive bids, it is also prudent for the buyer to separately, the following information for the flue gas
specify the design exit gas temperature so that the entering the system should be defined in the specifi-
impact on boiler efficiency between competing designs cation:
is normalized. Minimum exit gas temperature is typi-
cally set by corrosion and operating concerns of down- 1. chemical analysis of the flue gas, including con-
stream equipment and should be consistent between centration of the pollutant(s) to be controlled,
boiler suppliers. 2. temperature of the flue gas,
3. chemical analysis and type of flyash, and
Environmental limits Meeting appropriate envi-
4. flow rate of the flue gas (on a mass and volumet-
ronmental emissions limits is essential. Joint discus-
ric flow rate basis).
sions between the buyer, equipment suppliers and
regulating agencies are recommended at early phases It is important to provide the design range of each
of project development to ensure a clear understand- of these items at maximum and minimum operating
ing of permissible and achievable emissions limits. loads to ensure that the system can accommodate
Emissions controlled by the steam generating equip- normally expected operating variations. A chemical
ment include NOx, carbon monoxide (CO), and volatile analysis of the design fuels and the boiler design heat

input rate are also helpful when correlating the speci- streams may be desirable to use as makeup water in
fied flue gas conditions with the expected fuel(s) and a dry or wet FGD system, but the composition and
establishing a consistent basis for emissions calcula- quantity of each potential source should be reviewed
tions reported per unit of heat input. and analyzed on a case-by-case basis.
Emissions performance The environmental con- Wastewater requirements Typically, a wet FGD sys-
trol system is typically designed to achieve a maximum tem will require a portion of the filtrate water to be
allowable outlet emissions rate that is driven by the purged from the system to avoid excessive buildup of
project air permits, other environmental regulations chlorides and/or fines. The purge flow rate is typically
or performance objectives. Alternatively, in some cases, set to control to a maximum chloride concentration in
a minimum percent reduction performance rate may the recycled slurry system which is also a function of
be required. The specification should define the re- the chloride concentration in the fuel. Higher design
quired performance objective including the guaran- chloride levels will increase the corrosiveness of the
teed emission rate at the stack for each controlled pol- slurry and more expensive materials will be needed
lutant and specific test conditions. The specific test for the absorber tower and outlet flue.
conditions include the test method to be used, test Performance guarantees Specific guarantees for
duration, measurement frequency and period over environmental control systems are customized to fit
which the measurements will be averaged. the requirements and objectives of each project. If the
Reagents Many environmental control systems environmental control system is provided as a sepa-
require a consumable reagent to create the chemical rate, stand-alone system, performance guarantees
reactions required to control the target pollutant. must be tied to flue gas conditions that are specified
Selective catalytic reduction (SCR) and selective at the system inlet.
non-catalytic reduction (SNCR) type NOx control sys- Typical performance items guaranteed over the op-
tems use ammonia or urea based reagents. Various erating load range include:
economic, plant logistics and permitting requirements 1. emission levels for pollutants being controlled by
affect reagent selection. Each type will require differ- the system being installed, and
ent equipment for storage, handling and use. Wet flue 2. gypsum quality (for wet FGD systems only).
gas desulfurization (WFGD) systems have used a va-
riety of reagent types including limestone, magne- Performance items guaranteed at a specific load
sium-enhanced lime and sodium based upon relative condition include:
economics and specific performance requirements for 1. auxiliary power consumption,
each application. Dry flue gas desulfurization (DFGD) 2. reagent flow rate (limestone, lime, ammonia,
systems typically use lime. other),
Other additives and regents can also be used for 3. flue gas pressure drop across the system (if sup-
various performance enhancements and specialty pro- ply of induced draft or booster fans is not within
cesses. the supplier’s scope),
The chemical composition of the reagent and the ex- 4. makeup water consumption rate, and
tent that composition is expected to vary should be 5. wastewater purge flow rate.
specified.
Quality requirements for solid wastes and byproducts
The cost to landfill solid waste materials can vary sig- Project requirements
nificantly from project to project. Some projects depend In addition to critical inputs required to size and
on producing solid byproduct in a form that can be sold select equipment, specifications should provide defi-
for commercial application. Coal flyash, for example, nition and direction for how the equipment supplier’s
can be sold if the carbon concentration is sufficiently work will integrate into the overall project.
low. Such a limitation on carbon content may affect
the design of the boiler’s combustion system and/or Scope of work
coal selection, or may dictate the use of multiple stage Determining scope structure is a critical decision.
particulate collection to capture most of the flyash prior The buyer may specify whether or not bids should be
to a dry FGD system. for a complete turnkey project, in which all components
Wet FGD systems can be designed to produce a including erection are within the supplier’s scope.
grade of gypsum used in wallboard production. The Other approaches include system island scope and
specific requirements will affect the selection of dewa- equipment packages.
tering equipment and may affect the design of the Regardless of how the scope is structured, suppli-
purge and wastewater treatment systems. Any re- ers must understand the scope responsibility to ensure
quirements on the quality, purity or composition of a that the buyer’s needs are met. If the project is ex-
solid waste byproduct should be specified to the equip- ecuted without addressing ambiguous terminal points,
ment supplier. scope can be missed and the project can face problems
Process makeup water (FGD systems) Potential of schedule delay and unexpected costs. Scope defini-
sources of makeup water should be identified and the tion is an evolutionary process that occurs during
analysis and range of contaminants defined. The project development. Several types of documents are
analysis can affect the selection of system materials needed to define a project and ensure a common un-
as well as the ability to achieve a specified byproduct derstanding of scope. The following should be included
quality requirement. Various plant wastewater as part of a contract:

1. equipment listing and/or system descriptions, ers of conservatism. If the equipment is oversized,
2. division of work, including work scope provided by a higher cost could be incurred unnecessarily.
other parties, Equipment that is too small may under-perform or
3. terminal points listing, fail due to overloading caused by the effects of up-
4. process and instrumentation diagrams (P&IDs), stream systems. Purchasing a complete, integrated
5. equipment arrangement drawing(s), and system from a single supplier allows the down-
6. definition of the extent of shop fabrication. stream systems to be designed using the supplier’s
experience and knowledge of the operating condi-
Degrees of scope breakdown structure There are a tions of the upstream equipment. Purchasing as a
variety of general breakdown structures which are complete package also eliminates the complications
used in power plant steam generation and environ- of performance risk responsibility that exist with a
mental system projects, each with its strengths, weak- process interface point such as between the boiler
nesses, costs and risks. Key examples include: and environmental equipment systems.
1. Turnkey approach for the material supply and 5. Performance interface risks also increase as scope
erection of a complete facility. is divided and performance guarantees are re-
2. System island approach focusing on a major sub- quired for individual components. This risk can
system such as the boiler island, turbine island, cause equipment within a particular system to be
and environmental equipment island, each includ- over-designed. It may also cause the operation of
ing structural steel, architectural materials, pro- the facility to be less efficient because of margin
cess piping, auxiliary components, etc. added by suppliers to manage guarantee risk. For
3. Equipment package approach focusing on smaller turnkey projects, overall unit performance, such
scopes such as individual components and related as capacity, NPHR and emissions are critical and be-
auxiliaries. come contractual obligations. Other performance
elements can be guaranteed separately as scope
For larger scope approaches, operation and main- becomes further broken down to support the overall
tenance agreements or equity/financing arrange- NPHR. The same philosophy could be applied to emis-
ments may be included. sions. Guarantees for a piece of equipment may de-
Considerations for scope breakdown The scope struc- pend on the performance of other equipment. This can
ture is dependent on the buyer’s ability to manage the cause each supplier to assess their individual risk and
project and the selected commercial contracting struc- apply appropriate margins. As a result, the overall
ture. Different scope structures result in different system may be over-designed with margin applied on
impacts to the steam generating system. Listed below top of margin. Guarantee conditions would be based
are a few items to consider: on the scope boundary and the more boundaries that
exist, the more measurements are required to prove
1. If a turnkey project is pursued, some suppliers individual sub-system performance.
may be eliminated because of a lack of experience, 6. When a specification is prepared, consolidation of
inadequate financial backing to obtain required construction subcontracts should be considered. It
project security instruments, or their inability to may be more economical to consolidate electrical,
support the magnitude of financial risk associated civil, insulation and lagging, architectural, and
with large projects. As a result, the buyer may lose related scope across the entire project rather than
or disqualify potential suppliers who, otherwise, having multiple contractors responsible for the
could provide good technology and services at a same work but in different areas. This will reduce
competitive price. interface risks and bring consistency to the project.
2. In a turnkey project, the selection of sub-suppliers
may be affected by the turnkey contractor’s evalua- Site conditions and requirements There are numer-
tion process and work experience/relationships. ous requirements specific to each project site and plant
3. Physical interfaces must be considered to minimize that should be communicated to the equipment sup-
the risk of missed scope relative to material, engi- plier. If the supplier’s work includes construction and
neering, and construction. As the degree of scope extended balance of plant scope, site-specific require-
breakdown increases, risks related to physical in- ments are especially critical. During a bidding process,
terfaces increase. Also, some scope is integral to it is often valuable for the equipment supplier and
equipment, such as the structural steel used to construction contractor to visit and investigate the site
support a baghouse or dry scrubber. Piping and thoroughly to understand all site logistics.
other equipment terminals need to be coordinated Equipment arrangement The specification should
to properly meet in space (type, size and location) clearly describe the site and include dimensioned plot
and so that the system is properly engineered from plans showing the location of existing equipment, the
a stress analysis and performance perspective. expected location of new equipment and major loca-
4. Environmental equipment sizing is dependent on tions for tie-in connections to existing plant services,
the inlet gas conditions as well as the effects of po- among other items. The specification should also de-
tential variations in the operation of upstream sys- fine any limitations or restrictions to be imposed on
tems (boiler, air heater, etc.). Proper margins should the equipment supplier. The supplier should be encour-
be considered to ensure that emissions limits are aged to arrange the equipment within these limita-
continuously met without adding overlapping lay- tions for optimal overall cost.

Site access Rail, truck, barge and personnel access Commercial terms and conditions
to the site should be defined. Sufficient lay down ar- A bid specification should identify the expected com-
eas adjacent to the site generally reduce handling mercial terms that would apply to a resulting contract.
costs. However, provisions can often be made for off- Major clauses that are typically part of a contract in-
site fabrication and extended modularization if space is clude liability terms and limitations thereon, warranty,
limited and there is sufficient delivery access. It is im- force majeure, contract completion dates, title and risk
portant to state which existing equipment and facilities of loss, changes to the work, proprietary data, choice
will remain operational or on-line during construction. of law, cancellation, payment terms, and insurance.
Site design criteria and applicable codes The specifica- In many instances these are prepared and negotiated
tion should also include information on climate condi- for specific projects to meet both supplier and buyer
tions and design codes that apply at the site, including: needs. In other cases, the United States (U.S.) Uni-
form Commercial Code, as adopted in the various
1. seismic zone criteria, states, or other laws, rules or regulations provide pro-
2. wind load criteria, tection for the buyer and supplier in the absence of
3. snow load criteria, specific contract provisions.
4. range of ambient conditions for temperature and Payment terms Matching payment terms to a
relative humidity, supplier’s cash flow needs minimizes project cost by
5. soil design conditions, and reducing working capital requirements. Milestone
6. site altitude. payments provide a payment upon receipt of order, with
Also, the specification should identify if the new additional payments following drawing submittal,
equipment will be located in an enclosed building or major material orders, and completion of major com-
outdoors. Even in colder climates, some owners pre- ponent fabrication. Progress payments are made at
fer to use as few building enclosures as possible. given dates following project initiation.
Invariably, payment terms must balance two com-
Standardization requirements and design criteria It peting interests: the owner’s desire to assure that the
is important to define any plant standardization re- project will be timely completed in accordance with the
quirements that may have been developed to make contract, and the contractor’s interest in assuring a
operation and maintenance easier and more consis- positive cash flow. For this reason, many projects pro-
tent throughout the plant. Such items could include vide for some retained amount from each invoice, of-
common suppliers for valves, instrumentation, motors, ten 5%, which can be reduced or liquidated once the
etc. This can be done by providing a list of acceptable contract is completed. The contractor may be allowed
suppliers for certain equipment. However, caution to substitute a letter of credit or bond for the reten-
should be taken not to over-specify equipment re- tion once performance guarantees are met.
quirements. Different technologies can require differ-
ent criteria and while clear performance expectations Evaluation criteria
should be outlined, excessive detail may add unnec- The design of steam generating units and environ-
essary cost. mental control systems involves complex tradeoffs
between hardware options and operating costs. For the
Project schedule The specification should accu- supplier to provide the best possible offering to meet
rately state project schedule requirements for engi- the buyer’s needs, it is important to include the gen-
neering work and document submittals consistent eral criteria and quantitative factors the buyer will use
with the scope and needs of multiple suppliers, equip- to evaluate competing proposals. The following is a list
ment deliveries to site, construction and commission- of potential key performance items for which quanti-
ing, startup and testing. The project schedule needs tative evaluation factors should be provided, depend-
to be developed backwards from the required on-line ing on project application:
date, allowing adequate time for equipment to be
checked and commissioned after installation. Equip- 1. boiler fuel efficiency,
ment deliveries should be scheduled to support the 2. main steam and reheat steam pressure drop,
expected erection sequence, but also need to recognize 3. auxiliary power consumption,
lead-times required for engineering, procurement of 4. auxiliary steam flow,
raw materials, and fabrication. For projects involving 5. reagent flow rate (ammonia, lime/limestone, etc.),
the modification of or addition to existing equipment, 6. SCR catalyst life, and
the project construction schedule may need to be care- 7. flue gas pressure drop.
fully coordinated around normally planned mainte- Other evaluation factors can include ash disposal
nance outages or lower demand periods. If the re- costs, revenue from byproduct (e.g., gypsum) sale, and
quired outage span is of critical economic importance extended warranties, etc.
to the project, the incremental value should be defined
to the bidders so that added construction costs for mul-
tiple shifts and peak labor can be evaluated and opti- General bid evaluation
mized. Typically, the value to the plant owner of hav- Once the specification has been prepared and pro-
ing the equipment on-line sooner easily justifies the posals have been submitted, bids are evaluated. A
additional cost required to minimize an outage span. consulting engineer may be used to help with the
However, these tradeoffs need to be properly considered. evaluation. Although the best bid is usually competi-

tive, it is not always the lowest price. A thorough re- Areas that should be reviewed include, but are not
view must consider whether the supplier has offered limited to:
the intended scope, and any exceptions to the specifi-
1. furnace design and arrangement to determine how
cation must be evaluated. Bid evaluation generally
the supplier has accommodated the specified fuel
includes a review of scope, operating ease, mainte-
characteristics in the proposed design to ensure
nance and operating costs, service, design and con-
that the effects of slagging, fouling, erosion and
struction features, hardware, schedule, experience,
corrosion are minimized, while achieving low NOx,
commercial terms, and price.
CO and unburned carbon performance;
Scope 2. low NOx burners to determine if they have been
Scope of supply typically differs between suppliers. effective on a similar installation;
It is important to verify what items are explicitly cov- 3. pulverizer design regarding maintenance require-
ered in each bid. Inconsistencies between bids can be ments and degradation between overhauls; and
resolved by discussions with the suppliers and by as- 4. superheater supports.
sessing a cost for discrepancies in the bid evaluation. If special design requirements were specified, the
Operating ease evaluator needs to ensure that each supplier accommo-
dated the requirement. For example, if very rapid load
Design differences will appear among the product change requirements are specified for a supercritical
offerings. Seemingly minor design features can signifi- boiler, additional hardware may be required for the
cantly alter costs. It can be valuable to have boiler op- steam generator to comply.
erators evaluate the benefit(s) of such design features.
Construction features
Maintenance costs
Designs that require minimal maintenance provide If the scope of work is limited to material supply
ongoing cost savings. Areas that previously demanded only, the degree of shop fabrication and the extent of
high maintenance, such as refractory and brickwork, design for constructability offered by different bidders
have generally been eliminated from modern boiler can vary and have a significant effect on the mate-
designs. Current gas-tight water-cooled furnace con- rial installation cost. The degree of shop fabrication
struction has replaced the tube and tile design. How- can range from supply of many small components to
ever, some corner seals, hangers, supports and spac- large prefabricated modules. Even seemingly minor
ers may still be high maintenance items if not prop- differences can result in significantly different field
erly designed. Pulverizer designs can vary widely re- labor requirements that need to be evaluated. The
sulting in significantly different annual maintenance degree of shop fabrication on a given project is typi-
costs. These factors can be incorporated into the final cally driven by transportation logistics and site access
evaluation discussed later. limitations. Plants located with good access to water
transport can benefit from increased shop fabrication
Operating costs efficiencies, reduced construction risks, and reduced
Annual boiler operating costs can approach the peak labor requirements at the site.
initial unit investment. Therefore, fuel and auxiliary Schedule
power costs should be quantitatively evaluated. Based
on estimated fuel cost, discount rate and the predicted As-bid schedules should be compared to one another
unit life, present values can be assigned to calculate and to the specification. A shorter overall project sched-
annual fuel and power costs. Other operating costs ule can reduce project financing costs or increase rev-
include reagent usage for emissions control systems, enue through early completion and startup. However,
wastewater flow rate (water treatment system cost), early delivery of some equipment does not necessar-
and solid waste disposal costs, among others. ily reduce the overall project span if that equipment
does not fall on the project’s critical path. If the scope
Service organization being proposed does bring the project economic ben-
The quality and capability of a supplier’s after-mar- efit from a shorter span, then differences can be sub-
ket service department are important. An experienced ject to a quantitative evaluation credit or penalty.
staff can troubleshoot problems quickly and minimize However, if that credit is to be realized, sufficient com-
costly downtime. Factors that should be considered mercial motivation (such as a bonus for early comple-
when evaluating supplier alternatives include the tion or liquidated damages for late performance)
proximity of the supplier’s office or representative to the should be established in the contract to ensure that a
plant, the number of available personnel, and the bidder offers a realistic commitment.
training and experience of the service personnel. Project management and
Design features project team
A thorough bid evaluation must review the An equipment supplier’s project manager and key
equipment’s design and construction features and project personnel can greatly influence project execu-
determine if certain technologies favor one supplier. tion performance. It is the responsibility of this project
Although some designs may present a low initial cost, team to ensure that the specified product is provided
accompanying higher maintenance requirements may in accordance with the contract schedule and within
quickly offset these savings. project cost constraints. Sub-suppliers and vendors

must be managed effectively, the team needs to re- 1. Define basic needs, objectives and goals.
spond to buyer changes in scope and design, and com- 2. Explore critical logistics and feasibility.
munication with the buyer and other project entities 3. Identify permitting requirements.
must be maintained. The ability of the supplier’s per- 4. Assess potential alternate approaches or technolo-
sonnel to manage these critical functions can have a gies.
significant effect on project execution. It is in the 5. Optimize design requirements to meet the goals
buyer’s best interest to review and evaluate the ex- and objectives.
perience and capability of the personnel that a supplier 6. Evolve a plan and timetable for development and
will assign to a project, especially if the project is large implementation.
in scope, complex, or has extraordinary requirements. 7. Secure capital financing.
8. Identify internal and external resources needed
Experience to develop and execute the project.
Demonstrated success in executing projects using 9. Develop specifications for the equipment and sys-
similar equipment with similar scope and complexity tem packages that will be purchased.
is an important factor to ensuring success of using a 10. Evaluate bids and select supplier(s).
selected supplier. If the technology being selected has Traditionally, the project developer will work
limited commercial experience, the buyer must depend through these steps using in-house resources or by hir-
on the supplier’s experience with similar technologies ing a consulting engineering company to support the
and ability to support performance guarantees. The project feasibility and development activities. The
buyer should contact organizations that have pur- equipment supplier can also be a key resource in a
chased similar units. Visits to operating installations number of these areas. However, because the tradi-
can provide important insights. tional procurement philosophy depends on maintain-
Terms and price ing competitive pressure on the qualified equipment
suppliers, the opportunity to involve an equipment
Proposed payment terms and schedule should also supplier in the developmental stages can be limited.
be evaluated carefully. Differences in payment terms Traditional procurement methods require the equip-
can represent a significant value to the project. How- ment supplier to bid competitively to a fixed specifica-
ever, deferred payments can also be expensive. Com- tion after most of these steps have been completed. The
mercial terms and conditions essentially define the success of this approach depends on the expertise,
level of risk that a supplier will share with the buyer. oversight, direction and integration capabilities of the
The lowest cost can be achieved when the buyer and owner and its hired consultant to develop and define
supplier share a reasonable amount of the project risk. the specific scope and design requirements.
Also, performance guarantees rely on a supplier’s Selection of equipment suppliers is primarily based
ability to back them up. This ability should be evalu- on low evaluated bid price. With emphasis on low capi-
ated before awarding a contract. tal cost and the need to compare technically equiva-
lent offers, long-term value relating to operating costs,
Commercial structure maintenance, and availability can be lost in the pro-
cess. In addition, a low price may motivate the selected
Another major decision is the commercial contract- supplier to work in a manner that may not be in the
ing structure. Traditionally, the developer of a capital interest of the owner during the execution of the con-
equipment project will issue a tender for major equip- tract in an attempt to avoid losses on a project with
ment packages in which the owner or developer will low profitability.
manage the risks of integrating these packages. An owner also can find that project costs increase
Some projects such as those financed off-balance with changes in scope or design that evolve during the
sheet (or project financed) need to have single-point project. Changes are more costly when they occur later
guarantees of plant performance and construction in the process as they will affect work already com-
schedule to address financial risks. An owner or de- pleted, and may impact the work and scope of other
veloper may therefore need to employ a general con- contractors/suppliers.
tractor or possibly a consortium of companies that will
manage the project integration risk and provide over- Collaborative partnerships/alliances
all guarantees. Recently, collaborative alliance-type business struc-
Another concept is to establish a strategic project tures have been used to integrate the equipment sup-
alliance or partnership with one or several major equip- plier into the project development process. Such an
ment or system suppliers to jointly develop, manage, approach allows the equipment supplier to contribute
and share the risk of project integration and execution. resources and expertise when the project is taking
shape and project direction is still flexible. The equip-
Traditional commercial structures ment supplier can function as a team member or part-
A company that is planning a major capital equip- ner, rather than simply a service provider addressing
ment project, such as a new coal-fired power plant, a fixed specification.
must work through many of the following develop- In such an alliance, all parties can contribute to the
ment process steps to obtain corporate management final solution and can benefit from the result. This
approvals, project financing, local community support approach involves the major supplier(s) in the devel-
and any required government permits: opment phase of the project, a time when specific prod-

uct knowledge can best be applied. This establishes ent. The equipment supplier needs to be selected at a
project design requirements that recognize plant op- much earlier point in the process. Because this selec-
erational needs, establishes appropriate levels of re- tion can not be based on competitively bid prices, other
dundancy, and evaluates the layout of equipment to factors need to be evaluated to determine the relative
best facilitate erection and maintenance access. The degree of confidence that the candidate partner will
ideal time to evaluate and optimize a project is dur- contribute. Such factors include:
ing these early stages.
The commercial framework of an effective alliance 1. experience and success record for the technology
should include a system of risk and reward incentives required,
that will keep all partners motivated to work towards 2. experience with other projects performed under an
the common goals of project cost, project schedule ex- alliance agreement,
ecution, and equipment performance. Partners should 3. experience performing a project of similar scope,
be motivated to earn their profit by performing at or design and complexity,
better than a set of measurable, mutually beneficial 4. qualifications, experience and capabilities of the
goals established for the project. project team that will be assigned to work on the
project,
Benefits of a project alliance Large complex projects 5. capabilities to manage cost and project risk to com-
are well suited for collaborative alliances. Involving petitive levels through a combination of materials
an experienced equipment supplier in the develop- sourcing capability, systems project management
ment of the plant design, definition of scope, and esti- and control, labor charge rates, and markups (over-
mation of capital costs can bring significant value to head and profit) that would be applied against ac-
the process and can avoid fatal flaws of assumptions tual costs incurred,
that can be made during the initial conceptual stages 6. degree that the partner will share and limit project
of a project. cost overruns relative to a mutually developed
Once an alliance is established, the owner and the target cost,
supplier can develop a relationship that capitalizes on 7. degree that the partner will share the financial risk
the strengths of each organization as they work associated with the operating performance of the
through the issues and move forward to creatively equipment and systems to be supplied, and
address challenges of operations, maintenance and 8. degree that the partner will share the risk of project
project execution. Some of the benefits that can be schedule performance to meet targeted commer-
realized from such an alliance program structure in- cial operation.
clude the following:
1. Many aspects of the bid specification development, Power system economics
proposal development, proposal evaluation, sup-
plier selection and contract negotiation processes The relative economics of the options must be com-
are eliminated, saving time and money. pared as part of the evaluation of alternate power
2. The project team can employ a cooperative ap- systems or different product offerings. Unfortunately,
proach to focus on optimizing the owner’s true this is not a straightforward, simple task. Large
costs. Decision-making can focus on the best long- projects involve a complex series of time dependent
term value rather than on the lowest near-term cash flows which usually include an initial near-term
capital cost. investment in plant and equipment, and a long-term,
3. The project specification can be prepared interac- uneven series of operating costs, maintenance costs
tively, allowing innovative solutions to be identi- and revenues from the sale of power or end product.
fied, more thorough project planning to be imple- This is further complicated by the time value of money
mented, and false starts to be minimized. and the effects of inflation. Money today is generally
4. The legal and financial framework is typically es- worth more than the same amount of money a year
tablished at the beginning of the alliance and from now because of: 1) the potential interest which
usually requires little adjustment during the life could be earned during the next year, and 2) the ero-
of the alliance. sion in the future buying power due to inflation. The
5. Project resource assignment and loading are following provides a very brief overview of several
planned to achieve the best utilization of person- methodologies used to place the total evaluated costs
nel from all participant organizations, eliminating of different projects on the same financial basis so they
redundancy and extra costs. can be directly compared. More comprehensive discus-
6. Open communication can be used in all aspects of sions of such evaluations are provided in References
planning and job tracking, which builds trust and 3 to 6. This discussion is broken down into the follow-
minimizes conflict. ing subsections:
7. For multiple unit or multiple plant projects, lessons
learned on earlier project phases can benefit later Constant versus current cost basis
stages of the project. Implementing lessons learned Definitions
is a key factor to achieving economic benefit over System cost evaluation
the duration of the alliance. Evaluation parameters
Methods for evaluating operating costs
Factors to consider When considering the alliance Other considerations
option, the development process is inherently differ- Examples

Constant versus current cost basis income tax effects and depreciation of the initial capi-
Analyses are conducted on either a current or con- tal investment. However, a weighted average or
stant cost basis. The current cost basis presents costs levelized value is frequently used for evaluations. To
as they would be expected to appear on a company obtain a levelized value the actual annual fixed
balance sheet in the future while the constant cost charges are discounted to the present and then
basis does not include inflation. levelized using the equations discussed below. Annual
The selection of the constant or current cost ap- fixed charge rates vary from 10 to 21% of the initial
proach usually does not change the economic choice total capital investment.
between similar projects. For nearer term projects, Interest during construction This refers to the cost
such as plant upgrades or the addition of small com- of money during construction prior to initial plant
ponents, current costs are frequently used because of operation. It is not included if all project costs are in-
near-term impact. For longer term projects such as curred in a single year.3
new plants, constant costs are frequently used as at Capacity factor This is the total power produced in
least one of the evaluation tools so that the effect of a given period (typically one year) divided by the prod-
inflation does not distort real cost trends. In either uct of the net unit capacity and the given time period.
case, it is important to use the same basis for evaluat- It accounts for part load operation and outage times.
ing all alternatives. The examples provided below are The capacity factor varies over the plant life, typically
evaluated on a constant cost basis. climbing to a maximum in the first few years, remain-
ing relatively constant for a period of several years and
Definitions then falling as the unit begins to age.
The following parameters provide the basis for the Load factor This is the fraction of the full load or
economic evaluation: maximum continuous rating (MCR) at which the
Discount rate (k) This is the cost of money for a steam generating system is normally expected to op-
power system owner and includes the weighted cost erate for extended periods of time.
of capital for each class of debt and equity. Establish- Net plant heat rate (NPHR) This is the total fuel
ing the appropriate cost of capital or discount rate is heat input expressed in Btu divided by the net busbar
increasingly complex. References 4 and 7 provide de- power leaving the power plant expressed in kWh.
tailed discussion on the sources of funds and the Plant total energy efficiency (E ) can be obtained from
evaluation of their costs. A simplified discount rate (kc) the following relationship:
estimate can be obtained from the following equation
which takes into account that interest payments on 3412 Btu/kWh
E = × 100% (3)
debt are generally tax deductible expenses: NPHR
The NPHR typically varies with plant load.
kc = ( FD ) kd (1 − TR ) + ( FE ) ke (1)
Demand and auxiliary power charges These are the
where charges placed against the internal use of energy for
FD = fraction of capital consisting of debt auxiliary equipment. Separate rates are established by
FE = fraction of capital consisting of equity electricity and steam usage. The size of the charges
kd = annual debt interest rate depends upon the cost of fuel and other operating costs.
ke = annual stockholder return System cost evaluation
TR = fractional income tax rate
In the economic evaluation of steam generating
The annual debt interest rate and stockholder re- systems, it is important to include all appropriate costs
turn reflect the anticipated impact of inflation and are and expenses. Table 2 provides a list of typical capi-
used in current cost basis analyses. If a constant cost tal, variable and fixed operating and maintenance
based analysis is desired, the current cost discount costs which could be associated with a steam generat-
rate (kc) can be related to the constant cost discount ing system installation. Capital costs basically include
rate (kf) through the escalation or inflation rate (e) in all expenditures for the purchase, installation and
the following equation: startup of the steam generating system and its auxil-
iaries. Care must be taken to ensure that different
kf = (1 + kc ) / (1 + e )  − 1 (2) product offerings contain the same scope of work. To
obtain the total plant investment, interest during con-
The escalation rate may have to be treated as a time struction, initial inventory items (such as fuel) and con-
dependent variable if it is expected to change signifi- tingency are added. Variable operating costs include
cantly over the period of analysis. delivered fuel cost, other consumable material pur-
Fixed charges Also referred to as carrying charges, chases, power and steam demand charges, and waste
these are the fixed annual costs associated with the disposal or byproduct use.
initial capital investment and are generally incurred Fixed operating and maintenance costs cover op-
whether or not the plant is operated. The components erating expenses which are likely to be incurred
include the return on investment, capital recovery (or whether or not the plant is in operation. These change
depreciation), property taxes and insurance as well as from year to year and generally increase as the plant
federal and state taxes. Over the life of a new plant ages. They also tend to vary with the unit load pat-
the annual revenue requirement declines because of tern, plant size, and primary fuel.

In the financial evaluations, selected penalties or

Table 2 operating costs can be associated with superheater,
Typical Steam Generating System Cost Items reheat superheater and economizer pressure drops
Capital Costs (steam-water side and gas side). Depending upon the
Boiler (nominal scope including burner system and air heater) buyer’s perspective, these can be explicitly listed as
Fans and drives separate operating costs or they may be indirectly
Appropriate flues and ducts accounted for as part of the general electrical and
Coal crushers steam power requirements listed above. Reheat super-
Pulverizers heater steam side pressure loss is of particular inter-
Pyrite removal (pulverized coal units) est because of its strong connection with thermal cycle
Dust collectors efficiency.
Ash handling
Steam coil air heaters Evaluation parameters
Steam piping
Injection water piping Present value With an economic life stretching
Startup pump and drive many decades, power plants experience operating
Feedwater heaters and piping (if used) expenses over extended periods of time. It is necessary
Feedwater treatment to account for the time value of money in evaluating
Selective catalytic reduction (SCR) system projects which have differing initial capital invest-
Flue gas desulfurization (FGD) system (dry or wet)
ments and future expenses over several years. This
Baghouse or electrostatic precipitator (ESP)
Wet ESP (if required) is usually accomplished by using a present value (P V )
Reagent storage and preparation systems calculation for each annual cash flow. The P V of a fu-
Reagent slurry pumps and piping ture value or payment (F V ) in year n is defined as:
Gypsum dewatering system (if wet FGD system is used)
PV = FV (1 + k ) = FV ( PVF )
Tanks and sumps −n
(4)
Instrumentation
Controls
Foundations and electrical connections where
Structural steel
Building PVF = (1 + k)−n = present value factor
Platforms k = interest or discount rate
Freight n = number of years or periods at rate k
Sales taxes
Site preparation An alternate use of the PVF is to evaluate the future
Erection/insulation/painting value of a present value:
Startup
Performance tests FV = PV / PVF (5)
Miscellaneous engineering and supervision services
Where a series of equal future annual payments,
Variable Operating Costs (Credits) A, will be made for n years, the PV is defined as:
Primary fuel cost
Electrical and steam power demand:  (1 + k )n − 1 
Fan power PV = A   = A ( SPVF ) (6)
Pulverizer power  k (1 + k )n 
Recirculating pump power  
Boiler feedpump power
Crusher power where
Makeup water and chemicals
Wastewater treatment SPVF = uniform annual series present value factor
Steam demand:
(1 + k ) − 1
n
Sootblowers
=
k (1 + k )
Flue gas reheat n
Air heating
Compressed air demand
Ash removal and disposal As with the single payment present value factor,
Auxiliary fuel for low load stability SPVF can be used to convert a PV into a series of fu-
Other consumables (ammonia, limestone, etc.) ture equal payments for n years:
Credits for any byproduct sales
A = PV / SPVF (7)
Fixed Operating and Maintenance Costs
Plant operators For illustration purposes, Table 3 provides values
Maintenance labor of PVF and SPVF for a discount rate of 6% from 1 to
Maintenance material 30 years.
Chemical cleaning Levelization In evaluating various power system
Replacement material options, it is frequently desirable to compare weighted
Supervision average annual values of future costs such as fuel
Other overhead items
instead of the lumped sum present values. Such a

parameter would be a levelized cost evaluated using value factors (PVF) for 6% interest rate is shown in
the following equation: Table 3. Present value factors for other interest rates
and evaluation periods can be evaluated from Equa-
n tions 4 and 6. After converting the total into an equal
∑ ( FV ) ( PVF )
j j annual cost, the justifiable capital expenditure is de-
Levelized value = j =1 (8) termined by dividing the annual cost by the fixed
SPVF charge rate.
Capitalized cost method This method assumes that
where the equipment being operated has an infinite lifetime
PVFj = present value factor for year j and rate k and that the costs of operating the unit will continue
FVj = future annual payment in year j indefinitely. It is a simpler evaluation procedure to use
SPVF = uniform annual series present value fac- than the revenue requirements method described
tor in year n for discount rate k above, but is not as exact or flexible in accounting for
j = individual years up to n years future changes in such items as fuel and maintenance
k = annual discount rate costs which will change during the life of the unit.
The amount calculated using this method is the
For the special case where the annual payment justifiable capital expense which can be spent to pur-
escalates or is inflated from an initial value of S1 with chase the additional equipment and still give an op-
a constant rate, e, the future value of the annual pay- erating advantage.
ment in year j is: For example, if it is found that additional air heater
surface will achieve higher unit efficiency, i.e., fuel
S j = (1 + e ) S1
j
(9) savings over the lifetime of the unit, the additional air
heater surface is justified if its capitalized cost is less
The resulting levelization equation then becomes: than the cost of the fuel which can be saved over the
remaining unit life net of any tax impact.
Levelized value of S Other considerations
 1 − (1 + e ) / (1 + k )  n  Risk All new projects involve some level of risk or
= S1     / SPVF (10) uncertainty. Short-term projects using established
 k−e  technology typically are considered low risk while
 
long-term projects using new, untried technology are
generally considered higher risk. A number of ap-
Methods for evaluating operating costs proaches are used to account for the risk or uncer-
There are several approaches to the evaluation of tainty during project evaluations. One approach is to
operating costs. The revenue requirements method establish special guarantee provisions in the specifi-
and the capitalized cost method are reviewed here and cations and contract. This will typically increase the
examples are given. While each method used involves price from the suppliers since they assume more of the
a large number of inherent assumptions, these are the risk. A second approach is to increase the buyer’s in-
dominant methods used to evaluate steam supply and
emissions control equipment. See References 3 to 7 for Table 3
more discussion. 6% Compound Interest Factors
Revenue requirements method This method deter-
mines the minimum gross receipts which are required Uniform Uniform
to make each alternative pay its way. The alternative Single Annual Single Annual
Payment Series Payment Series
that requires the lowest receipt of revenues is the eco- Present Present Present Present
nomic choice as it will permit profitable operation with Value Value Value Value
the smallest revenues. This method takes into account Factor Factor Factor Factor
the present value of all future expenditures and costs. Year (PVF) (SPVF) Year (PVF) (SPVF)
The capital (first cost) expenditure which is justi- 1 0.9434 0.943 16 0.3936 10.106
fied in order to put two alternatives on an equal basis 2 0.8900 1.833 17 0.3714 10.477
is less than the difference in future revenue require- 3 0.8396 2.673 18 0.3503 10.828
ments. The future revenue requirements are con- 4 0.7921 3.465 19 0.3305 11.158
verted to current dollars by multiplying each future 5 0.7473 4.212 20 0.3118 11.470
expenditure by the PVF for each year in which the 6 0.7050 4.917 21 0.2942 11.764
expenditure will occur. By summing the present value 7 0.6651 5.582 22 0.2775 12.042
of the future revenue requirements, a total present 8 0.6274 6.210 23 0.2618 12.303
value is determined. To convert this sum into a justi- 9 0.5919 6.802 24 0.2470 12.550
fiable capital expense, it must be levelized, or converted 10 0.5584 7.360 25 0.2330 12.783
11 0.5268 7.887 26 0.2198 13.003
to an equivalent equal annual cost. This is done by 12 0.4970 8.384 27 0.2074 13.211
dividing the total present value by the uniform an- 13 0.4688 8.853 28 0.1956 13.406
nual series present value factor (SPVF) (which is 14 0.4423 9.295 29 0.1846 13.591
13.765 for a 30 year period and 6% interest rate, used 15 0.4173 9.712 30 0.1741 13.765
in the examples that follow). A tabulation of present

ternal contingency account in the project cost evalu- results, each financial model uses different assump-
ation (see Reference 3). A third approach involves tions about capital reinvestment which could result in
making adjustments to the discount rate to accommo- different project rankings.
date the level of risk or uncertainty with higher rates
applied to riskier projects (see Reference 7). One or Examples
more of these options, as well as other approaches, may Four examples follow which illustrate the use of the
be used in the ranking of project options depending evaluation methodologies. The first two examples com-
upon the buyer’s internal needs. pare the use of the revenue requirement method and
Unequal periods When comparing project alterna- the capitalization method in evaluating the choice
tives of equal life, the various evaluation techniques between a subcritical pressure 2400 psi utility steam
generally provide similar rankings. However, when cycle and a supercritical pressure 3500 psi utility steam
project lives are significantly different, additional care cycle assuming that a new power plant is needed.
must be exercised in performing the analysis and in- Example 3 provides a comparison between two indus-
terpreting the results. As an example, the costs of trial boiler bids where one bidder has a higher price
additional future equipment replacement may need but higher boiler efficiency. Example 4 evaluates the
to be considered when short-term and long-term re- lifetime auxiliary power difference between two indus-
pairs to a particular equipment problem are consid- trial boiler bids. All of these examples are evaluated on
ered. In addition, when interpreting the evaluation a constant U.S. dollar basis, i.e., excluding inflation.
References
5. Grant, E.L., and Ireson, W.G., Leavenworth, R.S.,
1. Aschner, F.S., Planning Fundamentals of Thermal
Principles of Engineering Economy, Eighth Ed., Ronald
Power Plants, John Wiley & Sons, New York, New York,
Press, New York, New York, February, 1990.
April, 1978.
6. Leung, P., and Durning, R.F., “Power system econom-
2. Li, K.W., and Priddy, A.P., Power Plant System De-
ics: On selection of economic alternatives,” Journal of En-
sign, Wiley Text Books, New York, New York, March,
gineering for Power, Vol. 100, pp. 333-346, April, 1978.
1985.
7. Copeland, T.E., Weston, J.F., and Shastri, K., Finan-
3. Electric Power Research Institute, Technical Assess-
cial Theory and Corporate Policy, Fourth Ed., Pearson
ment Guide (TAG): Electrical Supply, 1989, Vol. 1, Revi-
Addison-Wesley, Reading, Massachusetts, December 31,
sion 6, Report EPRI P-6587-L, Palo Alto, California, Sep-
2003.
tember, 1989.
4. Brigham, E.F., and Ehrhardt, M.C., Financial Man-
agement: Theory and Practice, Eleventh Ed., South-West-
ern College Publishing, Mason, Ohio, 2004.

Example 1
Revenue Requirements Method Evaluation of 2400 psi and 3500 psi Steam Cycles
A) Problem: Determine the economic choice between a 2400 psi 3. Cost of fuel consumed per year  3500 psi unit
cycle and a 3500 psi cycle with 1000F superheat (SH) and reheat (h/yr) x capacity factor x kW load x Btu/kWh = Btu/yr
superheat (RH) temperatures using a constant cost basis. (Btu/yr) x ($/Btu) = $/yr
B) Given: Unit 1 Unit 2 (a) Years 1 to 10 Btu/yr

1. Throttle pressure, psi 2,400 3,500 8,760 x 0.44 x 1.00 x 600,000 x 8,860 = 20,490 x 109
2. Temperature, SH/RH,F 1,000/1,000 1,000/1,000 8,760 x 0.28 x 0.80 x 600,000 x 8,860 = 10,431 x 109
9
3. Plant size, kW 600,000 600,000 8,760 x 0.13 x 0.60 x 600,000 x 9,040 = 3,706 x 10
4. Net plant heat rate (NPHR), 8,760 x 0.06 x 0.35 x 600,000 x 9,920 = 1,095 x 109
9
Btu/kWh: 100% Load 9,000 8,860 35,722 x 10
9 6
80% Load 9,000 8,860 35,722 x 10 x $2.00/10 = $71,444,000/yr
60% Load 9,180 9,040
(b) Years 11 to 20
35% Load 10,080 9,920 9
5. Fuel cost, $/million Btu $2.00 $2.00 8,760 x 0.23 x 1.00 x 600,000 x 8,860 = 10,711 x 10
9
6. Evaluation period, yrs 30 30 8,760 x 0.23 x 0.80 x 600,000 x 8,860 = 8,569 x 10
7. Interest rate or discount rate, % 6 6 8,760 x 0.34 x 0.60 x 600,000 x 9,040 = 9,693 x 109
8. Maintenance costs Same Same 8,760 x 0.11 x 0.35 x 600,000 x 9,920 = 2,007 x 109
9
9. Availability Same Same 30,980 x 10
9 6
10. Operating costs (excluding fuel) Same Same 30,980 x 10 x $2.00/10 = $61,960,000/yr
11. Fixed charge rate, % (Interest, (c) Years 21 to 30
taxes, insurance, debt return) 14.0 14.0 9
12. Plant capacity factors (Units 1 and 2) 8,760 x 0.06 x 1.00 x 600,000 x 8,860 = 2,794 x 10
9
8,760 x 0.23 x 0.80 x 600,000 x 8,860 = 8,569 x 10
Years 1 to 10 11 to 20 21 to 30 8,760 x 0.34 x 0.60 x 600,000 x 9,040 = 9,693 x 109
100% Load 44% 23% 6% 8,760 x 0.23 x 0.35 x 600,000 x 9,920 = 4,197 x 109
80% Load 28% 23% 23% 25,253 x 109
60% Load 13% 34% 34% 9 6
25,253 x 10 x $2.00/10 = $50,506,000/yr
35% Load 6% 11% 23%
10% Load 9% 9% 14% 4. PV of fuel costs  3500 psi unit
100% 100% 100% (a) Years 1 to 10
Average capacity $71,444,000/yr x 7.36 = $525,828,000
factor for period 76.30% 65.65% 52.85% (b) Years 11 to 20
Average capacity $61,960,000/yr x (11.47 − 7.36) = $254,656,000
factor for lifetime 64.93% (c) Years 21 to 30
$50,506,000/yr  (13.76 − 11.47) = $115,659,000
C) Solution: $896,143,000
1. Cost of fuel consumed per year  2400 psi unit
(h/yr) x capacity factor x kW load x Btu/kWh = Btu/yr 5. Saving in fuel costs  3500 psi versus 2400 psi
(Btu/yr) x ($/Btu) = $/yr PV of fuel costs
(a) Years 1 to 10 Btu/yr 2400 psi unit $910,281,000
9
3500 psi unit $896,143,000
8,760 x 0.44 x 1.00 x 600,000 x 9,000 = 20,814 x 10 PV of savings $ 14,138,000
8,760 x 0.28 x 0.80 x 600,000 x 9,000 = 10,596 x 109
8,760 x 0.13 x 0.60 x 600,000 x 9,180 = 3,764 x 10
9 $14,138,000 / 600,000 kW = $23.56/kW
8,760 x 0.06 x 0.35 x 600,000 x 10,080 = 1,113 x 109 6. Justifiable capital expenditure  3500 psi versus 2400 psi
9
36,287 x 10
9 6
36,287 x 10 x $2.00/10 = $72,574,000/yr Justifiable additional expenditure =
(b) Years 11 to 20 PV of fuel cost saving
Fixed charge rate x PVF
8,760 x 0.23 x 1.00 x 600,000 x 9,000 = 10,880 x 109
9
8,760 x 0.23 x 0.80 x 600,000 x 9,000 = 8,704 x 10 PVF for 30 years at 6% interest = 13.76
9
8,760 x 0.34 x 0.60 x 600,000 x 9,180 = 9,843 x 10 Fixed charge rate = 14% = 0.14
8,760 x 0.11 x 0.35 x 600,000 x 10,080 = 2,040 x 109
31,467 x 109 Justifiable additional expenditure =
31,467 x 109 x $2.00/106 = $62,934,000/yr $14,138,000
= $7,339,000
(c) Years 21 to 30 0.14 x 13.76
8,760 x 0.06 x 1.00 x 600,000 x 9,000 = 2,838 x 109 Justifiable expenditure/kW =
9
8,760 x 0.23 x 0.80 x 600,000 x 9,000 = 8,704 x 10 $7,339,000 / 600,000 kW = $12.23/kW
9
8,760 x 0.34 x 0.60 x 600,000 x 9,180 = 9,843 x 10
9
8,760 x 0.23 x 0.35 x 600,000 x 10,080 = 4,265 x 10 D) Result:
9
25,650 x 10 1. In terms of today's worth, the 3500 psi cycle will save
25,650 x 109 x $2.00/106 = $51,300,000/yr $14,138,000 or 23.56/kW in fuel costs over its life as
compared with the 2400 psi cycle.
2. Present value of fuel costs  2400 psi unit 2. The saving will justify the expenditure of $7,339,000 or
Fuel costs for period x PVF for period $12.23/kW more for the 3500 psi cycle than for the 2400 psi
= PV of fuel costs for period cycle, all other factors being equal.
(a) Years 1 to 10 Essentially any auxiliary power usage, difference in boiler
$72,574,000/yr x 7.36 = $534,145,000 efficiency, or difference in net plant heat rate can be treated in the
(b) Years 11 to 20 same manner as this example. This method basically converts the
$62,934,000/yr x (11.47 − 7.36) = $258,659,000 differences between designs into fuel costs. The fuel costs, which
(c) Years 21 to 30 account for future load factor, cycle heat rates and future fuel costs,
$51,300,000/yr x (13.76 − 11.47) = $117,477,000 are converted into present day dollars using present value
$910,281,000 mathematics for the projected interest rate over the life of the unit.
The justified capital expenditure can then be calculated.

Example 2
Capitalized Cost Method Evaluation of 2400 psi and 3500 psi Steam Cycles
A) Problem: Compare the economics of a 2400 psi cycle and 3. Capitalized value of heat rate difference
a 3500 psi cycle using a constant cost basis. Difference = 9,216 − 9,072 = 144 Btu/kWh
B) Given: Same information as Example 1. Average capacity factor for lifetime = 64.93% = 0.6493
Capitalized value =
C) Solution:
NPHR x kWh generation / yr x Fuel cost
1. Average NPHR  2400 psi cycle  Btu/kWh
Fixed charge rate
100% Load: (0.44 + 0.23 + 0.06) x 9,000 = 6,570
kWh generation/yr = Capacity factor x Capacity x h/yr
80% Load: (0.28 + 0.23 + 0.23) x 9,000 = 6,660
60% Load: (0.13 + 0.34 + 0.34) x 9,180 = 7,436 Capitalized value =
35% Load: (0.06 + 0.11 + 0.23) x 10,080 = 4,032 144 x 0.6493 x 600,000 x 8,760 x $2.00 / 106 Btu
24,698
0.14
Average NPHR = 24,698/2.68* = 9,216
= $7,020,000
* This is the sum of all capacity factors in Item B12,
Example 1, except the factors for zero load. $7,020,000 / 600,000 kW = $11.70/kW
2. Average NPHR  3500 psi cycle  Btu/kWh D) Result:

For these conditions the expenditure of up to $7,020,000
100% Load: (0.44 + 0.23 + 0.06) x 8,860 = 6,468 or $11.70/kW is economically justified for a 3500 psi unit
80% Load: (0.28 + 0.23 + 0.23) x 8,860 = 6,556 versus a 2400 psi unit. (Note that this is quite close to
60% Load: (0.13 + 0.34 + 0.34) x 9,040 = 7,322 the $12.23/kW answer reached by the revenue
35% Load: (0.06 + 0.11 + 0.23) x 9,920 = 3,968 requirements method in Example 1.)
24,314
The capitalized cost method of evaluation can be
Average NPHR = 24,314/2.68 = 9,072 adapted to evaluate auxiliary power, boiler efficiency, or
other operating costs by converting them to fuel cost.
Example 3
Comparing Industrial Boiler Bids with Differing Boiler Efficiencies and Capital Cost
A) Problem: Determine which of two boiler bids provides Annual fuel cost = ($5.00/106 Btu) (677.3 x 106 Btu/h)
the most economical system offering. x (8760 h/yr) (0.9) = $26,701,000/yr
B) Given: For bid No. 2:
1. Boiler produces 600,000 lb/h superheated steam at Unit input = (600,000 lb/h) (1460 − 375 Btu/lb) (0.9) / 0.875
1550 psi and 955F (Hg = 1460 Btu/lb from Mollier = 669.6 x 106 Btu/h
diagram, Chapter 2)
Annual fuel cost = ($5.00/106 Btu) (669.6 x 106 Btu/h)
2. Boiler feedwater is 400F (Hf = 375 Btu/lb, Chapter 2) x (8760 h/yr) (0.9) = $26,396,000/yr
3. Fuel cost = $5.00/106 Btu (gas)
Difference between bids (savings before tax) =
4. Load factor (average annual fraction of MCR) = 0.9 $26,701,000 − $26,396,000 = $305,000/yr
5. Use factor (fraction of in service time) = 0.9
Corporate income tax on savings = $305,000 x 0.38
6. Discount rate = 10%
= $115,900/yr
7. Constant dollar basis
8. Expected unit life = 30 years After tax savings = $305,000 − $115,900 = $189,100/yr
Net PV of savings = $189,100/yr x 9.43 = $1,783,200
9. SPVF = 9.43 (30 years; 10% discount rate)
10. Bid No. 1 guarantees 86.5% efficiency with a price of Difference in price = $11,200,000 − $10,400,000
$10,400,000 = $800,000
11. Bid No. 2 guarantees 87.5% efficiency with a price of Tax savings on depreciation = ∆ price x depreciation factor
$11,200,000 = $800,000 x 0.17 = $136,000
12. Income tax rate = 38% (composite) (dependent upon government depreciation schedule and
13. Depreciation tax factor = 0.17 discount rate)
Difference in price net of tax savings = $800,000 − $136,000
C) Solution: = $664,000
Equations:
Unit input = (steam flow rate) (∆H) (load factor)/efficiency D) Result:
Because the net present value of the energy savings
Annual fuel cost = (per Btu cost) (annual unit output) ($1,783,200) is greater than the net price for the more
(use factor) efficient unit after depreciation tax savings ($664,000),
Net PV of fuel savings = ∆ fuel cost x SPVF bid No. 2 provides the more economical offering.
For bid No. 1:
Unit input = (600,000 lb/h) (1460 − 375 Btu/lb) (0.9) / 0.865
= 677.3 x 106 Btu/h

Example 4
Evaluating the Cost Impact of Different Auxiliary Power Requirements of Two Industrial Boiler Bids
A) Problem: Determine the economic impact of differing C) Solution:

auxiliary power requirements of two boiler bids. Total maximum auxiliary power corrected for capacity
and load factors:
B) Given: Bid No. 1 = (1,123 kW) (0.9) (0.9) = 910 kW
1. Power cost = $0.025/kWh Bid No. 2 = (963 kW) (0.9) (0.9) = 780 kW
2. Load factor = 0.9
3. Use factor = 0.9 Annual power costs:
4. Auxiliary power requirements Bid No. 1 = (910 kW) ($0.025/kWh)
Bid No. 1 Bid No. 2 x (8760 h/yr) = $199,290
kW kW Bid No. 2 = (780 kW) ($0.025/kWh)
Component at MCR at MCR x (8760 h/yr) = $170,820
Difference = $28,470
Pulverizer 430 320
Coal feeder 3 3 Tax on difference = $28,470 x 0.38 = $10,820
Primary air fans 200 175 Difference net of tax = $28,470 − $10,820 = $17,650
Forced draft fans 450 425 Net PV of difference = $17,650 x 9.43 = $166,440
Auxiliary fans and blowers 30 30
Regenerative air heater 10 10 D) Result:
Total maximum auxiliary power 1,123 963 The power system supplied as bid No. 1 will cost
5. Assume the same discount rate, unit life, and SPVF approximately $166,440 more to operate than the system
as in Example 3. supplied under bid No. 2 on a present value basis.

Many factors are involved in specifying and evaluating the economics of a steam generating or emissions control equipment project.

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Accurate and complete technical specifications are 5. combustion technology,

Steam 41 / Equipment Specification, Economics and Evaluation 37-1

37-2 Steam 41 / Equipment Specification, Economics and Evaluation

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37-4 Steam 41 / Equipment Specification, Economics and Evaluation

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37-10 Steam 41 / Equipment Specification, Economics and Evaluation

Steam 41 / Equipment Specification, Economics and Evaluation 37-11

In the financial evaluations, selected penalties or

37-12 Steam 41 / Equipment Specification, Economics and Evaluation

Steam 41 / Equipment Specification, Economics and Evaluation 37-13

37-14 Steam 41 / Equipment Specification, Economics and Evaluation

B) Given: Unit 1 Unit 2 (a) Years 1 to 10 Btu/yr

Steam 41 / Equipment Specification, Economics and Evaluation 37-15

2. Average NPHR  3500 psi cycle  Btu/kWh D) Result:

37-16 Steam 41 / Equipment Specification, Economics and Evaluation

A) Problem: Determine the economic impact of differing C) Solution:

Steam 41 / Equipment Specification, Economics and Evaluation 37-17

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