Title:  INTEGRATED ENERGY SYSTEMS IN CHINA - THE COLD NORTHEASTERN REGION EXPERIENCE
Division:  Climate, Energy and Tenure Division

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12. Economic analysis of the project


12.1. Introduction
12.2. Illustration of the pilot project
12.3. Collect the data and establish the database
12.4. Search for alternatives
12.5. Evaluate the alternatives
12.6. Identify the best alternative
12.7. Results of economic analysis and proposal plan
12.8. Conclusion


12.1. Introduction

12.1.1. Objectives of the Economic Analysis

Good management consists primarily of making wise decisions; wise decisions in turn involve making a choice between alternatives. Engineering considerations determine the possibility of a project being carried out and point out the alternative ways in which the project could be handled. Economic considerations also largely determine a project's desirability and dictate how it should be carried out. A feasibility study determines either the which or the whether of the proposed project: which way to do it, or whether do it at all.

In an engineering sense, feasibility means that the project being considered is technically possible. Economic feasibility, in addition to acknowledging the technical possibility of a project, further implies that it can be justified on an economic basis as well. Economic feasibility measures the overall desirability of the project in financial terms and indicates the superiority of a single approach over others that may be equally feasible in a technical sense.

In the study, the project is considered in an engineering sense. The ultimate objective of the economic analysis is to provide a decision-making tool which can be used not only for the pilot project but also for demonstration purposes.

12.1.2. Procedure for Economic Analysis

Most engineers can recall the "scientific method", which involves five distinct phases: observation, problem definition, formulation of hypothesis, experimentation, and verification. A similar sequence of ten clearly defined steps is involved in carrying out the economic analysis of a project:

a. Understand the problem.
b. Define the energy integrated system.
c. Collect the data
d. Interpret the data.
e. Devise the alternatives.
f. Evaluate the alternatives.
g. Identify the best alternative
h. Suggest the best alternative to the director of the project and get the feedback information.
i. Monitor the results.
j. Determine that the energy integrated system could be disseminated, including where, and under what conditions.

In order to devise a decision-making tool for economic analysis, a computer programme has been compiled according to the steps mentioned above. Fig. 12.1 shows the analytical framework of the study.

12.2. Illustration of the pilot project

12.2.1. Qualitative Description

The pilot project is a more complex agricultural system than the traditional one. It consists of four subsystems: cropping, animal husbandry, biomass processing and energy end-utilization. Each subsystem may involve different activities. The overall benefit of the project is directly related to these activities. A different combination of the activities will obtain a different result. The activities are constrained by local climate, economic conditions, etc. To optimize its structure all constraints must be considered and the possible activities should be listed before making the economic analysis.

Fig. 12.1 Analytical framework of the study

The activities of the pilot project are described as follows:

- Cropping = {corn, sweet sorghum, fruit trees, vegetables}
- Animal husbandry = {swine, beef cows, meal chickens, egg chickens}
- Biomass processing = {digester, ethanol, pyrolysis}
- Energy utilizing equipment = {boiler, tractor, car, co-generator}

To help understand the systems a material flowchart is given (see Fig. 12.2). The chart clearly shows the relationship between the activities, the systems boundaries, and the inputs and outputs of the system. The main activities of the project are described in detail as follows:

A. Sweet Sorghum

B. Animal Husbandry: Swine

C. Animal Husbandry: Chickens

Figure

* These materials are only used as compensation and for calculating and comparing the economic efficiency of different senarioes.

Fig. 12.2 The material flowchart. D. Ethanol Production Processes

E. Pyrolysis Processes

F. Greenhouses

12.2.2. Quantitative Illustration

A number of forms filled with the data can be used to illustrate the various activities and the whole system according to the qualitative illustration

A. Description of Single Activities

Table 12.1 Forms of the Activity j.

Products

J,F,M, ,.,,.,.,D

Total input or output

P1



P2



.

±eit

±aij

.



.



Pm1



C1



C2



.



.

-crt

Crj

.



Cm2



Notation:

P1, P2,.,.,., Pm1 : nomenclature of products
C1,C2,.,.,.,Cm2: nomenclature of different fixed costs
eit: the quantity of input(-) or output(+) of the product i in the month t
Crt: the amount of fixed cost r in the month %
aij the sum of input (-) or output (+) of the product i during one producing period

crj: sum of the fixed cost r during one producing period in activity j

B. Description of the Whole System

Table 12.2 The Whole System


The data in the system

The data out of the system


X1, X2, .,.,.,.,.,Xn

Q

V1,V2,......V1

E

P1

aij

Pik

ei


P2





.





.





.





Pm1





C1





C2





.

crj




.





C3





Invest.

gj




Life

Nj




Notation:

X 1,X 2,-.Xn: the nomenclature of activities
Q: the column of input (-) or output (+) in physical materials
V 1, V 2,...V1: the column of input (-) or output (+) in money with various estimated prices
E: the column of input (-) or output (+) in discount energy
j: the number of the activities
q j: the amount of the investment of the activity j per unit
N j: the available life of the activity j

12.3. Collect the data and establish the database

12.3.1. Classification of Data

The data of any economic analysis of an engineering project can be classified into three groups:

- Technical coefficients: quantity of products produced or consumed during one period by an elementary unit of each activity. By convention, consumption is given a negative figure while production figures are positive.

- Accounting coefficients: unitary weights of several kinds attributed to each physical unit of product to allow for aggregation. Prices are the typical example of accounting coefficients. They make it possible to evaluate any set of heterogenous products.

- Decision variables: these data are related to the scales of different activities.

The technical coefficients related to the level of management and technical development are normally stable. They seldom need to be modified during the period of economic analysis. But the accounting coefficients are variable. When they change, they affect the results of economic analysis significantly. The conventional approaches to economic analysis normally calculate parameters within only one price. The information which results from such approaches is too limited to be used by a decision-making body. In this way the analysts and decision making-body can input different prices, such as the pessimistic, the most likely, the optimistic, and so on at the same time. They can also modify the coefficients at any time they like. Therefore, the problem of different prices for a product in China can easily be dealt with, and more realistic information can be given to the decision-making body.

12.3.2. Methods of Data Collection

Data is the foundation of any economic analysis. Without reliable data, all the results of economic analyses are useless. In order to get more reliable data, the following methods are used:

- Directly survey the producers or agricultural product sellers
- Consult the statistical sources
- Ask the experts who are working in special fields

12.3.3 Organization of the Data

The pilot project consists of several dozen activities, hundreds of products and thousands of items of data. The structure of the databank depends on what the data are used for. The main goal of the economic evaluation of a project is to give managers more information to support their decision. Therefore, the data are organized into one cube of technical coefficients, one rectangle of accounting coefficients and one rectangle of variables of activities (see Fig.12.3).

Fig. 12.3 Cube and Rectangles of Coefficients

Notation:

PAT= name of time file regarding products and activities;
PTA= name of activity file regarding products and time;
ATP= name of product file regarding activities and time;
WGT= name of accounting coefficient file;
a ijt = technical coefficients;
p ik = accounting coefficients;
X j = variables of activities;
k = type of accounting coefficients;
t = time (month).

The alternative databank is used to store information on decision variables given by decision-making bodies or by the linear programme.

12.4. Search for alternatives

The economic analysis usually revolves around a special alternative. To seek the best alternative or to improve the present plan is the main aim. The best alternative is relative to a group of alternatives. Therefore, to seek for a group of alternatives is an important step in the economic analysis. The following have been used to establish the group of the alternatives:

12.4.1. The "without" Alternative

In the case of energy integrated systems, the without-project situation may be a given area of farm land bearing the crops which suit the natural and socio-economic environment. In the context of the project, these crops could be two-thirds corn and one-third soybeans on 60 hectares of farm land.

12.4.2. The "optimum" Alternatives

After establishing the database of the system, linear programming may be applied to seek for the "optimum" alternatives.

A. The constraints of the linear programming

a. Constrained by the balances of the main products

A. The constraints of the linear programming

a. Constrained by the balances of the main products

Where:

X j - the decision varibles of the activity j
X m1+i - the total output of the system
X m1+ i+1 - the total input of the system

b. Constrained by the pre-requirement for some products

Where: Si - the total quantity required to be gained

c. Constrained by resources such as human labour, electricity, coal, etc.

Where: Di - the maximum of the resource I

d. Constrained by the capacity of equipment

Xj Mm

Where: Mm - the maximum capacity of the equipment j

e. Constrained by the total investment

Where:

q j - the amount of investment required per productive unit
S n - the total investment in the activity j

Beyond the above constraints, some other constraints could be included, according to the requirements of the decision-maker.

B. Objective Functions

The objective functions are related to the goals of the project. In the case of the energy integrated system, the goals can be described with the following functions:

b. Minimize energy input from outside the system. In other words, the system could have the highest rate of energy self-sufficiency.

Where:

g e - discount coefficient of the type of energy e
X e - the amount of energy imported from outside the system
m 3 - the amount of energy imported

To keep the project running economically, the following constraint should be added in this case.

c. Maximize the profit of the project in the case of energy supplied completely by the system itself

The following constraint should be added m3

The above objective functions are applied separately. Therefore, different alternatives are produced.

12.4.3 The Alternatives Raised by the Director

The "optimum" alternatives are subject to special constraints. Only the quantitative elements could be involved in the linear programming model. Concerning the non-quantitative influences, the "optimum" alternatives may not be the "optimum". In order to prevent missing the best alternative reasonable judgement is applied. A group of alternatives are raised by the director and a group of experts according to their experience.

12.4.4 List of Alternatives

With the three approaches, ten alternatives have been produced. They are listed in Table 12.3.

Table 12.3 List of Alternatives

Activities

linear program

Raised by the director

NO.1

NO. 2

NO. 3

NO. 4

NO. 5

NO. 6

NO. 7

NO. 8

NO. 9

NO. 10

Corn chemical fertil. (1mu)

199.00

195.55

100.00

100.00

0.00

100.00

50.00

50.00

0.00

0.00

Corn organic fertili.(1mu)

0.00

0.00

100.00

0.00

100.00

50.00

100.00

50.00

0.00

200.00

Corn organic/chemica (1mu)

0.00

0.00

0.00

100.00

100.00

50.00

50.00

100.00

200.00

0.00

Sw.Sorgh.var. SN249 (1mu)

0.00

0.00

50.00

100.00

0.00

50.00

50.00

100.00

100.00

0.00

Sw.Sorgh.var. ER1195 (1mu)

0.00

0.00

50.00

0.00

100.00

50.00

50.00

0.00

0.00

100.00

Sw.Sorgh.var. R1195 (1mu)

0.00

0.00

50.00

50.00

50.00

100.00

0.00

0.00

100.00

0.00

Sw.Sorgh.var. Roma (1mu)

201.00

204.00

50.00

50.00

50.00

0.00

100.00

100.00

0.00

100.00

Soya chemical fertil. (1mu)

200.00

200.00

100.00

50.00

50.00

100.00

100.00

0.00

0.00

0.00

Soya organic fertil. (1mu)

0.00

0.00

50.00

100.00

50.00

100.00

0.00

100.00

200.00

0.00

Soya organic/chemica (1mu)

0.00

0.00

50.00

50.00

100.00

0.00

100.00

100.00

0.00

200.00

Greenhouse/ cucumber(100m2)

3.90

0.00

0.00

3.90

3.00

2.00

1.90

0.90

5.00

0.00

Greenhouse/ tomato (100m2)

0.00

0.00

3.90

0.00

0.90

1.90

2.00

3.00

0.00

5.00

Cattle raising (head)

30.00

30.00

0.00

0.00

0.00

0.00

0.00

0.00

20.00

50.00

Sow (head)

10.00

10.00

10.00

9.00

8.00

7.00

6.00

0.00

12.00

15.00

Pigs (head)

90.00

90.00

90.00

80.00

70.00

60.00

50.00

100.00

100.00

120.00

Chickens for meat (100 chick)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

10.00

0.00

Chickens for eggs (100 chick)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

10.00

Digester medium temp (1M3)

50.00

50.00

40.00

30.00

20.00

10.00

0.00

25.00

35.00

5.00

Digester normal temp (1M3)

0.00

0.00

0.00

10.00

20.00

30.00

40.00

15.00

5.00

35.00

Ethanol /molasses (T)

100.00

0.00

80.00

80.00

40.00

0.00

150.00

100.00

50.00

50.00

Ethanol /starch (T)

100.00

9.90

80.00

40.00

80.00

100.00

0.00

50.00

100.00

50.00

Ethanol/S.Sstem+ Moll (T)

0.00

0.00

40.00

80.00

80.00

100.00

50.00

50.00

50.00

100.00

Pyrolysis (T)

50.00

5.10

40.00

35.00

30.00

25.00

20.00

15.00

0.00

50.00

Housing (1M2)

300.00

300.00

300.00

300.00

300.00

300.00

300.00

300.00

300.00

300.00

12.5. Evaluate the alternatives

12.5.1 Evaluate the separate activities

An energy integrated system consists of many activities. Whether the individual activities are economically feasible or not would directly influence the feasibility of the whole system. Evaluating the single activities is also important for configuring the system. The economic criteria are calculated based on the coefficients in the database. Fig.12.4 shows the data transfer.

Fig. 12.4 Analytic Steps for Individual Activities

In Fig.12.4:

a it = a ijt
A it = a it · X j

The economical parameters include:

a. Gross revenue per year G k:

(eit>0)

b. Total cost per year C k:

c. Total profit per year F k:

Fk=Gk+ Ck

d. Payback time (years)TK:

TK =I/FK

e. Net present value NPVK:

f. Internal rate of return IRRk:

g. Benefit/Cost ratio BCk

h. NPV/In vestment ratio FIk

12.5.2. Input (-) /Output (+) of Individual Material

The quantity of products produced or consumed by a project is also important to judge whether the project is feasible or not. If the amount of one or two main materials consumed is greater than the limited resources available, the project has to stop running. In order to prevent this from happening, both bar graph and curve line are applied to show the changes in each product during a whole productive period. Fig. 12.5 shows the data transfer:

Fig. 12.5 Steps to Calculate Product Quality

In Fig.12.3:

a jt = a ijt
A jt = a jt · X j

12.5.3. Evaluation of the Whole System

Three types of indices are applied to evaluate the whole system. They are the volume in kind, the volume in money and the volume in discount energy. The economic criteria of the whole project are calculated as shown in Fig. 12. 6.

Fig. 12.6 Working Steps for Evaluating the Whole System

In Fig.12.5:

Vijk=Aij· Pik


where:

A ij= the amount of product produced or consumed in the activity j;
A i = the total amount of product i inputed or outputed to /from the global system;
V ijk= the monetary value of product i produced or consumed by activity j;
V jk = the profit of the activity j;
V ik = the total monetary value of product i produced or consumed by the whole project;
V k = the total profit of the project of a special alternative;
E ij= the discount energy volume of product i produced or consumed by activity j;
E j = the net discount energy produced or consumed by activity j;
E i = the discount energy of product i produced or consumed by the whole project;
E= the total discount energy inputed into or outputed from the whole system with a special alternative.

The tables PAT01, PAT02, and PAT03 indicate the relationships among activities and between the system and its environment separately with the quantity of materials, with monetary value and with energy value. They provide more information to the decision-maker. Table 12.4 and table 12.5, as an example, show the results of the alternative NO. 3.

Table 12.4 The Results of Analysis of the Individual Activities

Activities

Units

Plan

Revenue (Yuan)

Cost (yuan)

Profit (yuan)

BC

Payback time

NPV (yuan)

Energy output

Energy input

Net energy

Corn chemical fertil.

1mu

100

17707.00

-16784.00

932.00

1.05

0.00

0.00

1208049.00

-106404.60

1101644.40

Corn organic fertili.

1mu

100

18992.00

-15450.00

3542.00

1.23

0.00

0.00

1306794.00

- 71637.20

1235156.80

Corn organic/chemica

1mu

0

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Sw.Sorgh.var. SN249

1mu

50

12380.00

- 8005.62

4374.38

1.55

0.00

0.00

314779.00

- 58583.97

256195.00

Sw.Sorgh.var. ER1195

1mu

50

12380.00

- 8005.62

4374.38

1.55

0.00

0.00

333221.50

- 58583.97

274637.53

Sw.Sorgh.var. R1195

1mu

50

12250.00

- 8005.62

4244.38

1.53

0.00

0.00

307650.00

- 58583.97

249066.03

Sw.Sorgh.var. Roma

1mu

50

15000.00

- 8005.62

6994.38

1.87

0.00

0.00

420625.00

- 58583.97

362041.03

Soya chemical fertil.

1mu

100

15510.00

-18632.50

-3122.50

-0.83

0.00

0.00

829450.00

- 88173.86

741276.14

Soya organic fertil.

1mu

50

7217.50

- 6931.62

285.88

1.04

0.00

0.00

366440.00

- 26700.13

339739.87

Soya organic/chemica

1mu

50

7762.50

- 8574.50

-812.00

-0.91

0.00

0.00

422275.00

- 38453.02

383821.98

Greenhouse/ cucumber

100m2

0

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Greenhouse/ tomatoe

100m2

3.9

5850.00

- 4530.17

1319.83

1.29

6.21

-80.22

2457.00

-217437.54

- 214980.54

Cattle raising

head

0

0.00

0.00

0.00

0.00

0.00

0.00

0.00

-302223.83

0.00

Sow

bead

10

21600.00

-12048.25

9551.75

1.79

0.10

57691.37

69957.00

-1277162.21

- 232266.83

Swines

head

90

82080.00

-61450.90

20629.10

1.34

0.44

117756.89

559656.00

0.00

- 717506.21

Chickens for meat

100chick

0

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Chickens for eggs

100chick

0

0.00

0.00

0.00

0.00

0.00

0.00

0.00

- 16484.35

0.00

Medium temp. Digestor

1M3

40

1080.00

- 3027.84

-1947.84

-0.36

-1.64

- 13591.58

101433.60

0.00

84949.25

Normal temp. Digestor

1M3

0

0.00

0.00

0.00

0.00

0.00

0.00

0.00

-2949233.60

0.00

Ethanol /mollasses

T

80

163600.00

-100056.00

63544.00

1.64

4.41

203320.72

2411200.00

-6498510.45

- 538033.60

Ethanol /starch

T

80

162400.00

-84668.00

77732.00

1.92

3.60

311235.77

2411200.00

-2031788.60

-4087310.45

Ethanol/S.Sstem+ Moll

T

40

80000.00

-51812.00

28188.00

1.54

4.97

74400.17

1205600.00

-8817174.00

- 826188.60

Pyrolysis

T

40

22280.00

-14124.00

8156.00

1.58

19.62

-7964.82

5681760.00


-3135414.00

Housing

1M2

300










Table 12.5 The Inputs or Outputs of the Project

NO.

Products

Units

Prices (yuan)

Amount of materials

Quantity in money

Quantity in energy

P01

Mechanic. labour

std mu

2.00

-2015.00

-4030.00

-59805.20

P02

Man labour

day

6.00

-21369.95

-128219.70

-320549.25

P03

Corn seeds

kg

2.00

-700.00

-1400.00

-11480.00

P04

Organ.fertilizer

T

0.00

-837.50

0.00

0.00

P05

Urea

kg

0.53

-3429.25

-1817.50

-37858.92

P06

Ammonia

kg

1.40

-8802.92

-12324.09

-74824.82

P07

Potasium nitrate

kg

1.00

-2400.00

-2400.00

-21600.00

P08

Herbicide

kg

1.10

-60.00

-66.00

-7775.40

P09

Insecticide

kg

0.50

-1400.00

-700.00

-141848.00

P10

Corn grain

kg

0.45

32254.60

14514.57

531878.35

p11

Corn stalk

kg

0.04

90600.00

3624.00

1302828.00

P12

Sweet.Sorgh.seed

kg

2.00

-300.00

-600.00

-4821.00

P13

INSECT

kg

21.00

-8.00

-168.00

-1230.56

P14

Sw.sorghum grain

kg

0.50

71766.60

35883.30

1153289.26

P15

sw.Sorghum stems

T

20.00

-99.50

-1990.00

-15024.50

P16

Soya seeds

kg

2.00

-800.00

-1600.00

-16408.00

P17

D.D.T.

kg

5.00

-20.00

-100.00

-3076.40

P18

Soya beans

kg

1.00

0.00

0.00

0.00

P19

Soya stalks

T

15.00

-510.00

-7650.00

-7701000.00

P20

Cucumber seeds

kg

100.00

0.00

0.00

0.00

P21

Melon seeds

kg

23.00

0.00

0.00

0.00

P22

Plastic film 1

kg

10.00

-64.35

-643.50

-1346.85

P23

Plastic film 2

kg

8.00

-5.85

-46.80

-122.44

P24

Plastic film 3

kg

11.00

0.00

0.00

0.00

P25

Bindings

kg

30.00

0.00

0.00

0.00

P26

HERB IC

kg

40.00

-2.34

-93.60

-359.94

P27

Straw cover

piece

8.00

-78.00

-624.00

-1632.54

P28

Paper cover

piece

10.00

-35.10

-351.00

-734.64

P29

Coal

T

180.00

-199.03

-35825.40

-5831582.98

P30

Planting pot

piece

0.35

-780.00

-273.00

-13057.20

P31

Cucumber

kg

1.80

0.00

0.00

0.00

P32

Tomato seeds

g

0.90

-29.25

-26.00

-244.82

P33

Tomato

kg

2.00

2925.00

5850.00

2457.00

P34

Soya cake

kg

0.90

16421.40

14779.26

303795.90

P35

Soya oil

kg

4.50

4425.00

19912.50

174256.50

P36

Rice mil. residu

kg

0.40

-22244.00

-8897.60

-379482.64

P37

Salt

kg

0.45

-1230.80

-553.86

-20603.59

P38

Pig feed additiv

kg

1.00

0.00

0.00

0.00

P39

Manure

T

0.00

1.18

0.00

0.00

P40

Beef meat

kg

6.50

0.00

0.00

0.00

P41

Water

m3

0.20

-6035.00

-1207.00

-75799.60

P42

Electricity

kwh

0.45

-78481.89

-35316.85

-985732.54

P43

Fish powder

kg

1.10

-4116.80

-4528.48

-71838.16

P44

Bone powder

kg

0.36

-1356.00

-488.16

-22699.44

P45

Piglets

kg

8.00

0.00

0.00

0.00

P46

Pork

kg

3.80

21600.00

82080.00

559656.00

P47

Grain wastes

kg

0.70

0.00

0.00

0.00

P48

Chicken

kg

4.50

0.00

0.00

0.00

P49

Crustac. shells

kg

0.16

0.00

0.00

0.00

P50

vitamin

g

0.15

0.00

0.00

0.00

P51

Chick.feed add.1

g

0.18

0.00

0.00

0.00

P52

chick.feed add.2

g

0.07

0.00

0.00

0.00

P53

Eggs

kg

5.00

0.00

0.00

0.00

P54

Chicks

dozen

2.20

0.00

0.00

0.00

P55

Old chickens

dozen

5.20

0.00

0.00

0.00

P56

Biogas

m3

0.25

0.00

0.00

0.00

P57

Digest.sol.resid

T

0.00

192.00

0.00

0.00

P58

Digest.liq.resid

m3

0.00

614.00

0.00

0.00

P59

Ethanol

T

2000.

197.81

395620.00

5961993.40

P60

Sw.Sorgh.bagasse

T

0.

0.00

0.00

0.00

P61

Charcoal

T

90.

192.00

17280.00

4508160.00

P62

Bio-oil

T

125.

0.00

0.00

0.00

P63

Coal

therm

250.

0.00

0.00

0.00

P64

Diesel

T

750.

-1.81

-1357.50

-75766.60

P65

Gasoline

T

1300.

-11.30

-14690.00

-520252.00

P66

Transportation

T.km

0.25

-13293.91

-3323.48

-203795.64

P67

Molasses

T

150.

-384.00

-57600.00

-160896.00

P68

Corn starch

T

125.

-264.00

-33000.00

-4263600.00

P69

Starch enzyme

kg

8.

-264.00

-2112.00

-2209.68

P70

Sugar enzyme

kg

10.

-800.00

-8000.00

-10048.00

P71

Levure

kg

14.

-336.00

-4704.00

-6609.12

P72

CO2

m3

0.

-39.50

0.00

0.00

P73

vinasses

T

15.

292.00

4380.00

0.00

P74

Sticks for cucum

unit

0.1

-585.00

-58.50

-1222.65

P75

Heifers

head

5.50

0.00

0.00

0.00

P76

Repair services

yuan

1.00

-2953.70

-2953.70

-2953.70

P77

Management servi

yuan

1.00

-2796.40

-2796.40

-2796.40

12.6. Identify the best alternative

12.6.1. Specify the Comprehensive Assessment Measures

The assessment measures should correspond to the objectives of the pilot project. Eighteen criteria classified into four groups are chosen to assess the comprehensive merit of each alternative.

A. High Productivity

a. Measure of crop production

Where:

Q f1 - the total grain production of the alternative f
Q 1max - the maximum of grain production in all alternatives

b. Measure of meat production

Where:

Q f2 - the total meal production of the alternative f
Q 2max - the maximum of meal production in all alternatives

c. Measure of egg production

Where:

Q f3 - the egg production of the alternative f
Q 3max - the maximum of egg production in all alternatives

d. Measure of vegetable production

where:

Q f4 - the total vegetable production of the alternative f
Q 4max the maximum of vegetable production in all alternatives

e. Measure of energy output

B. Measures of high efficiency

a. Measure of the profit

Where:

F f - the total profit of alternative f
F max - the maximum of the profit in all alternatives

b. Measure of the payback times for investment

Where:

T f - the investment payback times of the alternative f
T min - the shortest payback times of in all alternatives

c. Measure of benefit/cost BC

Where:

BC f - the ratio of benefit/cost of alternative f
BC max - the maximum ratio of benefit/cost in all alternatives

d. Measure of the net present value

Where:

NPV f - the net present value of the alternative f
NPV max - the maximum of the net present value in all alternatives.

e. Measure of internal rate of return

Where:

IRR f - the internal rate of return of the alternative f
IRR max- the maximum of internal rate of return in all alternatives

f. Measure of the ratio of NPV/investment

Where:

FI f - the ratio of alternative f
F Imax - - the maximum ratio in all alternatives

C. Measures of sustainability

a. Measure of the organic fertilizer inputed into the system

Where:

F f1 - the volume of organic fertilizer inputed the system in the alternative f
F max - the maximum volume of organic fertilizer inputed the system among all alternatives

b. Measure of the energy self-sufficiency rate

Where:

EI f - the energy inputed from outside of the system in the alternative f (MJ)
EI min - the minimum volume of energy inputed among all alternatives (MJ)

c. Measure of the waste processing rate

Where:

W f - the waste processing rate of the alternative f
W max - the maximum of the waste processing rate among all alternatives

d. Measure of the input/output of the energy

Where:

R f - the ratio of energy input/output of the alternative f
R fmin - the minimum ratio of energy input/output among all alternatives

e. Measure of the self-sufficient energy potential

Where:

K f - the ratio of the self-sufficient energy of alternative f
Kf max the maximum ratio of the self- sufficient energy among all alternatives

D. Measures of social benefit

a. Measure of employment

Where:

Lf - - the man-days required in alternative f
L max - the maximum of the man- days required in all alternatives

b. Measure of pushing the manufacture forward

Where:

I f - the total investment required by the alternative f
I max - the maximum of the total investment required among all alternatives

12.6.2. Specify the Weight Coefficients

The preceding measures may be of varying importance for different decision-makers or in different situations. This ideal is expressed by weight coefficients. The weight coefficients can be modified by decision-makers at any time. The relationship of all weight coefficients is illustrated in Fig. 12.7.

All weight coefficients are subject to:


The comprehensive benefit of an alternative is measured by the volume of H:

12.7. Results of economic analysis and proposal plan

According to the above-mentioned approach, a computer programme has been compiled in dBASE"s-PLUS and BASIC. With this programme, a dozen alternatives have been analyzed and assessed from the comprehensive viewpoints of social, economic and ecological benefits. The results of all alternatives are listed in Table 12.6 and Table 12.7. The best alternative is NO.3. Its, main criteria are:

Main Products:

Grain: 104021.20 kg
Meal: 2925 kg
Vegetables: 21600 kg
Ethanol: 200 T

Economic Benefits:

Total profit : 236757.32
Yuan/Year
Returns: 3.72 year
BC: 1.49
NPV: 801999.58 yuan
IRR : 0.25

Social Benefits:

Employment: 21369.95 man-day
Equipment Investment: 88, 1390 yuan

Ecological Benefits:

Organic fertilizer input: 837.50 T
Rate of energy self-supplied: 0.44
Rate of wastes processed: 0.96
Rate of energy input to output: 0.56
Rate of potential energy self-supplied: 1.58

Fig. 12.7 The Relationship in All Coefficients

Table 12.6 The Criteria of Alternatives

Alternative

High productivity criteria

Sustainable criteria

p1

P2

p3

p4

p5

d1

d2

d3

d4

d5

NO.1

119026.20

4387.50

29100.00

0.00

200.00

402.00

0.52

0.67

0.57

1.94

NO. 2

119301.45

0.00

29100.00

0.00

9.90

408.00

0.62

0.67

0.51

2.17

NO. 3

104021.20

2925.00

21600.00

0.00

200.00

837.50

0.44

0.96

0.56

1.58

NO. 4

112904.68

4387.50

19200.00

0.00

200.00

837.50

0.39

0.91

0.49

1.37

NO. 5

123788.16

4050.00

16800.00

0.00

200.00

1025.00

0.36

0.85

0.57

1.34

NO. 6

115171.64

3675.00

14400.00

0.00

200.00

837.50

0.32

0.76

0.62

1.24

NO. 7

136805.12

3637.50

12000.00

0.00

200.00

837.50

0.27

0.64

0.51

1.12

NO. 8

122190.00

3262.50

24000.00

0.00

200.00

1025.00

0.23

0.80

0.66

1.09

NO. 9

71830.24

5625.00

36200.00

0.00

200.00

1150.00

0.02

0.49

1.09

0.81

NO. 10

80311.20

3750.00

29100.00

7820.00

200.00

1150.00

0.46

0.22

0.48

1.56

Alternative

High efficiency criteria

Social benefits

e1

e2

e3

e4

e5

e6

s1

s2

NO.1

251607.97

3.68

1.47

861870.74

0.26

1.93

20022.90

925940.00

NO.2

77459.41

0.94

1.28

209611.48

1.06

3.88

13480.57

72800.00

NO. 3

236757.32

3.72

1.49

801999.58

0.25

1.91

21369.95

881390.00

NO. 4

231611.42

3.71

1.49

727061.21

0.26

1.85

22198.70

859990.00

NO. 5

236418.70

3.55

1.52

757077.33

0.27

1.90

22400.45

838590.00

NO. 6

230595.63

3.54

1.52

755123.66

0.27

1.92

22306.95

817190.00

NO. 7

206688.16

3.85

1.45

610186.79

0.24

1.77

21165.70

795790.00

NO. 8

223840.22

3.49

1.48

698105.09

0.27

1.89

21063.20

780940.00

NO. 9

240972.82

3.14

1.46

829646.19

0.31

2.10

22049.00

757250.00

NO. 10

253476.38

3.79

1.44

793126.53

0.25

1.82

24146.50

961400.00

12.8. Conclusion

The economic analysis results show that the pilot project is economically feasible at 1992 prices. But we must say that the prices of all products are changing with reform in China and they will dramatically influence the analysis results, especially the prices of the main products, such as ethanol, grain, vegetables, and meal. In the economic analysis the price of ethanol was referenced to the price of using the ethanol as chemicals, not energy. This may be the best way to gain a benefit at present. As fossil fuel prices increase, ethanol may be used for energy in the near future at that time the pilot project will be more economical than it is today.

Table 12.7 The Results of Comprehensive Evaluation

Alternative

High productivity measures W1=0.15

Sustainable measures (%) W3=0.4

wp1=0.1

wp2=0.3

wp3=0.1

wp4=0.2

wp5=0.5

wd1=0.1

wd2=0.3

wd3=0.2

wd4=0.1

wd5=0.3

NO.1

0.87

0.78

0.80

0.00

1.00

0.35

0.84

0.70

0.84

0.89

NO.2

0.87

0.00

0.80

0.00

0.05

0.35

1.00

0.70

0.94

1.00

NO. 3

0.76

0.52

0.60

0.00

1.00

0.73

0.71

1.00

0.86

0.74

NO.1

0.83

0.78

0.53

0.00

1.00

0.73

0.63

0.95

0.98

0.63

NO. 5

0.90

0.72

0.46

0.00

1.00

0.89

0.58

0.89

0.84

0.62

NO. 6

0.84

0.65

0.40

0.00

1.00

0.73

0.52

0.79

0.77

0.57

NO. 7

1.00

0.65

0.33

0.00

1.00

0.73

0.44

0.67

0.94

0.52

NO. 8

0.89

0.58

0.66

0.00

1.00

0.89

0.37

0.83

0.73

0.50

NO. 9

0.53

1.00

1.00

0.00

1.00

1.00

0.03

0.51

0.44

0.37

NO. 10

0.59

0.67

0.80

1.00

1.00

1.00

0.74

0.23

1.00

0.72

Alternative

High efficiency measures W2=0.25

Soc. Benefit W4=0.2

Final result

wel=0.1

we2=0.1

we3=0.2

we4=0.1

we5=0.3

we6=0.2

ws1=0.6

we2=0.4

NO.1

0.99

0.26

0.97

1.00

0.25

0.32

0.96

1.00

0.73

NO.2

0.31

1.00

0.84

0.24

1.00

1.00

0.08

0.09

0.65

NO. 3

0.95

0.26

0.99

0.93

0.25

0.32

0.92

0.85

0.72

NO. 4

0.91

0.25

0.98

0.84

0.25

0.30

0.89

0.76

0.71

NO. 5

0.93

0.26

1.00

0.88

0.25

0.31

0.87

0.72

0.70

NO. 6

0.91

0.27

1.00

0.88

0.25

0.32

0.85

0.66

0.66

NO. 7

0.82

0.24

0.95

0.71

0.23

0.27

0.83

0.57

0.62

NO. 8

0.88

0.27

0.97

0.81

0.25

0.31

0.81

0.36

0.63

NO. 9

0.95

0.30

0.96

0.96

0.29

0.38

0.79

0.28

0.58

NO. 10

1.00

0.25

0.95

0.92

0.24

0.28

1.00

0.96

0.73

References

1. Biet, B., L.Bodrial, et al., Dessemination of Renewable Energies in Farms and Rural Villages: Barrier and Policy Measures, Rome, Italy, FAO, 1988.

2. Biet, B., G. Pellizzi, et al., Integrated Energy System Design and Assessment: Application to Farms, Rome, Italy, FAO, 1988.

3. Biet, B., G.Castelli, et al., Manual on Design and Assessment of Integrated Farm Energy Systems, Rome, Italy, FAO, 1988.

4. Hafemeister David, Henry Kelly, & Barbara Levi. Energy Sources: Conservation & Renewable, American Institute of Physics, 1985.

5. Lkoku, U; C,: Economic Analysis and Investment Decisions, John Wiley & Sons. 1985.

6. William, R., P.E. Park, Cost Engineering Analysis, John Wiley & Sons, Inc., 1973.

7. L. Bretton, Mission Report, 1992


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