Jack approach to establish the feasibility of a

Jack LarmerReframing the Economics of Combined Heat and Power ProjectsSummary:One of the greatest challenges associated with executing a combined heat and power (CHP) project pertains to the ability to let the public and decision-makers know about its costs and benefits. The main reason for this is the failure to apply economic approaches that accurately calculate the long-term benefits and financial outlays. As a result decision makers find themselves using arbitrary factors to arrive at courses of action rather than focusing on the simple inquiry as to whether the initiative is a good long-term investment.Currently, most utilities employ a simplistic payback period approach to establish the feasibility of a CHP initiative. The approach simply entails calculating the period it will take to recoup the project cost. By doing so, utilities overlook long-term cash flow as well as the monetary time value. Additionally, the estimated payback duration is often shortened to a three to five-year timeframe instead of using reasonable timelines such as 10, 20, or even 30 years. The simplistic calculations only serve to yield incomplete information that ultimately results in flawed decisions. The key factors that need to be taken into account before initiating CHP projects include:- The time value of money- Risk assessment- Long-term sustainability- Utilities A perfect example is the City of St. Petersburg’s move to build an anaerobic digestion as well as CHP that considered the projects’ full cycle rather than following the simplistic payback strategy. The project is poised to achieve annual cost savings of an estimated $3 million, and also increase in value within the first 20 years.Reflection: The text is complicated, but I was able to grasp the gist of it. The Water Environment Research Foundation makes a credible case for a departure from the traditional and simplistic payback approach used when gauging the prospects of CHP projects. Admittedly, there are sections that are rather complicated and require additional reading especially the areas that involve ratio explanations. However, it comes out clearly that there is an urgent necessity to use a holistic approach to decision making.


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