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Master of Engineering (Sustainable Energy) Sustainable Energy Systems and Design MIET2129

Master of Engineering (Sustainable Energy) Sustainable Energy Systems and Design MIET2129. Semester 2 , 2018 Week 2, Tue sday 6 March 2018 Professor John Andrews. This week’s session. Triple bottom line evaluation Economic and financial assessment Your biomimicry examples

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Master of Engineering (Sustainable Energy) Sustainable Energy Systems and Design MIET2129

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  1. Master of Engineering (Sustainable Energy)Sustainable Energy Systems and DesignMIET2129 Semester 2, 2018 Week 2, Tuesday 6March 2018 Professor John Andrews Sustainable Energy Systems and Design MIET2129 RMIT University

  2. This week’s session • Triple bottom line evaluation • Economic and financial assessment • Your biomimicry examples • Triple Bottom Line evaluation – an example Sustainable Energy Systems and Design MIET2129 RMIT University

  3. Evaluation techniques FINANCIAL (Simple payback period, IRR, PW, levelised unit cost, lifecycle cost) SOCIAL COST BENEFIT ANALYSIS ENVIRONMENTAL ECONOMICS TECHNICAL ECONOMIC EVALUATE TECHNOLOGICAL OPTIONS TRIPLE BOTTOM LINE SOCIAL IMPACT ANALYSIS (incl. surveys, interviews, focus groups, forums, public meetings, social groups and impacts on these, intra and inter-generational impacts ) SOCIAL ENVIRONMENTAL LIFECYCLE ANALYSIS ENVIRONMENTAL IMPACT ANALYSIS ECOLOGICAL FOOTPRINT Sustainable Energy Systems and Design MIET2129 RMIT University

  4. The triple bottomline ECONOMIC SOCIAL ENVIRONMENTAL What do you understand by the TBL? Sustainable Energy Systems and Design MIET2129 RMIT University

  5. The Triple Bottom Line • ECONOMIC • Private Profit, Payback period, Rate of return, Lifecycle cost • Social benefits and costs (in dollar terms) • SOCIAL • Impacts on society as a whole, communities, employees and their families • ENVIRONMENTAL • Impacts on the natural environment (flora, fauna, ecosystems, and natural resources – energy, minerals, land, air, water, biomass) Sustainable Energy Systems and Design MIET2129 RMIT University

  6. Financial and economic analysis • Simple payback period • Discounting • Present worth • Internal rate of return • Lifecycle costing Sustainable Energy Systems and Design MIET2129 RMIT University

  7. Simple payback period For example, a solar water heater costs $1000 more than a conventional gas water heater, and results in annual savings in gas bills of $100 Hence simple payback period = 1000/100 = 10 years Sustainable Energy Systems and Design MIET2129 RMIT University

  8. Simple payback period – more general definition If Bi = net benefit (that is, saving or benefit minus cost) in year i K = capital cost (or incremental capital cost) of a technology/project Simple payback period is given by the value of N such that: Sustainable Energy Systems and Design MIET2129 RMIT University

  9. Discounting Having money in your pocket now is worth more than gaining the same amount of money at some time in the future Paying a bill at some time in the future is better for you financially than paying it now DISCOUNTING is the method used in economics and finance to convert future benefits and costs to PRESENT VALUES Sustainable Energy Systems and Design MIET2129 RMIT University

  10. Discounting 2 Invest $100 at an interest rate of 5%: After 1 year it will be worth 100(1+0.05)=$105 After 2 years, its worth will be 100(1+0.05)2=$110 After 10 years, 100(1+0.05)10=$163 In general, after n years, 100(1+0.05)n Hence, $100 in 1 year’s time is really worth only 100/(1+0.05) now, since 100/(1+0.05) invested now for one year at 5% interest rate will give 100x(1+0.05)/(1+05) = $100 after one year Sustainable Energy Systems and Design MIET2129 RMIT University

  11. Discounting 3 $100 in n years time at 5% discount rate will be worth In general, the present value (PV) of $Xn in n years time at a real discount rate of f is given by the Single Payment Present Worth factor: If X is positive, it represents a benefit or income If X is negative its represents a cost or expenditure Sustainable Energy Systems and Design MIET2129 RMIT University

  12. Discounting 4 Note: Discounting is NOT the same thing as allowing for inflation Work with constant $ values, e.g. $A(2017), that is, all costs and benefits expressed in terms of dollar values as in 2017, and real discount rates and you don’t need to worry about inflation Sustainable Energy Systems and Design MIET2129 RMIT University

  13. Discounting 4: discount factor = 1/(1+f)n Sustainable Energy Systems and Design MIET2129 RMIT University

  14. Present Worth or Net present value (NPV) of a project One-off initial capital investment of K Real discount rate of f, over N years Recurrent cost in year i = Ci Benefit (revenue) in year i = Bi Salvage or residual value of plant/equipment at end of assessment period = SN Sustainable Energy Systems and Design MIET2129 RMIT University

  15. Present Worth (or NPV) Residual/salvage value: • Positive if can sell equipment at end of year N • Negative if have to pay to dispose of or clean up wastes • Take care to get signs right in Class Exercise! Normally a project should show a positive NPV if it is to get the go-ahead The higher the NPV the more economically attractive the project is. Sustainable Energy Systems and Design MIET2129 RMIT University

  16. Rate of Return Compares financial returns from an investment in a project over a given period with those from an investment at a fixed interest rate over the same period. E.g. If a company seeks a 15% rate of return on an investment of $1000 over 5 years, it will need to get net annual earnings equivalent to those from investing $1000 over 5 years at a 15% interest rate. Real rate of return = Nominal rate of return - Inflation rate Sustainable Energy Systems and Design MIET2129 RMIT University

  17. Internal rate of return Internal rate of return (r), given by the value of f for which NPV = 0, that is, r is found by solving the equation: In other words, the internal rate of return (IRR) is the discount rate that makes the net present value of the net benefits over the assessment period equal to the initial capital cost. Sustainable Energy Systems and Design MIET2129 RMIT University

  18. To calculate Internal Rate of Return • Usually hard to solve for r analytically • Use trial and error to find value of f that makes NPV =0 • Or plot NPV against f and the intercept of the curve on the f axis gives r. • A helpful formula if (Bi – Ci) is constant is the Uniform Series Present Worth factor: Sustainable Energy Systems and Design MIET2129 RMIT University

  19. IRR methods 1. Excel spreadsheet + formulae • Write PW = Formulae for component terms in spreadsheet • keep discount rate f a variable in formulae, with value defined in a particular cell • Iterate f (or use Solver) until PW=0 to desired level of accuracy • IRR = value of that makes PW=0 Sustainable Energy Systems and Design MIET2129 RMIT University

  20. IRR methods 2. Excel spreadsheet: cash flow by year • List costs and benefits in each year (0 – 20) • Use Single Payment Present Worth factor to convert net benefit in each year to present values (keep f a variable in formulae, defined in a particular cell) • Sum series of annual present values • Iterate f (or use Solver) until sum annual present values=0 to desired level of accuracy Sustainable Energy Systems and Design MIET2129 RMIT University

  21. IRR methods 3. Excel spreadsheet: graph • List costs and benefits in each year (0 – 20) • Use Single Payment Present Worth factor to convert net benefit in each year to present values (keep f a variable in formulae, defined in a particular cell) • Sum series of annual present values to get PW • Repeat for a few values of f • Plot PW(f) vs f and find value of f that gives PW=0 (intercept of f-axis) Sustainable Energy Systems and Design MIET2129 RMIT University

  22. IRR and payback period • A technology paid for by a single capital payment at the beginning of its operational lifetime and yielding equal annual net benefits has a simple payback period of two years. Assuming the annual benefits keep accruing over each year, what is the internal rate of return of the technology over (a) 5 years, (b) 10 years. • WORK OUT ANSWERS IN CLASS Sustainable Energy Systems and Design MIET2129 RMIT University

  23. Lifecycle costing Compare technologies by calculating the NPV of their total costs (capital and operating) over their entire lifetimes, including residual value (e.g. through resale or recycling) or costs of disposal and any ongoing waste treatment. If K = capital cost of technology Ci = operating cost in year i L = lifetime of technology in years RL = residual value (+ or -) at the end of year L f = discount rate Sustainable Energy Systems and Design MIET2129 RMIT University

  24. Your examples • Biomimicry • Constructive Technology Assessment • Industrial Ecology • Design for Environment • TBL • Other? Sustainable Energy Systems and Design MIET2129 RMIT University

  25. Biomim egs Sustainable Energy Systems and Design MIET2129 RMIT University

  26. The Triple Bottom Line: • ECONOMIC • Private Profit, Payback period, Rate of return, Lifecycle cost • Social benefits and costs (in dollar terms) • SOCIAL • Impacts on society as a whole, communities, employees and their families • ENVIRONMENTAL • Impacts on the natural environment (flora, fauna, ecosystems, and natural resources – energy, minerals, land, air, water, biomass) REFERENCE: Cannibals with Forks: The Triple Bottom Line of 21st Century Business, J Elkington, 1999 Sustainable Energy Systems and Design MIET2129 RMIT University

  27. Environmental – 1Environmental impact analysis Projects of national significance: Commonwealth Environment Protection and Biodiversity Conservation Act 1999 Projects of State significance: State Government legislation: E.g. Environment Effects Act Victoria Firm level: ISO14001 certification EPA regulations Greenhouse Challenge Sustainable Energy Systems and Design MIET2129 RMIT University

  28. Environmental – 2Greenhouse gas emissions impact • National Greenhouse Accounts Factors 2017 (Blackboard/Course Content) • https://www.environment.gov.au/system/files/resources/5a169bfb-f417-4b00-9b70-6ba328ea8671/files/national-greenhouse-accounts-factors-july-2017.pdf • Coal: Table 1 (scope 1) • Natural gas: Table 2 (scope 1) • Petroleum fuels for transport: table 4 (scope 1) • Electricity: Table 5 (scope 2) • Scope 3: Table 41 Sustainable Energy Systems and Design MIET2129 RMIT University

  29. NGA Factors 2015: • Scope 1 emissions: • Direct (or point-source) emission factors • kilograms of carbon dioxide equivalent (CO2-e) emitted per unit of activity at the point of emission release (i.e. fuel use, energy use, manufacturing process activity, mining activity, on-site waste disposal, etc.). • Scope 2 emissions: • Indirect emission factors • Calculate kilograms of CO2-e per unit of electricity consumed by an organisation • Emissions produced by the burning of fuels (coal, natural gas, etc.) at power station. • Scope 3 emissions: • indirect emissions attributable to the extraction, production and transport of fuels to point of consumption • indirect emissions from the extraction, production and transport of fuel burned at power stations • indirect emissions attributable to the electricity lost in delivery in the transmission and distribution network. • Use scope 1 + 2, or scope 2 + 3 factors in your project reports Sustainable Energy Systems and Design MIET2129 RMIT University

  30. Environmental – 2Life Cycle Assessment • LCA lectures, weeks 6 and 7. Sustainable Energy Systems and Design MIET2129 RMIT University

  31. Social • Social: • Identify relevant social goups • How are they affected? • What are their interests, and how do these impact on design and implementation of a project/technology NB: Do not just talk about the impact alone, without mentioning the group(s) of people causing it, and the group(s) affected by it! Sustainable Energy Systems and Design MIET2129 RMIT University

  32. Sustainable Energy Systems and Design MIET2129 RMIT University

  33. Processes for social impact analysis No formal requirement for SIA as such. Usually covered at Federal and State level by issue/project specific processes, such as: • Health impact studies • Employment impact studies • Government Commissions of inquiry (e.g. current building industry inquiry) • Parliamentary Committee inquiries (e.g. Senate inquiry into treatment of refugees) • Inquiries by Government agencies (e.g. Productivity Commission report on gambling) • Studies of impacts on indigenous people Also federal and state environmental impact legislation requires impacts of projects on the social environment to be considered Sustainable Energy Systems and Design MIET2129 RMIT University

  34. METHODS OF ASSESSING SOCIAL IMPACTS Quantitative • Social benefit-cost analysis • Census • Surveys Qualitative • Interviews • Focus groups • Community/consultative meetings/forums • Case studies • Field research • Comparative cross-cultural/historical research Sustainable Energy Systems and Design MIET2129 RMIT University

  35. Social impacts - examples • Employment – number, type of jobs, location, job satisfaction • Distribution of costs and benefits • OH&S • Health and well-being generally – individual/community • Noise, vibration • Aesthetic – ‘visual pollution, scenic degradation • Impacts on users (behaviour, convenience, acceptance…) • Relocation… Sustainable Energy Systems and Design MIET2129 RMIT University

  36. Start from here in week 3 • Start with IRR for payback = 2 y over 5 and 10 years. From fin eval spreadsheet, worksheet 2 Sustainable Energy Systems and Design MIET2129 RMIT University

  37. TBL Assessment: Case study • Solar hydrogen systems for remote area power supply Sustainable Energy Systems and Design MIET2129 RMIT University

  38. A basic stand-alone PV-hydrogen RAPS system Sustainable Energy Systems and Design MIET2129 RMIT University

  39. Competing options • PV array + battery storage • Diesel generator + battery storage • PV array + diesel generator + battery storage • Solar – hydrogen energy system Sustainable Energy Systems and Design MIET2129 RMIT University

  40. TBL evaluation criteria • Economic • average unit cost of electricity energy supplied taking into account full lifecyle cost of each component • 5% real discount rate • Environmental • Greenhouse gas emissions (in operation) • LCA of whole system (including components) [useful, but not done here] Sustainable Energy Systems and Design MIET2129 RMIT University

  41. TBL criteria - continued • Social • Level of service provided, including reliability • User attitudes and experience • Safety, including regulations and standards Sustainable Energy Systems and Design MIET2129 RMIT University

  42. Economic evaluation Input data/ assumptions Sustainable Energy Systems and Design MIET2129 RMIT University

  43. Economic evaluation - 2 Sustainable Energy Systems and Design MIET2129 RMIT University

  44. Environmental evaluation Sustainable Energy Systems and Design MIET2129 RMIT University

  45. Social evaluation Sustainable Energy Systems and Design MIET2129 RMIT University

  46. TBL ASSESSMENT SUMMARY Sustainable Energy Systems and Design MIET2129 RMIT University

  47. TBL ASSESSMENT SUMMARY – Solar H2 system case study Sustainable Energy Systems and Design MIET2129 RMIT University

  48. Conclusions • Weigh up evaluations on all three criteria • Recommend a preferred option if a clear preference is evident Sustainable Energy Systems and Design MIET2129 RMIT University Low-temperature Multi-Effect Evaporation Desalination Systems coupledwithSGSP

  49. Food providers • See week 1 presn Sustainable Energy Systems and Design MIET2129 RMIT University

  50. Tasks for coming weeks • Economic assessment class exercise: due to be submitted via Blackboard/Assignments-Turnitin by end of 8 April 2018. For one question (on LCOE) you will need the week 3 presentation. • Week 3 session, Tues 13 March. Economics 2, plus PROJECT TOPICS – preliminary discussion in second half of the session • Post Project Brief on Assignments on Blackboard by end of Week 5, 30/03/18, for feedback • Note Week 4 and 5 sessions on TRNSYS modelling are in the computer lab room at RMIT Bundoora East 253.02.05 on Tuesday 20 and 27 March, 6.00 – 9.00 pm Sustainable Energy Systems and Design MIET2129 RMIT University

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