Economics

Detailed Economics

 

The economics of an air compressor system for a facility depend on the following major cost components:

  • Annual energy cost [Go]
  • Annual maintenance cost [Go]
  • Installed equipment cost [Go]

These cost components are used to estimate other economic factors that are used for selecting a preferred air compressor system. Some of the most common economic criteria used for selecting a preferred system:

  • Simple payback period [Go]
  • Rate of return on investment [Go]
  • Lower life cyle cost [Go]

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Annual Energy Cost

Estimating the annual energy cost is the most important, and the most complex and time-consuming aspect of evaluating the economics of an air compressor system. Such an estimate requires the following information:

  • Air compressor operating schedule per shift (or during on-peak, mid-peak, off-peak periods): load factor, hours/day, days/week, weeks/month
  • Rated capacity of the air compressor package at full load: horsepower, cfm, operating pressure
  • Performance characteristics of the air compressor package: electric motor efficiencies, engine natural gas consumption at full load (MMBtu/hp-hr), heat recovered from the compressor
  • Applicable gas and electric utility rates, and power demand charges: during each shift (or on-peak, mid-peak and off-peak periods)

In order to facilitate preliminary economic assessment of various available air compressors using gas and electric energy, the Energy Solutions Center funded the development of its Air Compressor Advisor software, a full-featured tool for evaluating the relative economics of various alternative air compressor packages. This software package also incorporates information on the various manufacturers of natural gas engine-driven air compressors and technical data on the various packaged systems available from these manufacturers. (More information on features, pricing and how to purchase the Air Compressor Advisor)

To obtain quick preliminary estimates of potential annual energy cost savings from deploying natural gas engine-driven air compressors, go to Quick Economics. For a Quick Economics estimate, you need to enter only average annual usage and energy rates and system information — in under a minute, you’ll get an estimate of potential annual energy cost savings, rate of return on investment, and simple payback period.

Annual Maintenance Cost

Annual maintenance cost of natural gas engine-driven chillers is higher than for an electric chiller of comparable capacity because of the higher maintenance cost of the engine. Typical incremental maintenance cost of the engine chillers is in the range of 1.0-1.5 cents per ton-hr more than that for an equivalent capacity electric compressor. These estimates include the cost of oil changes, routine tune-ups, and an escrowed amount for top-end overhauls and major engine overhauls or replacements.

Installed Equipment Cost

Generally, the installed cost of natural gas engine-driven air compressors is higher than that for the same capacity electric air compressors. The installed cost premium for the gas system, compared to the electric system, depends on the system capacity. Generally, the larger the system capacity, the smaller is the cost premium per horsepower.

Simple Payback Period

The simple payback period for a natural gas engine-driven air compressor refers to the time it takes to recover the premium installed cost for this equipment, over that for an equivalent capacity electric air compressor, by the operating cost savings expected to be accrued through its use. Some companies use the simple payback period as a criterion for evaluating various alternatives.

Others argue that the simple payback period is not a fair criterion for evaluating various alternatives because savings in energy costs continue to accrue through the equipment’s full useful life, which might extend much beyond the payback period. The simple payback period, though easy to calculate, could be misleading for evaluating various options because it neither considers the time-value of money nor does it consider net benefits of a product beyond the payback period.

Rate of Return on Investment

Natural gas engine-driven air compressors save energy cost by reducing plant power demand and electric energy consumption compared to electric air compressors. If the incremental installed cost of a natural gas engine-driven air compressor, over that for an electric air compressor, is treated as an investment, and the annual savings in its energy cost are treated as the return on that investment, typically this rate of return is very attractive. Generally, a rate of return of more than 20% could be considered attractive for this type of investment.

Lower Life-Cycle Cost

Even though the equipment and maintenance costs of a natural gas engine-driven air compressor are higher than those for an electric air compressor, the life-cycle cost of an engine-driven air compressor can be much lower than that for an electric air compressor because of the significant savings in energy cost over its useful life of more than 20 years

Life-cycle costs are simply the present values of the various cash flows over the useful life of the equipment. In addition to the installed first cost of the equipment and annual operating (energy and maintenance) cost, calculations for life-cycle cost also require data on useful equipment life, interest rate, energy cost escalation rates for gas and electricity, and general inflation rate. The present value functions are available in all major spreadsheet software.