Process Economics Patricia Osseweijer, Department of Biotechnology, - - PowerPoint PPT Presentation

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Process Economics Patricia Osseweijer, Department of Biotechnology, - - PowerPoint PPT Presentation

Feb 23, 2024 452 likes •748 views

Process Economics Patricia Osseweijer, Department of Biotechnology, Faculty of Applied Sciences Adrie Straathof, Department of Biotechnology, Faculty of Applied Sciences Is the process profitable? $ Evaluate profitability based on: Margin, or

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SLIDE 1

Patricia Osseweijer, Department of Biotechnology, Faculty of Applied Sciences Adrie Straathof, Department of Biotechnology, Faculty of Applied Sciences

Process Economics

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SLIDE 2

Is the process profitable?

$

  • utput

Margin, or net profit Taxes

OPEX

downstream

OPEX

fermentation

OPEX

upstream

CAPEX

fermentation

CAPEX

upstream

CAPEX

downstream

Evaluate profitability based on:

  • Pay back time
  • Return on Investment
  • Net Present Value
  • Internal Rate of Return
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SLIDE 3

Economics

$

Margin

Taxes

OPEX

downstream

OPEX

fermentation

OPEX

upstream

CAPEX

fermentation

CAPEX

upstream

CAPEX

downstream

Revenues = output x product price OPEX: all costs needed for daily functioning

  • feedstock/water/auxiliary materials
  • waste/emissions/energy, when not recycled
  • employment costs, services, etc

CAPEX: all costs for facilitating production

  • buildings/equipment
  • Non-tangible assets: starting up & patents
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SLIDE 4

Economic potential

= key product revenues – key raw materials costs ($/kg product) Allows back of envelope evaluation of process potential

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SLIDE 5

Net Profit

Net Profit = Revenues – OPEX – taxes Revenues depend on:

  • Volumes sold
  • Product price
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SLIDE 6

I’m interested. When will I have earned my money back?

investor

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SLIDE 7

Minimize Return on Investment (ROI) =

Payback Time (PBT) and Return on Investment (ROI)

Total Investment (CAPEX) Net Profit (Margin) Maximize Net Profit Total Investment Payback Time (in years) = 100% Inverse

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SLIDE 8

Rule of thumb (I)

Companies will often be pleased with a payback time of 2-3 years, corresponding to ROI = 33-50%

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SLIDE 9

Net Present Value (NPV)

Shall I put my money on the bank, or invest in this biobased process?

investor

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SLIDE 10

Annual situation after starting up the plant

Product price ($/kg) Output (kg/a) Annum = year

Chosen

  • utput

A certain output/ price relation

Revenues ($/a)

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SLIDE 11

Product price ($/kg)

Tax ($/a)

OPEX ($/a)

Cheaper production at larger scale To be used to repay investments

Use of revenues

Output (kg/a)

Net Profit ($/a)

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SLIDE 12

Cumulative net profit ($) Money flow ($/a) Year of production

1 2 3 4 5 6 7

Pay back time Anticipated Project end Annual Cash flow

Cash flow analysis

payback Investment ($) Investment ($)

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SLIDE 13

Cumulative net profit ($) Money flow ($/a) Year of production

1 2 3 4 5 6 7

Anticipated Project end Negative interest related to kept in bank

Cash flow analysis

Positive interest once investment + negative interest have been surpassed Annual Cash flow Discounted Pay back time Investment ($)

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SLIDE 14

Money flow ($/a) Year of production

1 2 3 4 5 6 7

Cash flow analysis

Cumulated cash flow = cumulated net profit – investment NPV = positive areas minus negative areas ($) = Cumulated cash flow corrected for interest obtained if no investment had been made Investment ($) Cumulative net profit ($)

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SLIDE 15

Net Present Value (NPV)

investor

NPV in formula:

i

  • the interest rate (e.g. 0.07 for 7% interest)

CFk - the net cash flow in year k n

  • the project lifetime (e.g. 10 years)

1 (1

)

n k k k

CF NPV i

=

= +

å

At NPV = 0, saving at the bank or investing in the bioprocess is equally profitable Higher NPV means a more attractive investment!

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SLIDE 16

Internal Rate of Return (IRR)

IRR is the interest rate for which NPV = 0 The IRR must be significantly higher than the interest rate (“discount rate”) at the bank! Riskier project? Investors will demand higher IRR IRR is also referred to as Discounted Cash Flow Rate of Return (DCFR)

16

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SLIDE 17

Rule of thumb (II)

Typically IRR must be higher than 15-30%, compared to a bank interest rate (discount rate) of 5-10%.

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SLIDE 18

Estimating costs: Capital (I)

18

Purchase Equipment Cost (PEC) = What you pay ‘in the store’ Estimate costs of equipment using databases:

http://matche.com/equipcost/EquipmentIndex.html

i is often ~0.6 (dependent on volume/area ratio of equipment) But that is not all!

( )

equipment costs size reference size reference equipment costs =

i

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SLIDE 19

19

Additional investments are needed before the equipment is ready for use! The Direct Fixed Capital (DFC) includes all of the above, and can be 4-7 times higher than cost of bare equipment. Then add another 5-10% start-up costs to get CAPEX.

Total Plant Direct Costs (TPDC) Process piping 0.35 x PEC Instrumentation 0.40 x PEC Insulation 0.03 x PEC Buildings 1.00 x PEC ..etc Total Plant Indirect Costs (TPIC) Engineering 0.25 x TPDC Construction 0.35 x TPDC ..etc Total Plant Cost (TPC =TPDC+TPIC) Contractor fee 0.05 x TPC Contingency 0.10 x TPC ..etc

Estimating costs: Capital (II)

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SLIDE 20

Example DFC calculation (SuperProDesign)

  • A. TOTAL PLANT DIRECT COST (TPDC) (physical cost)

$

  • 1. Equipment Purchase Cost (PC)

from slide 18 12 728 000

  • 2. Installation (summed over all units, incl. unlisted)

Equipment-dependent factor x costs per equipment 4 645 000

  • 3. Process Piping

(0.35 x PC) 4 455 000

  • 4. Instrumentation

(0.40 x PC) 5 091 000

  • 5. Insulation

(0.03 x PC) 382 000

  • 6. Electrical

(0.10 x PC) 1 273 000

  • 7. Buildings

(1.00 x PC) 12 728 000

  • 8. Yard Improvement

(0.15 x PC) 1 091 000

  • 9. Auxiliary Facilities

(0.40 x PC) 5 091 000 TPDC = 48 300 000

  • B. TOTAL PLANT INDIRECT COST (TPIC)
  • 10. Engineering

(0.25 x TPDC) 12 075 000

  • 11. Construction

(0.35 x TPDC) 16 905 000 TPIC = 28 980 000

  • C. TOTAL PLANT COST

(TPDC + TPIC) TPC = 77 281 000

  • 12. Contractor’s fee

(0.05 x TPC) 3 864 000

  • 13. Contingency

(0.10 x TPC) 7 728 000

  • D. DIRECT FIXED CAPITAL (DFC)

TPC + 12 + 13 DFC = 88 873 000

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SLIDE 21

Example Operating Costs (OPEX) (SuperProDesign)

Cost Item $/Year Default calculation

Raw Materials 17 168 000 From flowsheet Labor-Dependent 8 937 000 From flowsheet Equipment (facility)- Dependent 16 571 000

  • Laboratory/QC/QA

1 490 000 15% of labor-dependent costs Consumables 55 397 000 From flowsheet Waste Treatment/Disposal 419 000 From flowsheet Utilities 412 000 From flowsheet Transportation Miscellaneous Advertising and Selling Running Royalties Failed Product Disposal

TOTAL AOC (= OPEX) 100 395 000 100%

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SLIDE 22

Know the size and fragmentation of your market! Calculate the product price that would generate the required IRR If the product is an intermediate in an existing process: Design this base-case process in addition to your proposed alternative

How to set a product price?

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SLIDE 23

Taxes and depreciation

Taxes are paid from gross profit (revenues – OPEX) Depreciation of equipment and other assets is part of the annual costs (OPEX) and therefore lower the profit and taxes SuperProDesign subtracts depreciation from the profit before tax calculation and adds it again after tax calculation. The subtraction is hidden (part of the facility-dependent annual

  • perating costs)

23

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SLIDE 24

Profitability analysis (SuperProDesign)

J

  • A. DIRECT FIXED CAPITAL

From Slide 20 88 873 000 $

  • B. WORKING CAPITAL

Relevant part of OPEX for 1 month 2 456 000 $

  • C. STARTUP COST

0.10 x A 8 887 000 $

  • D. UP-FRONT R&D

0 $

  • E. UP-FRONT ROYALTIES

0 $

  • F. TOTAL INVESTMENT

A+B+C+D+E 100 216 000 $

  • G. INVESTMENT CHARGED TO THIS PROJECT (CAPEX)

100 216 000 $

  • H. REVENUE STREAM FLOWRATES

From flowsheet 19.138 kg product /year

  • I. REVENUE PRICE

External data 9577.70 $/kg product

  • J. REVENUES

H x I 183 293 000 $/year

  • K. ANNUAL OPERATING COST (OPEX)

From Slide 21 100 395 000 $/year

  • L1. PRODUCTION (UNIT) COST

K/H 5477.26 $/kg product

  • L2. SELLING/PROCESSING PRICE

10 000 $/kg product

  • M. GROSS PROFIT

J - K 82 899 000 $/year

  • N. TAXES

40% of M 33 160 000 $/year

  • O. NET PROFIT

M-N+Depreciation 58 182 000 $/year GROSS MARGIN M/J *100% 45.23 % RETURN ON INVESTMENT (ROI) O/F *100% 58.068 % PAYBACK TIME F/O 1.72 years

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SLIDE 25

Economics in a broader spectrum

Issues in economic impact assessment:

  • Effect of policies (subsidies; CO2 price)
  • Effect of markets, new usage of resources
  • Effect of alternatives
  • Effect of time scales for investment and learning effects
  • Effect of context: logistics!
  • Effect of collaboration in the chain
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SLIDE 26

See you next unit

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SLIDE 27

Money flow ($/a) Year of production In- vest- ment ($)

1 2 3 4

Cumulative net profit ($)

5 6 7

Pay back time Anticipated Project end Interest on Cash flow Annual Cash flow Negative interest because investment could have been kept in the bank

Cash flow analysis

Positive interest

  • nce

investment + negative interest have been surpassed

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SLIDE 28

Money flow ($/a) Year of production In- vest- ment ($)

1 2 3 4

Cumulative net profit ($)

5 6 7

Cash flow analysis

Cumulated cash flow = cumulated net profit – investment NPV = both positive areas minus both negative areas ($) = Cumulated cash flow corrected for interest obtained if no investment had been made