Imagining the processing plant : techno-economic analysis for R&D

October 3rd, 2018

Myriam Baril, ing.

What is a techno-economic analysis?

A techno-economic analysis allows to:• Visualize a process at the industrial level• Evaluate if scale-up is technically possible• Validate the economic feasibility of a concept

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Why in R&D?

Why is techno-economic analysis relevant in R&D?

• Find opportunities to optimize costs• Identify environmental impacts• Compare two processes• Compare costs with mature processes and technologies

Why in R&D?

Manage costs before theyoccur

The sooner costs are managed, the greater the impact

Cost Engineering Vol 38/No 10

Why in R&D?

When is the good timing to do a techno-economic analysis?

During R&D, to know the order of magnitude of the costs associated with the process and to start thinking about scale-up

Before industrial scale-up, to confirm technical and economical feasibility

Elements

Step 1 : Define production volumes

• Data source: market study• One of the major sources of deviation of techno-economic studies

OR

Elements

Step 2 : Building a block diagram of the process

• Well-defined processing steps• Identification of inputs and outputs• Identification of energy-consumming steps

Elements

Step 3 : Do a mass and energy balance of the process

• Quantification of inputs and outputs• Calculation of energy requirements• Calculation of process yield

xxx kg/day

xxx kg/day

xxx kg/day

xxx m³/day

xxx m³/day

xx kg/day

xx kg/dayxx kg/day

x kg/day

Yield = xx%

xx kg/day

Elements

Step 4 : Evaluate the costs• Capital investment

– Identify equipment according to defined capacity– Obtain acquisition costs– Calculate direct and indirect costs

• Manufacturing costs– Raw materials/supplies– Energy– Labor– Other (environment, overhead, etc)

20%

5%

5%

30%

40%

Fixed Capital Overhead Energy Labor Raw materials

Elements

Step 5 : Do a sensitivity analysis• Identify the main cost drivers

– Raw material« A » is responsible for 40% of the manufacturing cost

– What is the influence of changing the proportion of « A » in the formulation?

– What is the impact of a price change of « A »?

Elements

Step 6 : Calculate the expected profit margin• Example:

Selling price(retail) 10,00 $/ kgSelling price (wholesaler) 7,00 $ / kgSelling price(manufacturer) 5,00 $ / kgΣ Manufacturing costs 4,00 $ / kgProfit margin 1,00 $ / kg (20%)Sales volume 1 000 000 kg/yearNet income (before taxes) 1 000 000$/year

Go or no-go?

Anticipate profit margins for the distribution network

Elements

Step 7 : Identify the main risks and uncertainties• Examples:

– Will my future profitability be tied to the low-cost supply of an ingredient distributed by a single supplier?

– Will I be able to manage the by-products generated by my process?– Have I planned how to manage my effluents?– Etc

Expected accuracy range

All studies do not have the same accuracy AACE estimate classes (American Association of Cost Engineers)

Class Typical End Usage Expected AccuracyRange

Class 5 Concept screening -30 to 50%

Class 4 Confirmation of economic and/or technicalfeasibility, project screening, etc -15% to +30%

Class 3 Budget -15% to +30%

Class 2 Budget control, bid evaluation -5% to +15%

Class 1 Control basis for project execution -5% to +15%

*Adapted from AACE International Recommended Practice No 18R-97

R&D

Conclusion

Act on costs when the effect is the biggest and the investment of time and money is the smallest

See this exercise as a tool to find ways to optimize and develop an even more efficient product or process

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Questions?