Economic and Financial Aspects of Distributed Generation

Ari Rabl and Peter Fusaro

CONTENTS

8.1 Comparing Present and Future Costs

8.1.1 The Effect of Time on the Value of Money

8.1.2 Discounting of Future Cash Flows

8.1.3 Equivalent Cash Flows and Levelizing

8.1.4 Discrete and Continuous Cash Flows

8.1.5 The Rule of Seventy for Doubling Times

8.2 The Life Cycle Cost

8.2.1 Cost Components

8.2.2 Principal and Interest

8.2.3 Depreciation and Tax Credit

8.2.4 Demand Charges

8.2.5 The Complete Cost Equation

8.2.6 Cost per Unit of Delivered Electrical Energy

8.3 Economic Evaluation Criteria

8.3.1 Life Cycle Savings

8.3.2 Internal Rate of Return

8.3.3 Payback Time

8.4 Optimization

8.4.1 A Simple Example

8.4.2 The Cost of Misoptimization

8.5 Basics of Electrical Energy Financial Transactions

8.5.1 Forward Markets

8.5.2 Futures Markets

8.5.3 Spread Trading

8.5.4 Exchange for Physical

8.5.5 Price Swap

8.5.5.1 Why Use Energy Swaps?

8.5.5.2 Different Types of Swaps Users

8.5.6 Caps and Floors

8.5.7 Price Protection Programs

8.5.7.1 Natural Gas Swaps

8.5.7.2 New Types of Energy Swaps Developing Rapidly

8.5.8 Options

8.5.8.1 Average Price Options

8.5.8.2 The Dealer's Book

8.5.8.3 Summary

8.5.9 Banking Aspects 8.6 Nomenclature References

Additional Reading

We do not live in paradise, and our resources are limited. Therefore, it behooves us to try to reduce the costs of energy to a minimum — subject, of course, to the constraint of providing energy demands for an industrial process or maintaining the desired indoor environment and services to a building. In the final analysis, the minimum costs of energy systems drive both design and DG system operation. Although succinctly stated, finding the optimum is subject to uncertainties such as future energy prices, future rental values, future equipment performance, and future and different uses of a building.

This chapter covers three topics: (1) economics; that is, life cycle costs of equipment and energy flows, (2) optimization of initial DG system design and ongoing operation, and (3) financial considerations having to do with buying and selling electricity. Considered first are the basics of engineering economics, sometimes called microeconomics. Costs and benefits of a given DG system design are found using this approach. A handful of equations handle most microeconomic analyses. For those who prefer to omit the algebraic details, charts and graphs of all key parameters are also provided.

Solar Stirling Engine Basics Explained

Solar Stirling Engine Basics Explained

The solar Stirling engine is progressively becoming a viable alternative to solar panels for its higher efficiency. Stirling engines might be the best way to harvest the power provided by the sun. This is an easy-to-understand explanation of how Stirling engines work, the different types, and why they are more efficient than steam engines.

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