Method for Estimating Escalation and Interest During Construction (EDC And IDC)

摘要

The capitalized cost of a completed energy project often exceeds its estimate by a considerable amount. This is due to escalation on commodities purchased during construction (EDC) and interest paid on funds used to purchase those commodities (IDC). This paper presents a simple methodology to relate the capitalized cost of a project at commercial operation. Several payout (purchasing) strategies are considered, and formulas are derived for the relationship. Where a simple formula is not forthcoming, such as in the case of a skewed S-shape cash flow, tables for Escalation During Construction and Interest During Construction factors are provided. EDC and IDC are strong functions of inflation and duration of construction. An optimum construction strategy is the one that minimizes when the date of commercial operation is known. Factors involved in this minimization process include general inflation rate of the economy, specific escalation rate of commodities, interest rate on funds used during construction, and construction period. The formulation as provided in this paper allows the selection of an optimum construction strategy. A numerical example is also provided. (ERA citation 03:048065)