The Importance of using Discounted Cash Flow Methodology in Techno-economic Analyses of Energy and Chemical Production Plants

摘要

This paper demonstrates the correct application of discounted cash flow methodology for evaluating and designing energy and chemical production plants. Such processes usually correspond to capital intensive long-term projects. Simple economic criteria, like theprofit or production cost are insufficient for this type of decision making because they do not take into account the time value of money and underestimate the profitabilities of the evaluated plants. This paper shows that some of those criteria based on the discountedcash flows establish suitable compromises between long-term cash flow generation and profitability. As several alternative options are usually evaluated in parallel, it is shown how to rank mutually exclusive alternatives properly and how to select the best optionfrom among them. Two large-scale case studies demonstrate that using discounted cash flow methodology can result in substantially different decisions than non-discounted criteria, however, these decisions are affected by several input parameters.