AdvancedTopic 93 of 100Materials & Chemical
Process economics
Capital and operating cost, NPV and payback evaluate projects.
In depth
Capital cost (equipment, installation, indirect), operating cost (raw materials, utilities, labour) and revenue feed measures: payback, ROI, NPV, IRR. Cost estimation from capacity factors (six-tenths rule C₂=C₁(Q₂/Q₁)^0.6), Lang factors and CEPCI index. Sensitivity and risk analysis follow.
Key points
- Time value of money
- Depreciation
- Break-even
ExampleDoubling plant capacity increases cost by only about 52% under the six-tenths rule.
What is Process economics?
Capital and operating cost, NPV and payback evaluate projects.
Why is it important to understand process economics?
Process economics decides whether a project is worth building, so cost estimates and profitability measures guide investment decisions.
What is net present value?
The sum of discounted future cash flows minus the initial investment, which shows whether a project adds value at the chosen discount rate.
What is payback period?
The time needed for cumulative cash flow to repay the initial investment, which is simple but ignores cash flows after payback.
How is Process economics used in practice?
Typical applications include comparing the net present value of two plant options with different capital costs, estimating the payback period of an energy saving retrofit and checking the operating cost of a process with changing raw material prices.
What should I learn before Process economics?
Study "Process simulation" first (topic 92 of 100 in Materials & Chemical). It covers the groundwork this topic builds on.
What are the key points of Process economics?
Time value of money. Depreciation. Break-even.
Can you give an example of Process economics?
Doubling plant capacity increases cost by only about 52% under the six-tenths rule.
What comes after Process economics?
The next topic is "Biochemical engineering", which builds directly on this one.
How difficult is Process economics?
It is classed as Advanced in Materials & Chemical (topic 93 of 100). It is an advanced topic. It assumes you are comfortable with the intermediate topics in Materials & Chemical.