Modeling industrial-boiler retirement economics

Conference · Thu Jan 01 04:00:00 EST 1981

OSTI ID:6487222

Baker, J E; Grogan, P J; Hanson, D A; Streets, D G

An important assumption in forecasting the future industrial-boiler fuel mix is the rate at which existing boilers are retired. Retirement methodologies based on a fixed percentage of fuel demand may overestimate the capacity actually retired and therefore overestimate the number of new boilers subject to the new source performance standards (NSPS). A study was conducted to analyze the technical and economic factors involved in boiler retirement and fuel-switching decisions. The objectives were to demonstrate the effect of fuel-conversion economics on the boiler-retirement decision, and to discuss the implications of these effects for boiler-retirement modeling. The focus of the study was motivated by boiler failure or physical wear and fuel conversion economics. It was found that when adequately maintained, industrial boilers deteriorate very slowly, and boiler life can be prolonged over extensive periods of time, if not indefinitely. A simple cost comparison between oil and coal neglects a number of real barriers to industrial coal use: environmental, institutional, and site-specific. There is also value to the firm in postponing retirement decisions, hoping to take advantage of technology and cost improvements and better information on fuel availability and environmental regulations. These intangibles can be combined into a cost differential premium that must be overcome to induce industrial boiler owners to switch to coal. The base case analysis looks at an 87 x 10/sup 6/ Btu/hr boiler operating at 55% capacity utilization rate; with a real, aftertax discount rate of 8%, an inflation rate equal to 10%, and an investment tax credit of 10%. With coal at $2/10/sup 6/ Btu, the breakeven oil price for conversion is $6/10/sup 6/ Btu or $38/bbl. Therefore, a switch to coal may not be economically justified even in the base case (premium = 0%).

• Research Organization: Argonne National Lab., IL (USA)
• DOE Contract Number: W-31109-ENG-38
• OSTI ID: 6487222
• Report Number(s): CONF-810574-3; ON: DE83008513
• Country of Publication: United States
• Language: English

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DECISION MAKING
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ENERGY SOURCES
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FUEL SUBSTITUTION
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PETROLEUM