The evaluation of wood-fired cogeneration investments using Monte-Carlo simulation

Journal Article · Wed Jan 01 04:00:00 EST 1992 · Engineering Economist; (United States)

OSTI ID:7204223

Meimban, J J; Morris, J S; Govett, R L

This paper discusses Monte-Carlo simulation used in a capital budgeting decision involving the purchase of a wood-fired cogeneration plant. Two alternative capacities, 6-MW and 9-MW plants, were considered in the analysis using net present value as the evaluation criterion. Risk profiles were generated for both investments as well as for the mean and variance of returns. When cash flows were approximated using annual cash flows, the resulting risk profiles did not produce a clear choice. However, using more realistic monthly cash flows, the 6-MW plant showed both a higher return and more realistic monthly cash flows, the 6-MW plant showed both a higher return and less risk than the 9-MW facility. The difference in the results arise from the fact that the annual-period model masks the effects of the inherent monthly variability of some cash flows and timing of cash savings.

• OSTI ID: 7204223
• Journal Information: Engineering Economist; (United States), Journal Name: Engineering Economist; (United States) Vol. 37:2; ISSN 0013-791X; ISSN ENECA
• Country of Publication: United States
• Language: English

Related Subjects

29 ENERGY PLANNING, POLICY, AND ECONOMY
290800* -- Energy Planning & Policy-- Heat Utilization-- (1980-)
ALLOCATIONS
BUDGETS
DUAL-PURPOSE POWER PLANTS
ECONOMIC ANALYSIS
ECONOMICS
ENERGY SOURCES
FUELS
INVESTMENT
MONTE CARLO METHOD
POWER PLANTS
SIMULATION
WOOD FUELS