Analysis of the incremental cost method and the net present value method applied in the energy sector

Abstract

The study characterizes hybrid sources applied in the power industry, created with the use of unconventional energy sources. An example of cooperation of heat pumps and conventional sources was used. The article notes the technological progress also concerning heat exchangers. To calculate economic efficiency, the MKN Incremental Cost Method and the NPV Net Present Value method were used. The article refers to the calculation of investment outlays and operating costs and repayment of a bank loan for individual heat sources. The possibility of assuming separate values of discount rates for the installation of heat pumps and hybrid boilers as well as the comparative installation were shown. Also included is the possibility of adopting a separate discount rate for income derived from savings associated with the purchase of fuel and energy and the sale of heat to a third party consumer. The analysis covered the MKN Incremental Cost Method and the NPV Net Present Value method. The computational algorithm contains costs of hybrid installation with heat pumps and costs of a comparative conventional installation in a version without revenues and with revenues from the sale of heat. Presented is the method of calculating the net present value in the next year of operation, discounting to the zero year and observing in which year the positive value will be obtained. Economic calculations, according to popular views, are the basis for choosing the optimal heating variant. Ecological effects and social demand may provide additional separate criteria in the selection of the heating system.