Investing in a heat pump system Dominion Energy, Inc., commonly referred to as Dominion is an American energy company headquartered in Richmond, Virginia that supplies electricity in parts of Virginia, North Carolina, and South Carolina and supplies natural gas to parts of Utah, West Virginia, Ohio, Pennsylvania, North Carolina South Carolina, and Georgia. Dominion undertakes assignments related to energy production, supply and consumption and efforts to reduce CO, emissions The Dominion is responsible for supporting the economic efficiency of the supply sector, which in addition to energy, comprises socially vital areas such as water, waste and telecommunications. The Dominion sets a solid professional fingerprint on the policies pursued in this area and ensures the best possible conditions for the Americans to have delivery of a stable supply The Dominion has existed since 1972 and is part of a group jointly organized under the United States Department of Energy, Utilities and Climate. In connection with the implementation of the energy reserves for the 2016 budget, funds have been set aside for initiatives over a three-year period 2016-2018 that will help to propagate large heat pumps. 

The funds are carmarked for a traveling team that will advise district heating plants and other stakeholders on concrete options for the establishment of large heat pumps The Dominion's traveling team aims to help district heating plants and other stakeholders, such as processing companies, with the implementation of heat pump solutions. The team advises on specific opportunities for the establishment of large heat pumps. The advice is based on available energy resources and other technical conditions that determine the possibilities in the individual surrounding areas. The following assignment is based on the premise that the Dominion has carried out a technical and economie evaluation of utilizing excess heat in the cooling towers of a company that produces industrial pases. Instead of cooling the industrial process by using electricity and water, cooling is proposed to be done by using a heat pump system that draws heat out of the cooling towers and use it to heat the district heating plant network. It is expected that the company will reduce the cost of electricity and water for cooling by 2 million USD per year. The proposed heat pump system is powered by electricity and produces 5 MW of thermal power. 

The facility's COP (Coefficient Of Performance), which is an expression of the relationship between the energy of the heat pump's output and input, is 4, which means that if the input to the heat pump is 1 kWh of electricity, the output will be 4 kWh of heat. A COP of 4 is a relatively high value for a heat pump, and can be achieved here because in this case, 3-4 heat pumps are linked together The price of the heat supplied to the district heating network is 337 USD MWh. The price of the electricity that drives the heat pump is 1.10 USD/kWh. The company works in three shifts, seven days a week, year round, but the heat pump system is only expected to be in operation for 360 days a year. The investment in the heat pump itself is 12 million USD. In addition, connection to pipelines, a transformer, a building for the transformer and design work cost 3 million USD. The lifetime of the investment is assumed to be 15 years and a discount rate is 8% per annum is used. The largest expense in the operating costs is the cost of electricity to operate the heat pump. In addition, maintenance, etc. will cost 2 million USD per year. 

 

1. Preform sensitivity analysis of a measure of merit (net annual worth and net present worth) to variation, over a range of +100% of some selected input cash flow parameters and graph the results. This analysis is intended to tackle the impact of errors in estimating various values of the input parameters. The Dominion company has decided to conduct the sensitivity analysis with the aim of providing the higher management with information concerning the risk behavior on investment economic effectiveness due to possible uncertainty for some critical input cash flow parameters. The selected parameters for the analysis are:

a) Discount rate: some reports anticipate projected increase on lending interest rate in the near future

b) Expected life of the project

c) Electricity price

d) Plot the one-at-a-time where x = percent deviation from most likely value and y= Annual worth (dollar)

e) Plot the one-at-a-time where x = percent deviation from most likely value and y= Present worth (dollar),

2. Define the most sensitive parameters and perform a muitiparameter sensitivity analysis for this problem. Draw a diagram to illustrate your answer where x= change in parameter 1, and y=change in parameter II. (Hint: two graphs for net annual worth and net present worth).