The Department of Energy (DOE) has carried out a technical and economic evaluation of utilizing excess heat in the cooling towers of a company that produces industrial gases. 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 uses 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 $319,000 per year.

The proposed heat pump system is electrically powered and produces 5 megawatts (MW) of thermal power. The facilitys coefficient of performance (COP) which relates the heat pumps energy output to its input is 4, which means that if the input to the heat pump is 1 kilowatt-hours (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 3-4 heat pumps are linked together. The price of the heat supplied to the district heating network is $53.74/MWh*. The price of the electricity that drives the heat pump is $0.175/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 $1,914,000. In addition, connection to pipelines, a transformer, a building for the transformer and design work cost $478,000. The lifetime of the investment is assumed to be 15 years and a discount rate of 8% is used.

The largest part of operating costs is the cost of electricity to operate the heat pump. In addition, maintenance will cost $315,000 per year.

Question 2

Calculate the equivalent uniform annual worth for all cash inflows and outflow. Also state the annual worth on a net basis.