Economic model used in this study

In order to evaluate the economic feasibility of the 30 tons/day process for upgrading waste tyres to limonene in this study, an economic model was developed, which takes into account changes in the main process. An overview of the proposed economic model is provided in Figure 55. The different components of the model are detailed in the numbers (sections) shown in brackets.

Pre-treatment

(Chapter 4)

Cost estimation

Profitability analysis “Discounted cash flow”

(5.5) Pyrolysis Separation Heat recovery Process Capital cost “Study estimate method” (5.2) Operating costs (5.3) Revenue (5.4) IRR, NPV, PBP (5.1.2) Scenario analysis (5.6) Sensitivity analysis (5.7)

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In the economic model shown in Figure 55, the equipment requirement, and utilities and/or chemicals usage associated with each individual section of the process is used for estimation of the capital and operating costs. The resulting (capital and operating) cost estimates are combined with the revenue estimate and then used as input for a discounted cash flow analysis to determine profitability. The output of the cash flow analysis is the key economic indicators (KEI), which are used as a measure of profitability, and form a basis for comparison of the various scenarios considered in this study. The KEI also form the basis of economic sensitivity analysis for the most profitable scenario.

5.1.1. Main assumptions

The discounted cash flow rate of return (DCFROR) analysis is used for profitability analysis in this study. Profitability can be evaluated on a discounted or a non-discounted basis. A discounted basis takes the effects of time into account, whereas a non-discounted basis does not account for the effects of time (Seider et al., 2004; Turton et al., 2009). The discounted profitability analysis was chosen in this study as it provides a much better view of the profitability of the project over the entire project life (Seider et al., 2004).

All cash flow analyses in this study are on a nominal term basis, which means that the effects of inflation on future revenues and expenses are not taken into account.

A base year of 2016 is used for all cost estimates in this study. Cost indices will be used to adjust for equipment whose original costs are of a different base year, such that their 2016 costs can be obtained. Various cost indices such as Chemical Engineering plant cost index, Nelson-Farrar refinery construction index, Marshall and Swift process industry index, and the Engineering News record construction index can be used to account for inflation (Turton et al., 2009). These indices show similar inflationary trends with time; the Chemical Engineering plant cost index (CEPCI) is commonly used (Turton et al., 2009). A cost index of 556.8 is used for the year 2016 in this study, which was obtained from Chemengonline (2016).

In this study, all equipment cost estimations based on costs of similar equipment of different capacities were performed using the sixth-tenths-factor rule. According to Peters and Timmerhaus (1991), cost estimation for an equipment that has no available cost data for a particular operating capacity can be performed (with good accuracy) using known cost data for a similar equipment of a different capacity. This can be achieved using a logarithmic relationship known as the sixth-tenths- factor rule (shown in Equation 3), provided that the two pieces of equipment are within a tenfold capacity range of each other.

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6+7 -315 = 8/0') -315 ∗ _{8/0') -'4'-59}6+7 -'4'-59 :

Equation 3  is the exponential factor, which is typically taken as 0.6.

Project lives of 10, 12, and 15 years are typically used for profitability analysis of chemical plants (Turton et al., 2009). For this study, a project life of 10 years is chosen, as the project evaluated is a small plant that should be expected to show reasonable profitability at the minimum project life possible. A waste tyre pyrolysis study by Pilusa et al. (2014) showed reasonable profitability within a project life of 5 years even though only primary products were produced. It is also assumed that the plant in this study will be constructed and started-up within 1 year as it is a small plant. The plant in the study by Pilusa et al. (2014) was also assumed to be constructed and started up within 6 months of delivery of process equipment. The plant in this study will operate for 8000 hours/year, following guidelines by Sinnott and Towler (2009), and what has been done in other literature studies for continuous pyrolysis plants (Nsaful, 2012; Naleli, 2016).

Cash flow generation takes into account taxation and depreciation of the equipment. A tax rate of 28% is used in this study, which is the tax rate set for businesses in South Africa (South African Revenue Services, 2016).

The depreciation method chosen for this study is the straight-line depreciation method over a period of 10 years. Straight-line depreciation is the simplest and most common method of depreciation, and it has been used in several pyrolysis economic evaluation studies (Nsaful, 2012; Dutta et al., 2015; Naleli, 2016). The plant equipment is depreciated to its salvage value at the end of project life. A salvage value of zero is used in this study, as the salvage value is difficult to estimate, and a salvage value of zero is usually assumed (Seider et al., 2004; Turton et al., 2009).

In this study, it is assumed that the project will be fully equity financed, which means that there is no loan payment (principal debt and interests) expenses. Equity financing is less risky as there exists no obligation to repay the money invested (Marsh, 1982).

For all cases where conversion is made between the South African rand and the USA dollar, an average conversion rate of R15/$ is used based on exchange rate trends for the year 2016, obtained from the South African Reserve bank (2016). The 2016 exchange rate graph is shown in Figure D1 (Appendix D).

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5.1.2. Key economic indicators (KEI)

The KEI typically used in DCFROR analysis are: payback period (PBP), net present value (NPV), and internal rate of return (IRR). The profitability analysis in this study will be based on these KEIs. Each of the indicators is discussed briefly:

• The PBP is the required time after start-up to recover the total depreciable capital. This is the point at which the sum of the annual earnings equals the total depreciable capital. It is used in early stages to compare alternatives. A PBP of less than 2 years is desired for high risk projects, and PBP should typically not exceed 4 years for a project to be attractive.

• The NPV is the current worth of all cash flow in the project throughout the project life. The cash flows at the end of each time period are discounted (at a desired discount rate), summed up and brought back to the first time period. This accounts for time value of money, and an NPV of above zero indicates profitability, while an NPV of less than zero indicates otherwise. • The IRR is the discount rate at which the NPV equals zero. This indicates the maximum rate at

which money can be borrowed and the project still breaks even at the end of project life. An IRR of less than the lending rate results in a negative NPV (non-profitable) while an IRR greater than lending rates results in a positive NPV (profitable).

The different items that are required for DCFROR in order to generate the KEIs are discussed in section 5.2 to section 5.4.