Publication

Analysis of the economic criteria used in energy efficiency optimization of industrial systems

2011
Student Projects

Abstract

A previous study, of Wenk, 2011, showed, in the case of a simple heat exchanger model, inconsistencies between optimization results with different investment decision criteria. As a result, a deep analysis of the state of the art in financial decision making has been realized. Decision criteria were tested with theoretical case studies. Five theoretical energy efficiency projects and Wenk’s, 2011 simple heat exchanger optimization model were used to critically analysis the outcomes of the application of the payback, IRR and NPV decision rules. Payback and IRR showed as expected inconsistencies. NPV has proved to be the best suitable decision variable for the optimization of industrial system. In parallel, the still broad application of payback in the industry, even under evidences of drawbacks, is discussed.

Official source

https://infoscience.epfl.ch/entities/publication/9f3e6355-0cce-4f3d-99e5-add467b90ee2

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2011
Student Projects

Abstract

Official source

https://infoscience.epfl.ch/entities/publication/9f3e6355-0cce-4f3d-99e5-add467b90ee2

About this result

Related concepts (32)

Mathematical optimization

Mathematical optimization (alternatively spelled optimisation) or mathematical programming is the selection of a best element, with regard to some criterion, from some set of available alternatives. It is generally divided into two subfields: discrete optimization and continuous optimization. Optimization problems arise in all quantitative disciplines from computer science and engineering to operations research and economics, and the development of solution methods has been of interest in mathematics for centuries.

Program optimization

In computer science, program optimization, code optimization, or software optimization, is the process of modifying a software system to make some aspect of it work more efficiently or use fewer resources. In general, a computer program may be optimized so that it executes more rapidly, or to make it capable of operating with less memory storage or other resources, or draw less power. Although the word "optimization" shares the same root as "optimal", it is rare for the process of optimization to produce a truly optimal system.

Internal rate of return

Internal rate of return (IRR) is a method of quantifying the merits of a project or investment opportunity. The calculation is termed internal because it depends only on the cash flows of the investment being analyzed and excludes external factors, such as returns available elsewhere, the risk-free rate, inflation, the cost of capital, or financial risk. The method may be applied either ex-post or ex-ante. Applied ex-ante, the IRR is an estimate of a future annual rate of return.

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Analysis of the economic criteria used in energy efficiency optimization of industrial systems

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