9588ch07 frame Page 85 Wednesday, September 5, 2001 9:47 PM

Cost Estimating

Cost is a basic and crucial decision-making factor in the selection of air-pollution

control equipment. Evaluating costs can be straightforward, as long as there is an
understanding as to the objective of the analysis and an appreciation of the time
value of money. The classic cost trade-off is between capital and operating costs.
This chapter is designed to assist the practicing engineer with cost engineering
techniques for estimating capital cost of equipment and for determining the annualized cost of operating air-pollution control systems, such as required for the cost
analysis portion of a BACT analysis. It is not intended to cover detailed cost
accounting methods that include different types of depreciation and taxes.

7.1 TIME VALUE OF MONEY

Because of interest and inflation, a dollar in U.S. currency today will be worth more
than a dollar in the future. Right off the bat we must distinguish between the real
interest rate, which does not include inflation, and the nominal interest rate, which
includes inflation. The real or constant dollar cost analysis considers the return
on investment as profit. This type of analysis frequently is used by engineers because
it is straightforward, easy to use, and easy to understand. Annual operating and labor
costs of $100,000 this year will remain at $100,000 per year in 10 years. To be clear,
the analysis is stated to be in year 2000 dollars.
Conversely, inflation reduces the value or buying power of the currency with
time. $100,000 worth of materials and labor this year will require more money in
10 years. The real and nominal interest rates are related by:

(1 + i n ) = (1 + i) (1 + r )

(7.1)

where
in = nominal interest rate
i = real interest rate
r = annual inflation rate
Financial decisions that include the effect of income taxes use the nominal
interest rate because both depreciation deductions and taxes are figured on the basis
of nominal dollars.

7.1.1 ANNUALIZED CAPITAL COST

The key to annualizing capital cost in real, pre-tax dollars is to calculate the capital
recovery factor (CRF).

2002 by CRC Press LLC

9588ch07 frame Page 86 Wednesday, September 5, 2001 9:47 PM

i (1 + i)
(1 + i)n 1
n

CRF =

(7.2)

where
CFR = capital recovery factor
i
= real pretax marginal rate of return on private investment
n
= economic life of the equipment for the analysis
The product of the capital recovery factor and the capital cost, or investment (P),
is the annualized capital recovery cost (CRC).
CRC = CRF P

(7.3)

7.1.2 ESCALATION FACTORS

Several cost indexes are available that reflect current costs to a baseline cost. Examples include the Marshall & Swift Equipment Cost Index and the Chemical Engineering Plant Cost Index. Specific to the air-pollution control industry is the Vatavuk
Air Pollution Control Cost Index.1 An index is used to convert a known cost at one
point in time to an escalated cost at another point in time. The conversion is simply
the ratio of the index values for the two points in time.
Indexes are useful for the time periods covered by the index. The Vatavuk Air
Pollution Control Cost Index begins in the first quarter of 1994 with a baseline value
of 100. Cost data obtained prior to 1994 cannot be escalated using the Vatavuk index,
but the Marshall & Swift Equipment Cost Index can be used from a baseline date
of 1926.
Vatavuk Air Pollution Control Cost Indexes are provided for specific air-pollution control devices, including carbon adsorbers, catalytic incinerators, electrostatic
precipitators, fabric filters, flares, gas absorbers, mechanical collectors, refrigeration
systems, regenerative thermal oxidizers, and wet scrubbers. Updated values of the
indexes are published in each biweekly issue of Chemical Engineering. Annual
values for these indexes are provided in Table 7.1

7.2 TYPES OF COST ESTIMATES

The accuracy of the project cost estimate and the effort required to calculate it must
be appropriate for the decision being made. The American Association of Cost
Engineers lists2 three types of estimates:
Order of magnitude
Budget
Definitive
The order-of-magnitude cost estimate uses rules-of-thumb based on prior experience. The only data requirement is the system capacity. Frequently an exponential
2002 by CRC Press LLC

9588ch07 frame Page 87 Wednesday, September 5, 2001 9:47 PM

TABLE 7.1
Vatavuk Annual Average Air-Pollution Control Cost Index1

Carbon adsorbers
Catalytic incinerators
Electrostatic precipitators
Fabric filters
Flares
Gas absorbers
Mechanical collectors
Refrigeration systems
Regenerative thermal oxidizers
Thermal incinerators
Wet scrubbers
a

1994

1995

1996

1997

1998

1999

2000a

101.2
102.0
102.8
100.5
100.5
100.8
100.3
100.5
101.4
101.3
101.3

110.7
107.1
108.2
102.7
107.5
105.6
103.0
103.0
104.4
105.9
112.5

106.4
107.0
108.0
104.5
104.9
107.8
103.3
104.4
106.3
108.2
109.8

104.7
107.7
108.8
106.2
105.8
107.6
103.9
106.1
107.9
109.4
109.0

103.6
106.5
109.2
109.5
103.6
109.7
111.0
107.6
108.9
110.5
109.7

100.8
102.9
101.2
111.7
99.4
110.9
119.6
105.7
108.1
108.1
108.8

107.8
113.0
101.0
113.2
104.5
112.8
121.8
106.1
109.1
108.0
113.7

Preliminary.

factor of 0.6 is used to factor the capacity of large facilities.3 The accuracy of orderof-magnitude is supposed to be +50% to 30% rather than a factor of 10 as the
name implies. However, there is little control of accuracy, and this approach may
amount to a best-guess with a very high level of inaccuracy.
Budget estimates typically have an accuracy of +30% to 15%. These estimates
require knowledge of the site, flow sheet, equipment, and buildings. Also, rough
specifications for items such as insulation and instrumentation are needed.
Definitive cost estimates, accurate to within 20%, require complete plot plans,
piping and instrument diagrams, specifications, and site surveys, as well as vendor
bids for major equipment.
Perrys Chemical Engineers Handbook describes five levels of detail and accuracy for cost estimates:4

Order-of-magnitude
Study (factored) with an accuracy of 30%
Preliminary (budget authorization) with an accuracy of 20%
Definitive (project control) with an accuracy of 10%
Detailed (firm or contractors) with an accuracy of 5%

Note that these definitions for level of accuracy are not consistent between the two
sources, which can easily lead to confusion when one simply refers to a descriptor
such as a budget or definitive estimate. Even describing an estimate by its desired
accuracy can be misleading. To achieve a desired level of accuracy, it is best to
define the resources and approach that are to be used to develop the cost estimate.
Air-pollution control equipment cost estimating at the study level with 30%
accuracy has received a great deal of attention because of the requirement to determine the cost effectiveness for best available control technology (BACT) analyses.
To make a good study estimate, the following resources4,5 should be used:
2002 by CRC Press LLC

9588ch07 frame Page 88 Wednesday, September 5, 2001 9:47 PM

Location of the source within the plant

Preliminary process flow sheet
Preliminary sizing and material specifications for major equipment
Approximate sizes and types of construction of any buildings required to
house the control system
Rough estimates of utility requirements (e.g., steam, water, electricity,
etc.)

7.3 AIR POLLUTION CONTROL EQUIPMENT COST

7.3.1 OAQPS CONTROL COST MANUAL
To assist permit applicants and reviewing agencies, and to bring some semblance
of consistency to the permit applications, the EPA has published guidelines5 for
estimating the cost of various equipment including thermal and catalytic incinerators,
carbon adsorbers, fabric filters, electrostatic precipitators, flares, refrigerated condensers, gas absorbers, and hoods, ductwork, and stacks. The manual provides a
good overview of cost estimating methodology, descriptions of the control equipment
and fundamentals of operation, cost correlations based on size and materials, and
factors for operating costs.

7.3.2 OTHER COST-ESTIMATING RESOURCES

The OAQPS Control Cost Manual does not discuss all air-pollution control devices,
nor does it cover large, complex air-pollution control systems such as flue gas
desulfurization systems. Traditional engineering cost estimating approaches may be
applied in these cases. The design engineer produces a bill of materials including
individual equipment items (vessels, pumps, blowers, exchangers, etc.). Using the
equipment size and weight and material of construction, a cost-estimate can be
produced. Common sources of equipment cost estimates include Perrys Chemical
Engineers Handbook4 and Richardsons Process Plant Construction Estimating
Standards.6 Additional material has been published by Vatavuk,7 who is also the
primary author and editor of the OAQPS Control Cost Manual. A large amount of
detailed cost information on utility flue gas desulfurization systems has been sponsored and published by the Electric Power Research Institute.8,9

REFERENCES
1. Vatavuk, W. M., Escalation Indexes for Air Pollution Control Costs, U.S. Environmental Protection Agency, EPA-452/R-95-006, Research Triangle Park, NC, 1995.
2. Humphreys, K. K. and Katell, S., Basic Cost Engineering, Marcel Dekker, New York,
1981, 108.
3. Peters, M. S. and Timmerhaus, K. D., Plant Design and Economics for Chemical
Engineers, 3rd ed., McGraw-Hill, New York, 1980, 183.
4. Perry, R. H., Green, D. W, and Maloney, J. O., Perrys Chemical Engineers Handbook, 7th ed., McGraw-Hill, New York, 1997, 964.

2002 by CRC Press LLC

9588ch07 frame Page 89 Wednesday, September 5, 2001 9:47 PM

5. OAQPS Control Cost Manual, 5th ed., U.S. Environmental Protection Agency, EPA
453/B-96-001, Research Triangle Park, NC, 1996.
6. Process Plant Construction Estimating Standards, Richardson Engineering Services,
Inc., San Marcos, CA, 2001.
7. Vatavuk, W. M., Estimating Costs of Air Pollution Control, Lewis Publishers, Chelsea,
MI, 1990.
8. Keeth, R. et al., Economic Evaluation of FGD Systems, GS-7193, Vol. 1 and 2,
Electric Power Research Institute, Palo Alto, CA, 1991.
9. Keeth, R. J., Ireland, P. A., and Radcliffe, P. T., Economic evaluations of 28 FGD
processes, presented at 1991 EPRI/EPA/DOE SO2 Control Symp., Washington, D.C.,
Dec. 36, 1991.

2002 by CRC Press LLC