Cost Considerations

Table of Contents:

Evaluating several remedial alternatives for cleaning up a site almost always involves a life cycle cost assessment (LCCA), which in effect is the net present worth (NPW), or net present value (NPV), of the life of the project. Here, we provide a few fundamental principles for calculating the LCCA for remedial alternatives. A more detailed approach to this topic can be found in the U.S. EPA and U.S. Army Corps of Engineers’ document A Guide to Developing and Documenting Cost Estimates During the Feasibility Study (U.S. EPA and U.S. ACE 2000).

Capital Costs and Operation and Maintenance (O&M) Costs

Capital costs are the initial costs for the design, construction, and equipment needed to operate a remediation system. Operational costs include monitoring, operation, maintenance, and repair costs that are required to keep the project in operation, for example, costs of energy and labor for maintenance.

A more detailed look at the cost items for capital and O&M costs is included in Table 9.2, for a site using air sparging (AS) and soil vapor extraction (SVE) for groundwater and vadose zone soil remediation.

Life Cycle Cost Assessment (LCCA)

Costs that are considered in a typical LCCA for remediation are capital and O&M costs. The numerical value of life-cycle costs (LCC) is typically defined as shown in Eq. 9.1.

Where NPW0&M is the net present worth of O&M costs. Because remediation projects last many years, an engineering economic analysis is necessary. In engineering economic analysis, we consider that the capital cost is incurred in Year 1, and the O&M costs are incurred in Years 1 through n. Because the project owner is likely to have money invested to pay for the remediation, then we must calculate the net present worth (NPW) of the annualized O&M costs. An interest rate, t, is used to adjust for the expected growth of the investment over the years.

Therefore, for the number of years, n, that the project will operate, the net present worth cost considering equal annualized O&M costs is

where A is the projected annual O&M expense, and i is the projected interest rate for n years. Note that NPW0&M is not merely A x n because when money is invested and grows at a rate of i, less money is needed to be available at the outset of the project.

Therefore, the term ————-Д is a number less than n.

i(l + 0

TABLE 9.2

Cost Items for an Air Sparging and Soil Vapor Extraction Project. (Based on U.S. EPA and U.S. ACE 2000)

Capital Cost Items

O&M Cost Items

Professional/Technical Services
  • • Project Management - planning, community relations, bid and contract administration, permitting
  • • Remedial Design - analysis of field data, pilot studies, plans and specifications, construction cost estimate
  • • Construction Management - construction observation, schedule tracking, change order review, design modifications
  • • Project Management - planning, community relations, cost and performance reporting, permitting
  • • Technical Support - O&M manual updates, O&M oversight, progress reports

Institutional Controls

• Zoning, property easements, deed notice

• Zoning, property easements, deed notice

Field-Related Activities
  • • Mobilization/Demobilization - construction equipment, implementation plans (health and safety, stormwater pollution prevention plan, etc.), temporary facilities (office trailer, storage, fencing), as-built drawings, O&M manual
  • • Sampling - air monitoring, health and safety monitoring, personal protective equipment, soil sampling, groundwater sampling, laboratory chemical analysis, geotechnical testing
  • • Site Work - clearing and grubbing, excavation, stockpiling, hauling, waste disposal, grading, utilities (electrical, telephone, water/gas), storm drainage
  • • Air Sparging - purchase and installation of injection wells, air compressor, piping
  • • Soil Vapor Extraction - purchase and installation of extraction wells, blower, treatment system, piping
  • • Monitoring, sampling, testing, and analysis - air monitoring, health and safety monitoring, personal protective equipment, soil sampling, groundwater sampling, process water sampling, process air sampling, laboratory chemical analysis, chemical data management
  • • Remediation Systems - operations labor, maintenance labor, equipment upgrade/ replacement/repair, spare parts, equipment rental, consumable supplies, utilities
  • • Disposal - w’aste disposal, fees

A common short-hand representation of the factor on the right side of Eq. 9.2 is the term (P/А, i%, n):

Therefore, NPW0&M can also be written as

Because the term (P/А, i%, n) is less than n years, the LCC is a value less than the capital cost plus the O&M cost simply multiplied by n. The LCC when considering NPW0&M then represents how much the payer must invest (in a bond, for example) to ensure that cash for the annual costs is available. If the initial investment increases by the predicted interest rate i, then there should be enough cash available to pay for the remediation project in the long-term, for n years. The next example demonstrates how this calculation is useful when comparing remedial alternatives.

Example 9.2: Comparing the Net Present Worth of Two Remedial Alternatives

Two treatment alternatives are being considered to treat the off-gas from a soil vapor extraction (SVE) system extracting VOCs from the vadose zone at a contaminated site. Calculate the life cycle cost (LCC) of each and state which one is less costly. The system is expected to operate for 15 years, and the predicted interest rate is 6%.

Alternative A

Alternative В

Capital cost

$950,000

$600.000

Annual O&M cost (A)

$200,000

$300,000

SOLUTION:

(a) Calculate the NPW0&M for each alternative:

(b) Calculate the LCC of each alternative:

Alternative A is less costly, even though the capital cost is higher.

Discussion: The LCC values are less than the sum of the capital cost plus O&M cost multiplied by 15 years. This is because less cash is needed to be invested upfront if it will grow at an interest rate of i.
 
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