NPV of the Ballen-Brundby Plant

Net Present Value

The stream of investment and savings in Cost Comparison is shown as a constant value over time. In an actual cost benefit analysis, costs and benefits over time have to be discounted to the year of analysis.

The Danish Energy Agency insists on the use of a discount rate equal to 6 %.

All prices are set to the 2007 price level (ruling out any effect of inflation) and all future savings from the project are discounted to the base year of 2004 using the recommended rate of 6 %. This results in the following discounted investment stream:

Relative to a scenario with continued use of oil-based heating, the straw-based district heating plant will pay itself off in 2014, in its 10th year of operation:

Assuming a scrap value of 0 and a lifetime of 20 years, the project has a positive NPV of app. 11 million DKK in 2004, after a discount rate of 6 %. Since this has been estimated relative to the a reference scenario of continued use of oil-based furnaces, the CBA strongly speaks in favour of the investment.

A NPV of 0 would indicate that the project was at least as good an investment as the reference scenario.