[PDF] HOW TO BUILD A GOOD COST MODEL | AssessCCUS

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1. Page 4

   MODEL HEIRARCHY Sue Babinec, ARPA-e “Tech to Market” presentation “Also known as: capital expenditure, capital cost, investment cost, upfront cost”  Comparing options for producing same thing  Rated output basis  nameplate capacity  Examples:  $/kW  $/MGY (million gallons per year) CAPEX OVER CAPACIT Y: FOR COMMODITIES CAPEX/capacity ($/unit/yr) Installation Equipment Design & Engineering Land CAPEX, ($) units/yr

   In Outbound cost model

2. Page 4

   MODEL HEIRARCHY Sue Babinec, ARPA-e “Tech to Market” presentation “Also known as: operating expenditure, operating cost”  Comparing options for producing same thing  Rated output basis  nameplate capacity  Examples:  $/kW  $/MGY (million gallons per year) CAPEX OVER CAPACIT Y: FOR COMMODITIES CAPEX/capacity ($/unit/yr) Installation Equipment Design & Engineering Land CAPEX, ($) units/yr

   In Outbound cost model

3. Page 4

   MODEL HEIRARCHY Sue Babinec, ARPA-e “Tech to Market” presentation “business costs : interest on loan, taxes, etc. (part of financial model)”  Comparing options for producing same thing  Rated output basis  nameplate capacity  Examples:  $/kW  $/MGY (million gallons per year) CAPEX OVER CAPACIT Y: FOR COMMODITIES CAPEX/capacity ($/unit/yr) Installation Equipment Design & Engineering Land CAPEX, ($) units/yr

   In Outbound cost model

4. Page 5

   PRODUCTION COST MODEL BOTTOM-LINE NUMBERS Installation Equipment Design & Engineering Land Fuel Materials Labor CAPEX, ($) OPEX, ($/yr) OpEx/unit CapEx/yr Unit cost, ($/unit) /equipment lifetime /units/yr /units/yr CapEx/unit Depreciation, ($/yr) + business costs : interest on loan, taxes, etc. (part of financial model) Hypothetical factory, simplified cost structure Also known as: capital expenditure, capital cost, investment cost, upfront cost Also known as: operating expenditure, operating cost “ Comparing options for producing same thing  Rated output basis  nameplate capacity”  Throughput Rate is key  24/7 operation  “capacity factor” = actual/potential output 80-95% for commercial, less for pilot plant  Know your rate limiting step!  Include realistic downtime IMPLICATIONS OF BOTTOM LINE NUMBERS  CapEx is more important than OpEx  Time value of $:  CapEx is now  OpEx is in future and prices less certain  So... Focus on lowering your CapEx first Why factories operate at night

   In Outbound cost model

5. Page 6

    Comparing options for producing same thing  Rated output basis  nameplate capacity  Examples:  $/kW  $/MGY (million gallons per year) CAPEX OVER CAPACIT Y: FOR COMMODITIES CAPEX/capacity ($/unit/yr) Installation Equipment Design & Engineering Land CAPEX, ($) units/yr “ Throughput Rate is key”  To be a tool  Unknowns are variables  Physical system drives results  “What if”  High interdependency of parameters YOUR MODEL CAN BE A TOOL FOR DECISION MAKING  To drive decisions  R&D effort is linked to cost drivers  Sensitivities are known  Actual, target, theoretical values defined  Brutally honest This is a picture from Bad Piggies where you design a go-cart to navigate an obstacle course Design and redesign the cart to achieve target performance

   In Outbound cost model

6. Page 6

    Comparing options for producing same thing  Rated output basis  nameplate capacity  Examples:  $/kW  $/MGY (million gallons per year) CAPEX OVER CAPACIT Y: FOR COMMODITIES CAPEX/capacity ($/unit/yr) Installation Equipment Design & Engineering Land CAPEX, ($) units/yr “ “capacity factor” = actual/potential output”  To be a tool  Unknowns are variables  Physical system drives results  “What if”  High interdependency of parameters YOUR MODEL CAN BE A TOOL FOR DECISION MAKING  To drive decisions  R&D effort is linked to cost drivers  Sensitivities are known  Actual, target, theoretical values defined  Brutally honest This is a picture from Bad Piggies where you design a go-cart to navigate an obstacle course Design and redesign the cart to achieve target performance

   In Outbound cost model

7. Page 11

   Physical (non-cost) Calculations  Clarify what numbers are vs. calculated (color key)  Easy to read : 220,000 vs 224531.692  Show units everywhere  Disaggregate calculations (show intermediate values) to avoid complex formulas, which are hard to follow  Name your variables for easy formula reading  Comments (use them) inputs  Diagrams (make them)  Process flow diagrams  Device diagrams  On separate tabs  Physical system parameters  Capital cost  Operating cost  Summary page: key inputs/outputs, financial assumptions STRUCTURE THE MODEL SO ITS EASY TO FOLLOW Physical (non-cost) OPEX CAPEX Summary “ Quantify cost savings from process scale-up” OPEX sheet Physical calculations sheet (multiple tabs by module) STRUCTURE THE MODEL SO ITS EASY TO FOLLOW Module Parameter Unit Value Assumptions & source info Input Module units/yr $/Unit Total $ Assumptions & source info CAPEX sheet Module Equipment Scaling unit Installed cost multiplier Installed Cost Model Value Basis Value Basis Cost Equipment Cost Cost-driving physical units drawn from calcs sheets (all hypothetical)  L e f t - to - r i g h t r e a d i n g  O P E X , C A P E X s h e et s p u l l n o n - c o st va l u e s f r o m ot h e r s h e et s  A s s u m pt i o n s e a s y to s e e a n d fo l l ow to s o u r c e

   In Economic value propositions

8. Page 13

   OPEX sheet Physical calculations sheet (multiple tabs by module) STRUCTURE THE MODEL SO ITS EASY TO FOLLOW Module Parameter Unit Value Assumptions & source info Input Module units/yr $/Unit Total $ Assumptions & source info CAPEX sheet Module Equipment Scaling unit Installed cost multiplier Installed Cost Model Value Basis Value Basis Cost Equipment Cost Cost-driving physical units drawn from calcs sheets (all hypothetical)  L e f t - to - r i g h t r e a d i n g  O P E X , C A P E X s h e et s p u l l n o n - c o st va l u e s f r o m ot h e r s h e et s  A s s u m pt i o n s e a s y to s e e a n d fo l l ow to s o u r c e “ Total CapEx, OpEx, and $/unit”  Market repor ts  Free data only  Price ≠ Cost  Tip: screenshots!  Google books  Vendor specs  Charts and tables  because you won’t remember your keywords  “How its Made” videos  Seeing process helps parameterize your process & equipment variables TIPS FOR THE LONG SCAVENGER HUNT: WEB

   In Outbound stack total cost of ownership

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