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    HistoryEdited Nov 6, 2012 12:30 PM by balbo_luigi…

    TCO and ROI (E001)

    In this lessons we're trying to understand the meaning of TCO and ROI.


    TCO (total cost of operation)

    The total cost of operation is the amount of money that is either gained or loosed at the end of an investment.


    ROI (return of money)
    The return of money is the quantity of time that is required for the investor to gain the same amount of money that was required to invest.

    The following examples show us the practical use of the TCO and the ROI


    -EOLIC ENERGY
    We want to invest on the eolic energy business, so we're buying a eolic turbine with costs 600$, has a 10 years lifetime and generates 500 Watts (0,5 kW).
    • the eolic turbine works for 24 hours every day so 0,5 kW x 24h = 12 kW ; the turbin generates 12kWatts every day.
    • the energy industry can buy our energy for 0,5$/kW, so our daily gain will be of 6$ (12kW x 0,5$ = 6$).
    • the return of money (ROI) will be of 100 days, since the turbine costs 600$ ; 600$ : 6$/day = 100days.
    • the turbine works for 100 days, so 3650 days, we will gain for 3550 days because for the first 100 days we will have to build up the ROI, so 6$ x 3550days = 21'300$.
    • the total cost of operation (TCO) is -21'300$ (the value is negative because we're not talking anymore about a cost but about a gain).
    -PV SOLAR PANELS
    This time we want to invest in the solar panel business, a solar panel costs 600$, has a 25 years life time and generates 200 Watts (0,2 kW).
    • because of the sun's trajectory, the solar panel works for 5 hours every day so 0,2 kW x 5h = 1kW ; the solar panel generates 1kW every day.
    • 1kW x 0,5$ = 0,5$ ; our daily gain will be of 0,5$.
    • 600days : 0,5$ = 1200 days ; the ROI will be of 1200 days (3,2 years), so we will have 21,8 years of gain.
    • 0,5$ x 365days = 182,5 $/year ; 21,8yrs x 182,5$ = 3'978,5 $.
    • TCO will be of -3'978,5 $.
    -SOLAR/THERMAL PANELS
    Our last investment is in the solar/thermal business, a square meter of a thermal panel costs 300$, we will use 2 sq.M so the cost will be of 600$, every sq.M generates 1,5 kW (1,5 x 2sq.M = 3kW) and lasts 30 years.
    • as the PV solar panels, our panel will work 5 hours a day so 3kW x 5h = 15kWatts every day.
    • 15kW x 0,5$ = 7,50$ of gain every day.
    • 600$ : 7,50$/day = 80 days ; the ROI will be of 80 days.
    • 365days x 7,50$ = 2'737,5 $/year ; 2'737,5$ x 30yrs = 82'125$; 82'125$ - 600$ (panel cost) = 81'525 $
    • TCO will be of 81'525 $

    -CONCLUSION

    Determining the TCO and the ROI can help us understand what's the profit of an investment. In fact in this case we can easily notice that the solar/thermal is the most profitable business.







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