Is it safe to Invest on Diesel Generator?

I. Introduction

As years walk pass through us, more and more places around the globe have gained access to telecommunication, modern technology, and to things similar that requires power to be operated. This has clearly made the way of life easier for most people while what everyone doesn’t know is that there are still great factions of the world population that suffers from the lack of energy such as those in remote areas that are off grid. Demands for services, equipment, technology, appliances and research resources in the industry is vastly increasing; as a result, operators and companies are faced with the challenge of powering their goods and services reliably, efficiently, and profitably, while balancing environmental concerns. That is why along with these facts, are the emerging demand of sources of energy; the highly reliable, sufficient and renewable one. This paper will present a study in the investment of one of the few renewable energy sources which is the diesel generator. It will focus mainly on the capital, revenues, rate of return, cash flow profile, sensitivity analysis, and factors that will be affected if the investment is to be adapted after proven that it is a good project to have. Factors like efficiency, reliability, economic development, and public safety. This will then give us a good answer in the growing demand to provide energy in a reliable, efficient and environmentally friendly manner while efficiently addressing growing energy needs from all around the world.

 

II. The Diesel Generator

A diesel generator is a machine that is composed of a diesel engine with an electric generator (often an alternator) to generate electrical energy. Basically, it processes chemical energy and converts it into electrical energy. A diesel compression-ignition engine often is intended to run on fuel oil, however, some types are modified for alternative liquid fuels or natural gas.

Diesel is one of the many options when looking for fuel sourced to run a generator. Diesel generators can withstand heavy loads for long hours and start the power supply on the full load within minutes and must be regularly maintained to ensure they provide quality power throughout their service life. Diesel generators also have limitations which is why it is important to look at the benefits and drawbacks of using it. 

Advantages of a Diesel Generator are the following: 

Diesel is more efficient.

Most generators fuelled by gasoline convert about 30% only of the fuel energy into actual power. A traditional diesel converts about 45%. And advanced diesel can hit about 50%. This is one of the reasons why businesses switch to using diesel as fuel for generators. 

Diesel is more reliable.

Diesel requires minimal maintenance, such that, high-voltage ignition systems are no longer required. This is because the generator’s engine requires fewer components to start, so you won’t have to worry about changing spark plugs or rebuilding carburettors like you would have to with a gas engine. At the same time, a diesel generator can prove very reliable and keep critical power systems running for a long period of time. This will keep downtime to a minimum so that your facility doesn’t experience significant financial losses while you’re waiting for the power to return.

Diesel last longer.

Diesel engine parts are generally stronger than gas engine components, and diesel fuel has superior lubricating properties. As a result, diesel engines tend to last twice as long as gas-powered ones.

Diesel fuel is safer.

With proper maintenance, diesel fuel is environmentally friendly as it has low gas emission especially CO2, 40% lesser compared with gasoline. Diesel engines are “lean-burn”, which means less fuel and more air is used. It’s more difficult to burn and won’t explode like its lighter counterpart.

Diesel Generators can easily accept synthetic fuels.

Non-petroleum-based biofuels will run easily in diesel engines, whereas gas engines need to be significantly modified to accept such alternative fuels.

Diesel Generators handles larger power loads.

Diesel generators are capable of handling larger power loads and will run for longer durations than other types of generators available. This makes them a perfect choice for remote sites where the power grid might be unreliable.

Disadvantages of a Diesel Generator are the following:

Noise: 

This should be a consideration when selecting a generator. Diesel units can be very noisy, so they’re often placed away from work areas. Today, there are also soundproof barriers that business owners can use to reduce the sound in the workplace.

Costs: 

Setting up a diesel generator can cost more on the outset than other generator types. However, since the cost of running and maintaining a diesel generator is very low, you might find it the more economical choice over time compared to a gas-powered one.

Accessibility: 

You should keep in mind that fuel may not be accessible during a blackout. You don’t want to find yourself without a power source, so remember to keep a supply of diesel fuel on-hand at all times to avoid disruption to your operation.

Bulk: 

While extremely sturdy, diesel engines are made from big and heavy components that can make repairs expensive. However, this can often be mitigated by low maintenance requirements and fuel efficiency.

Diesel generators alone provide a number of reasons to be overwhelmed. But better services of diesel generators also rely on the hands of the manufacturing company. To achieve a better output of generators, it should follow proper maintenance. Manufacturers provide a maintenance schedule to ensure maximum service time for the generator and proper operation when it is called upon to provide power. The pros and cons presented are significant, but manufacturing information should also be considered. This will help the company's business venture make a wiser decision.

III. Site Configuration

The selection of the ideal location for any type of generator is critical for several reasons. First, all location selections should focus on meeting local, state, and national regulations to ensure compliance. Then, consider the functionality of the system. A poor location can reduce the efficiency of the system. It can disrupt the workflow of the location or create instances of potential failure or poor performance when the operation needs support. The ideal site for a diesel or natural gas generator is one that streamlines the operations and enhances the functionality of the location.

· Most manufacturers will state that your generator should always be located outside and placed at least five feet from doors, windows, and vents, and flammable material.

· Never place a generator indoors. Your standby generator should be installed outside on a flat, level surface that doesn't flood. Generator exhaust contains carbon monoxide.

· A permanent diesel generator remains stationary. As a result, it tends to require the most accessible of locations. For example, the fuel truck for the generator must be able to access it, which makes placing it close to the roadway beneficial. The area should always be secured and be able to handle any type of unwanted event, such as flooding or spillages. Most will be enclosed by at least a fence for protection and security.

· A concrete pad is generally the most desirable surface to place under it to overcome any type of risk from soils. That pad must be designed to accommodate the weight of the generator. Commonly, the pad itself should extend beyond the footprint of the generator, typically extending one and a half times the size of the generator overall.

Before the site to be approved to place a generator it requires close attention to regulations and requirements from:

1. National Fire Protection Association® (NFPA)

2. Power supply companies

3. Local code authorities

4. Manufacturer note

Other Considerations in location for the Placement of the Diesel Generator are:

1. Noise

Standby generators are typically noisy. By placing one near your site office, meeting room or your Neighbour’s house could become bothersome to your family and Neighbours. Try placing your generator in an isolated location to reduce noise pollution.

2. Weather of the Location

Protecting your generator from the elements is one way to extend its lifetime, but will also play a role in how well you diesel generator functions. For example, if you’re trying to use your generator in the thick of a snowstorm, but snowdrifts obstruct your generator, you may experience low performance. Other obstructions, like vegetation in your yard, can also impact the performance of your generator. If you were place in a particularly windy area, strong gusts of wind can bring exhaust and fumes into our site. Protect your air quality by positioning your generator in a location that blows away from your home. Remember, generator exhaust contains carbon monoxide. So, placing your generator in an area that makes you vulnerable to its fumes can be more than a nuisance, it can be a health issue. It’s also important not to place your generator under casing like an awning, which can trap exhaust and create a build-up of fumes and exhaust.

IV. Cash Flow Profile

In making the identification of the Cash Flow Profile of this particular investment/project, we must gather all possible and thinkable factors and their respective data. The values and data presented will be realistic and are thoroughly researched from various sources to be compared and then the best possible combinations will be selected. Data such as current prices of diesel (may it be per liter or gallon), manufacturing companies cost per set of a 500 kVA diesel generator, possible salary rates for people who will operate and supplement maintenance on the generator, possible parts that are to be profited through salvage and the possible expenses for scheduled and unexpected replacements.

i. Cash Outflows (Expenses)

In a diesel generator set investment on a project, we must consider all possible expenses and our study discovered/realized the following factors as the ones with the necessity for financial considerations and budgeting:

a. Capital Cost

Throughout our search for a diesel generator set sold by manufacturers, we decided to present four designs or sets and later in this study, we will determine which among these will be the one that will be invested in.

a. Operation Cost (Labor/Employees)  

The operation cost of the 500 kVA diesel generator includes the salary of the plant operator, the fuel costs of the generator.

 

Fuel cost

500 kVA diesel generators have an approximate fuel consumption (per hour in liters) of 80.63 L/hr. According to Global Petrol Prices, average price of diesel fuel in the Philippines is Php 34.55/L.

(80.63 L/hr) (Php 34.55/L) = Php 2 785.77.00

if operating hours is 8 hours per day, we have

Php 2 785.77.00 (8) = Php 22 286.13

for one week (5 days per week), we have

Php 22 286.13 (5) = Php 111 430.66

for one month (4 weeks),

Php 111 430.66 (4) = Php 445 722.64

in one year (12 months), this gives

Php 445 722.64 (12) = Php 5 348 671.68

 

Salary of Plant Operator

The average salary for a Plant Operator is Php 13,889.00 per month in the Philippines. Salary estimates are based on 23 salaries submitted anonymously to Indeed by Plant Operator employees, users, and collected from past and present job advertisements on Indeed in the past 36 months. The typical tenure for a Plant Operator is 2-4 years. In one year, the average salary of the plant operator is Php 200 000.00

b. Replacement Cost

The most common parts that typically need to be replaced on a diesel generator according to Duthie Power Services are as follows:

· Oil filter

· Oil

· Fuel Filter

· Coolant

· Belts

· Hoses

· Sparkplugs

i. Cash Inflow (Revenues)

 

The possible revenue of the diesel generator is through the energy that it will generate. The study will theoretically show the approximate real-life values through research on existing and presently applied methods in selling energy to companies. Thus, below are some calculations showing how much the soon to be invested diesel generator will make in a year and throughout its lifespan which is in 15 years.

 

Electricity prices in the Philippines are amongst the highest in Southeast Asia and is considered relatively high compared to global standards, at roughly $0.20/kWh (Php 9.63/kWh), thanks to heavy reliance on imported fossil fuels and uncompetitive market structures.

Average spot price in Php/kWh: Php 1.58/kWh (assumed to be constant)

VA rating: 500 kVA

Power factor: 0.8 pf lagging

Calculations:

(500 kVA) (0.8 pf) = 400 kWh

(400 kWh) (Php 9.63/kWh) = Php 3 852.00

if operating hours is 8 hours per day, we have

Php 3 852.00 (8) = Php 30 816.00

for one week (5 days per week), we have

Php 30 816.00 (5) = Php 154 080.00

for one month (4 weeks),

Php 154 080.00 (4) = Php 616 320.00

in one year (12 months), this gives

Php 616 320.00 (12) = Php 7 395 840.00

Salvage Value

Salvage value is the estimated value that an asset will get upon its sale at the end of its useful life. This value is used in accounting to determine depreciation amounts and to determine deductions. The value can be a guess of the end value or can be determined by an official regulatory entity.

The value is obtained by the following formula:

where:

S = salvage value

P = original price

i = nominal depreciation rate

Y = age in years

Straight Line Depreciation

The straight-line depreciation method, the value of an asset is reduced uniformly over each period until it reaches its salvage value. Straight line depreciation is the most commonly used and straightforward depreciation method for allocating the cost of a capital asset. It is calculated by simply dividing the cost of an asset, less its salvage value, by the useful life of the asset.

According to ATO Depreciation Rates 2020, Generators (incorporating attached engine management and generator monitoring instruments) has effective life of 15 years, depreciation rate of 13.33% and prime cost rate 6.67%