Techno-economic assessment (TEA) is a method that allows researchers and businesses to understand how profitable a product or process might be and how to increase profitability. TEA is based on information related to how products are engineered and manufactured.
The “techno” aspect of techno-economic assessment refers to fully understanding the energy and material usage for a particular process along with the types of equipment used in the process. Technological advancements may allow products to be created with less energy or material and/or the use of cheaper or more efficient equipment, both of which are ultimately relevant to the business manufacturing the product.
New products may also last longer for consumers or have different properties relative to currently existing products. Therefore, describing the technical performance of the product, both in terms of manufacturing and customer use, is an important part of TEA.
In TEA, conducting an economic assessment is the next step once the technical performance of the product is known. The economic assessment involves finding prices and related data for the following aspects of the manufacturing process (in no particular order):
- Raw materials
- Energy (electricity, fuel, generators, etc.)
- Transportation of raw materials or final products
- Manufacturing equipment and related costs
- Waste disposal
- Infrastructure (factories, utility connections, etc.)
- Contingencies or emergency reserves
Very often, costs are classified as either ongoing, or operating, costs or as upfront, or capital, costs. These may be referred to as OpEx and CapEx respectively. Raw materials and labor costs are operating costs as businesses need to continue to pay these as they continue manufacturing products.
Building and manufacturing equipment costs are capital costs as they are paid upfront by the company to allow them to manufacture products over an extended period. This distinction is relevant as capital costs are often paid using debt, which involves interest payments. Factoring in interest is important as it increases the amount of money that must be paid back to fully repay a debt obligation, which increases a business’ costs.
TEA may also focus on the costs that customers will pay if they purchase the product. This is done using a method called life cycle costing (LCC). LCC describes all of the costs that a user of a product will pay over the lifetime of owning that product.
For example, an LCC of a car owner would look at not only the upfront price of purchasing the car but also the price of fuel, maintenance, and so on. This analysis can help businesses and customers understand how a new product that may be more expensive upfront might actually lead to lifetime savings. It is thus another important part of understanding the economic performance of a product.
The steps for performing a TEA are very similar to the ones for performing a life cycle assessment (LCA). These are listed below.
- Goal and Scope: Describe the purpose of the TEA along with what is actually being analyzed and compared.
- Inventory: Gather data related to material and energy usage in the product system(s) under consideration, along with economic data related to all of the different aspects of the production process.
- Calculation of Indicators: Translate the inventory data into various profitability indicators that are metrics for the economic performance of the product.
- Interpretation: Evaluate the indicators to arrive at conclusions and make recommendations based on the goal of the study.
AssessCCUS offers resources to help people understand what goes into techno-economic assessments and how to conduct them, with a specific focus on carbon capture, utilization, and storage technologies.