What is Techno-Economic Analysis?

Updated: Oct 5, 2020

Chemistry is a fascinating subject – an endless number of chemical reactions that could lead to new processes and improved products. However, there are a few questions that need to be considered during process development, and these are often put to the side until very late. Is it technically feasible? Is it safe? Will it make money? These are often difficult to answer, especially early in process development, but are critical to the success of the company. Missing their answers is a recipe for disaster. This is where an unbiased techno-economic analysis (TEA) is needed to break through the “gut feeling” and ensure that the hard questions are being asked.

What is a Techno-Economic Analysis?

Techno-Economic Analysis is a set of tools that combine technical and economic models to provide information about the process and financial viability of a product or process. By integrating both major parts of the business, you have a document that clearly represents the macro and microscopic details that inform business development, marketing, technical development, and fundraising strategies.

Part 1: Economics

Financial reviews often come when production concepts have been established and cannot be changed easily, and technical reviews are usually hap hazardously done. However, they should be done soon after the initial concept is developed. The TEA can start at a very high level. The economic part can be a rough idea of the input costs and expected revenue. This forms the initial basis for capital costs (CAPEX) - costs that must be spent to set up the production – and operating costs (OPEX) – those ongoing costs of the process. Many of these early stage numbers would come from similar existing operations. The results will have a lot of uncertainty – this is fine. It is those uncertainties that help focus the next development phase. With a sensitivity analysis done on the key parameters (such as power consumption), the uncertainties that matter most can be tackled first. As the technology evolves, the financial models improve in its accuracy and stays with the project and improves when work is done. So, the technical model provides a “home” for the data. A Techno-Economic Analysis really should be the thing that underlines the reasons for the technology to be created in the first place.

Part 2: Technical

The “techno” part of the TEA is also critical. This looks at the actual processing steps to see if they are technically feasible and safe. Questions might be: How do I get heat into this endothermic reaction? Or can I easily clean up my wastewater? Or will this nanoparticle be easily filtered? These questions may not all be answered, but they will form the basis of work to be done and will help define the unit operations of the process. Later, the TEA can be improved with heat and mass balance models on the technical side integrated with discounted cash flow (DCF) models or net present value (NPV) models. What this means is that by using something as simple as an excel spreadsheet, a business can understand, at a high level, the return on investment from the implementation of any given technology, check the scalability of a technology or, more importantly, make engineering design choices based on economic driving factors.

Why is TEA Essential for Chemical Start-Ups?

Going from a bench-scale technical proof of concept to a production plant is no small feat of technical and business accomplishment. It requires many direct questions to be asked about safety, technical viability, and costing. Besides helping the technical development, the most important benefit of TEAs come from fundraising, TEAs are essential to chem-tech start-ups because they are the most efficient ways to communicate and validate a chemistry-based business to investors, regardless of the investor’s technical knowledge. It translates the most complex molecular interactions into a few key, but manageable, economic drivers and shows clearly the current risk profile of the company. Using these key economic drivers, those with a finance background can create actionable strategies around them and envision the commercial potential for your chemistry. So then how do you do a Techno-Economic Analysis?

Computational Models and Other Tools

As previously mentioned, TEAs are created by integrating different technical and economic models. A review of the process steps is done with an eye to materials handling, kinetics, safety, throughput, energy, etc. to answer if the process is possible as it is laid out. Of course, this means having a block flow diagram (BFD) of the process – a key starting point. With this information, a heat and mass balance model can be prepared – high level at first, but one that can give good guidance on sensitivities.

Often, sources of information are combined - data from academic literature, lab experiments, and industrial references for production information can all be used as inputs to the economic side of your model to produce rates, energy estimates, labour requirements, etc.). These are combined with market data from competitors, consumers, and similar cases to better understand the economic impact of the process. The integrated nature of these models is in considerations of things like initial scale of operation, by-products and waste handling, and purity vs. value.

Data from this modeling work can be collected in MS Excel and is supported by specialized modeling software. At KPM-Accelerate, we use databases like FACT-SAGE (thermodynamics) and Passport (financial) to provide the raw data for technical and economic scenarios. Heat and mass balance modeling software such as Aspen, MetSim, or SysCAD generates key operating data. Using basic python macros and APIs that are available through companies like Moody’s Analytics, the outputs from the technical models can be plugged into Scenario Studio, MS Power BI, or Data Buffet® for economic modeling and data visualization. This suite of tools can elevate and simplify the process of making any techno-economic model.

With almost 20 years of experience at KPM, we have made TEAs a fundamental part of the KPM-Accelerate program to help companies learn about their process and help quantify its potential. To learn more about what we can do with your technical start-up click HERE.

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