The Unit Costs of Joint Products in an Integrated Energy Facility
Peter G. Sassone
The so-called integrated energy facility (IEF) holds some promise as a partial solution to current world energy problems. An IEF combines a conventional electric energy producing plant with a set of appropriately chosen industrial plants which can productively utilize the waste steam, hot water, and flue gases which are by-products of electricity production. In effect, the conventional energy plant becomes a producer of multiple energy forms. One of the key decision points in the analysis of the IEF concept is the unit costs of each of the produced energy forms. Ceteris paribus, the IEF must, to be successful, produce these forms at lower unit costs than alternative means.
Because the various energy forms are jointly produced, conventional methods of costing output run into serious difficulties. This paper describes a method for assigning unit costs which is informationally efficient and satisfies three demanding criteria. After developing the costing scheme, we show the approach is consistent with an optimal production level. We then show that the same approach, applied iteratively, can lead production to its optimal level. This approach is an alternative to arbitrary joint cost allocation schemes where the resulting unit costs have little or no significance. Significantly, the results of this new approach are in complete agreement with the results of traditional unit costing approaches when those approaches can be meaningfully applied. Thus, the new approach represents a generalization of unit costing techniques.
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