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Techno-Economic Analysis

One of the most important activities during the development phase of new products or services is the evaluation of their economic feasibility/viability - a process known as "techno-economic analysis" (TEA).

Whilst this is not commonly a feature of early research projects, as one moves a long the innovation path to successful commercialisation, it is increasingly important to be able to justify investment in continued development. TEA also provides insight into areas where further R&D should be focussed to achieve the most significant improvement in the economics - e.g. through the replacement of an expensive raw material, or improvement of the yield in a particular process step.

The analysis looks at the market that the service or product is entering, anticipated selling price and cost of production (input costs). This information is used to predict future cash flows and the likely return on investment. In discounted cash flow (DCF) models, a net present value (NPV) is calculated and this needs to be >0 for a project to be viable, or a internal rate of return will need to meet a particular hurdle to attract a funder's interest. In single year costing (SYC) a break-even product price is calculated and here, for commercial viability your product price needs to be lower than the existing market price. SYC is also known as Fully Absorbed Cost of Production.

Whilst much of this analysis is the domain of Chemical Engineers, it is useful for all researchers who are pursuing commercialisation of research outputs. TEA is also used as one means of valuing Intellectual Property prior to licensing. During TEA several options or alternatives for manufacturing processes and input elements can be compared to identify the one(s) that will yield the highest projected revenues for the facility. Because the process is based on assumptions it is always important to test the impact that changes to these assumptions may have on viability. Sensitivity analysis allows for comparison of the magnitude of the effect of changing process and economic parameters.

RC&I hosted a seminar on Techno-Economic Analysis which was presented by Prof David Walwyn of Reseva. The seminar provided useful background and practical examples that can assist you in conducting your own analysis. Prof Walwyn kindly made the slides and sample spreadsheets available, that were used in the seminar and they can be downloaded from the right-hand panel of this page.